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StevieK

Does This Make Sense?

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OK, first let begin by saying "pardon my ignorance", as I am an American who knows little to nothing about the UK residential real estate market.

But I felt compelled to ask this question. My girlfriend's sister, who lives in London, brags about how she just bought a second home (a condo) somewhere close to the west end of London and is able to get enough money just by renting it out to pay for the mortgage, maintenance, taxes and all associated costs of maintaining the property. Now - mind you - I don't know how much of a downpayment she put down, but I think I can safely assume it was less than 10%.

Is this math possible? She claims that renting is so hot in this particular market, as it is filled with a lot of foreign business people, that the sky-high rents easily cover all her expenses. I honestly don't believe her, but just have to ask if this is possible. If so, I would think the disconnect in the market between rents and housing prices would level off and rents would quickly fall.

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OK, first let begin by saying "pardon my ignorance", as I am an American who knows little to nothing about the UK residential real estate market.

But I felt compelled to ask this question. My girlfriend's sister, who lives in London, brags about how she just bought a second home (a condo) somewhere close to the west end of London and is able to get enough money just by renting it out to pay for the mortgage, maintenance, taxes and all associated costs of maintaining the property. Now - mind you - I don't know how much of a downpayment she put down, but I think I can safely assume it was less than 10%.

Is this math possible? She claims that renting is so hot in this particular market, as it is filled with a lot of foreign business people, that the sky-high rents easily cover all her expenses. I honestly don't believe her, but just have to ask if this is possible. If so, I would think the disconnect in the market between rents and housing prices would level off and rents would quickly fall.

If you give me a postcode and type of property, I'll be interested to search on asking prices for purchase and rents and see if the sums add up.

Billy Shears

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OK, first let begin by saying "pardon my ignorance", as I am an American who knows little to nothing about the UK residential real estate market.

But I felt compelled to ask this question. My girlfriend's sister, who lives in London, brags about how she just bought a second home (a condo) somewhere close to the west end of London and is able to get enough money just by renting it out to pay for the mortgage, maintenance, taxes and all associated costs of maintaining the property. Now - mind you - I don't know how much of a downpayment she put down, but I think I can safely assume it was less than 10%.

Is this math possible? She claims that renting is so hot in this particular market, as it is filled with a lot of foreign business people, that the sky-high rents easily cover all her expenses. I honestly don't believe her, but just have to ask if this is possible. If so, I would think the disconnect in the market between rents and housing prices would level off and rents would quickly fall.

It would be interesting to know where in London. I have not done the nubmers. Friends investing at around the half million mark, and letting among others to foreign corporate visitors, say it would not work now, certainly not on a 10% deposit. It is true that in certain areas, such as St. John's Wood, which seems popular with Japanese visitors, rents asked can be astronomical. Again, maybe someone will reply saying what occupancy levels are like.

Has she let it yet? Or are these numbers based on what Estate Agents suggest she should be able get?

Edited by contrarian

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If she has just bought the property she may not be factoring in the full maintenance costs of owning a property, she may not be considering the periods without a tennant, time between tennants and she may not be aware of the cost of having a bad tennant.

There are companies that gaurentee yields such as 10% for the first ~1-3 years, but overcharge on the property, so the btler doesn't realise they've been ripped off straight away.

Would need the postcode / link to the company she bought off to look at the price of the property and rental yields in the area.

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It would be interesting to know where in London. I have not done the nubmers. Friends investing at around the half million mark, and letting among others to foreign corporate visitors, say it would not work now, certainly not on a 10% deposit. It is true that in certain areas, such as St. John's Wood, which seems popular with Japanese visitors, rents asked can be astronomical. Again, maybe someone will reply saying what occupancy levels are like.

Has she let it yet? Or are these numbers based on what Estate Agents suggest she should be able get?

Looks like a 2 bed flat in Golder's Green can easily be 300pw. Flats look to start at 212K. 300pw as a 7.5% yield would support a price of 208K. At a more typical price for a flat of 250K that's a 6.25% gross return. That's less than I've seen recommended by BTL people. But if the demand in the area was high and voids low, and remained low. Then it might work. Except that it's me saying that it might work and what do I know?

Billy Shears

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One must also consider the opportunity cost of that downpayment. Assuming she made a 20K pound downpayment, that's sizeable money lost against alternative, more liquid investments as the Footsie is up - what - 20% since last June (around the time she bought the place).

Anyway, I don't know the postcode but I will do my best to pry and find out. I might even be able to pinpoint the exact address.

Apparently she is using one of these property management companies that does everything for you as far as letting, maintenance, etc. and then cuts you a check less its fee at the end of each month. I dunno what they charge..I'm guessing 5-10% of the gross rent?

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Apparently she is using one of these property management companies that does everything for you as far as letting, maintenance, etc. and then cuts you a check less its fee at the end of each month. I dunno what they charge..I'm guessing 5-10% of the gross rent?

I think I've heard the figure 15% for full management bandied around.

Billy Shears

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I think I've heard the figure 15% for full management bandied around.

Billy Shears

Wow...sure seems steep, but not surprised. Would be amazed if there were profits left over after that.

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If you look here: http://digitalnation.fileburst.com/arla/ar...port_q12006.pdf

You will find the following yields for 'prime london':

Less than 4% - 16.4%

4% to 5% - 53.6%

6% - 10.0%

7% - 5.5%

8% - 1.8%

9% to 10% - 6.4%

The average yield or most popular yield is between 4-5%. So it is likely that the rent does not cover the mortgage, although not possible.

Edited by Jason

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Would need the postcode / link to the company she bought off to look at the price of the property and rental yields in the area.

Postcode is SW18. I found out that she didn't buy-to-let, rather, she bought this place as a residence and, after living in it for 9 months, decided she would let it out. She still lives there but is moving out next month, at which time she plans to hire a management company to oversee it.

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Postcode is SW18. I found out that she didn't buy-to-let, rather, she bought this place as a residence and, after living in it for 9 months, decided she would let it out. She still lives there but is moving out next month, at which time she plans to hire a management company to oversee it.

Not sure what you mean by a condo, but a two bedroom flat in SW18 seem to start at about 200K. A relatively cheap rent is 1K pcm (thank god I left London). Assuming that she has a tenant paying 1K, then this just about covers the mortgage for a 25 year repayment mortgage @ 5%, which is about what a 25 year fixed can be found for. That would be £1064 per month.

However, not included in the calculation:

Management fees. Maintenance. Buildings insurance. Voids. From calculations I've seen, unless her "condo" has better returns than the 2bed flat, it might cost her a few hundred each month. Except that I'm not an expert and my predictions are suspect. Also she's lost interest she would otherwise earn on her deposit.

Of course holding onto the flat is a gamble. The upside is that house prices might rise. The downside is that they might fall, or interest rates might rise, or the enconomy might falter and finding tenants who can pay the rent might be a problem. If interest rates went up to 8%, then if the flat cost 200K (a conservative price), and she paid a 10% deposit, she'd be paying 1200 a month in interest, and 1400 a month repayment. That might start to hurt.

Basically BTL (or holding onto a property to rent) is a gamble that house prices will rise significantly. If anything else happens, it's a losing ticket.

Billy Shears

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Postcode is SW18. I found out that she didn't buy-to-let, rather, she bought this place as a residence and, after living in it for 9 months, decided she would let it out. She still lives there but is moving out next month, at which time she plans to hire a management company to oversee it.

If she's being a smug *itch, find out who her mortgage provider is and let them know. Also let the inland revenue know.

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^Thanks Billy. Yeah, "condo" is american slang for condominium, a/k/a flat. Are voids taxes?

Voids are periods between tenants where not only is there no rent coming in but the landlord is stuck with paying Council tax and other bills.

Edit: As far as your comment about sky high rents from foreign businessmen are concerned, could you ask how much rent she gets?

Billy Shears

Edited by BillyShears

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If she's being a smug *itch, find out who her mortgage provider is and let them know. Also let the inland revenue know.

Ha...I probably should. And she certainly is a smug bee-otch, so she has it coming to her if I do. What really irks me is that she's a little snot in her late 20s and is not even from the UK, yet she acts like she invented both the city of London and its real estat market. She's totally an upper crust wannabe.

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Ha...I probably should. And she certainly is a smug bee-otch, so she has it coming to her if I do. What really irks me is that she's a little snot in her late 20s and is not even from the UK, yet she acts like she invented both the city of London and its real estat market. She's totally an upper crust wannabe.

Go on!! You know you want too. Why should she be getting out of paying her taxes!!

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either the market is totally opaque, or some of these wannabe property magnates really do talk up their own books and are drooling over the thought of 20% yoy house price appreciation - if that were the case + or - £2000 on rent-expenses shouldnt be a problem - I can't remember hearing someone who bought in the last couple of years turning in decent profits on letting.

For a comparison I live in North London and am moving into a flat for £1560 pcm rent - I'm pretty sure looking at Land registry that a repayment mortgage would cost me £2200. The landlords were have been occupying the flat since 2000 but are emigrating for a couple of years so I think my rent does cover their mortgage and costs - it works well for them as their rent abroad is being paid by their employer.

But this is not a unique case as I have made similar calculations on other flats that I've looked at in the last 4 months. The flats that were charging higher rents vs their value are still on the market apparently, sometimes 4 months later.

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For a comparison I live in North London and am moving into a flat for £1560 pcm rent - I'm pretty sure looking at Land registry that a repayment mortgage would cost me £2200. The landlords were have been occupying the flat since 2000 but are emigrating for a couple of years so I think my rent does cover their mortgage and costs - it works well for them as their rent abroad is being paid by their employer.

But this is not a unique case as I have made similar calculations on other flats that I've looked at in the last 4 months. The flats that were charging higher rents vs their value are still on the market apparently, sometimes 4 months later.

Out of curiousity, why are you paying so much rental for a flat? Are you filthy rich, or are there strong reasons for paying out so much?

Billy Shears

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Out of curiousity, why are you paying so much rental for a flat? Are you filthy rich, or are there strong reasons for paying out so much?

Billy Shears

2 bedroom/ 2 reception flat in the catchment area of a good state school. That's the price.

I don't fancy living above a kebab shop in Tottenham.

I don't want to spend 3 hours a day commuting. Currently its about 20 minutes each way. That's 2 hours extra a day with my family. My wife commutes into town sometimes during school hours sometimes just after I get home. That wouldn't be possible if we lived further out. I also have to entertain clients until late on occasion whch makes it difficult to get home if I live out of town.

I tried commuting from Kent for a year - I hated it.

I value my life today as much if not more than some expectation of better things to come when I retire. So I spend some money on my family today.

Hope that doesn't come across as too pretentious.

Edited by Sisyphus

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2 bedroom/ 2 reception flat in the catchment area of a good state school. That's the price.

I don't fancy living above a kebab shop in Tottenham.

I don't want to spend 3 hours a day commuting. Currently its about 20 minutes each way. That's 2 hours extra a day with my family. My wife commutes into town sometimes during school hours sometimes just after I get home. That wouldn't be possible if we lived further out. I also have to entertain clients until late on occasion whch makes it difficult to get home if I live out of town.

I tried commuting from Kent for a year - I hated it.

I value my life today as much if not more than some expectation of better things to come when I retire. So I spend some money on my family today.

Hope that doesn't come across as too pretentious.

Not pretentious at all. How good is the school? When in London I lived in Harrow, which is a lot cheaper than where you are, and still quite quick to the centre of the city. When I worked for a year in a large building next to Euston station, the name of which escapes me, it took me 30 minutes 'door to desk', and that was including ten minutes walk to the station. I thought that the schools in Harrow were good, but that depends whether you define good as "over average", "top 25%" or "top 5%". I would have thought that 1K pcm would get you your choice of 2 bed flats in Harrow, but assume that you're somewhere more expensive.

Billy Shears

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Not pretentious at all. How good is the school? When in London I lived in Harrow, which is a lot cheaper than where you are, and still quite quick to the centre of the city. When I worked for a year in a large building next to Euston station, the name of which escapes me, it took me 30 minutes 'door to desk', and that was including ten minutes walk to the station. I thought that the schools in Harrow were good, but that depends whether you define good as "over average", "top 25%" or "top 5%". I would have thought that 1K pcm would get you your choice of 2 bed flats in Harrow, but assume that you're somewhere more expensive.

Billy Shears

The school is quite sought after - I think I heard it's in the top 5 (London I think) for number of applicants. I know the catchment area is less than half a mile some years, which is tight for a secondary school.

I could have taken cheaper rents, maybe I should have : c1200 pcm , but they weren't as nice and where we're going we can have family and friends to stay. I've heard Harrow is quite nice - I didn't realise it was that quick into town.

Not doubting you but I remember often being delayed 2 hours for supposed 45 minute journeys to Kent.

I still have the option of buses and taxis late at night where I live.

I find that colleagues who live further out often underestimate commute times or base the time on the best possible journey in the same way that people underestimate the costs on their BTLs - to bring us back to the thread. :)

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The school is quite sought after - I think I heard it's in the top 5 (London I think) for number of applicants. I know the catchment area is less than half a mile some years, which is tight for a secondary school.

OK. If I wanted to get my son into one of the top schools in Leicester, I'd have to pay £900 pcm on a four bed detached house or similar in Oadby, which is where the best schools are here. That would be rather expensive for here and would limit life. Working in education myself my own strategy is to try and aim for "good" (i.e. over average) schools and make sure myself that's he's there or thereabouts. It seems to be working so far.

Apologies if this is going too far off topic.

Billy Shears

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Talking about schools, we applied for 2 within 1 mile (very, very good schools) and one (3rd choice) a 5 minute walk away (a very good school). We were offered our 3rd choice and have been placed on the waiting list for the other 2 (very very good schools) at positions 80 + 88 respectively. :blink::unsure::o

Overall, our strategy paid off. Our nearest school is one of the worst in our area, and we had to choose at least 3 schools. By requesting 2 schools that we never really had a hope in hell of receiving an offer from, we got the school we wanted (3rd choice). I'm a happy bunny because if we had got our nearest school, we would seriously have considered the private route.

Edited by Buffer Bear

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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