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"I am looking for my first BTL investment, having done much cost analysis it seems nearly impossible to find anything that pays for itself let alone makes any money. Even with a Rental Income which covers 125% of mortgage, after subtracting running costs, and I'm including all cost I can think of; Agent fees, service charge, insurances, allowances for "Voids" and mainetenance, etc I come out with a shortfall. Am I missing something ?"

BUY TO LET. DOES IT PAY?

Is there anyone out there that knows the answer?

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"I am looking for my first BTL investment, having done much cost analysis it seems nearly impossible to find anything that pays for itself let alone makes any money. Even with a Rental Income which covers 125% of mortgage, after subtracting running costs, and I'm including all cost I can think of; Agent fees, service charge, insurances, allowances for "Voids" and mainetenance, etc I come out with a shortfall. Am I missing something ?"

BUY TO LET. DOES IT PAY?

Is there anyone out there that knows the answer?

Yes the people currently entering the BTL market are either fools, muppets or morons. A fool and his money is easily parted.

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"I am looking for my first BTL investment, having done much cost analysis it seems nearly impossible to find anything that pays for itself let alone makes any money. Even with a Rental Income which covers 125% of mortgage, after subtracting running costs, and I'm including all cost I can think of; Agent fees, service charge, insurances, allowances for "Voids" and mainetenance, etc I come out with a shortfall. Am I missing something ?"

BUY TO LET. DOES IT PAY?

Is there anyone out there that knows the answer?

The few people I know who are involved in buy-to-let have all been losing money on their 'investment' for some months and indeed are trying to off-load their properties now. They cite significant problems with actually letting properties out too - it is a renter's market and people can afford to shop around. These people all bought in, having seen Sarah Beeney etc on the property porn progs, and thought they could make a killing: turns out one is losing £300ppm on each of her properties. If you never break even, you could still choose to look on it as a long term investment, in the hope that the market will continue upwards and you will find someone to buy from you, providing you with equity; only you can decide whether that is a risk you want to take.

There are many on here who can offer far more sage advice that I, however I suspect you answered your own question: the difference between you and other BTLers is that you have "done much cost analysis" - many just believed the hype and didn't do the sums.

TD

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"I am looking for my first BTL investment, having done much cost analysis it seems nearly impossible to find anything that pays for itself let alone makes any money. Even with a Rental Income which covers 125% of mortgage, after subtracting running costs, and I'm including all cost I can think of; Agent fees, service charge, insurances, allowances for "Voids" and mainetenance, etc I come out with a shortfall. Am I missing something ?"

BUY TO LET. DOES IT PAY?

Is there anyone out there that knows the answer?

I ran some buy-to-let figures into Excel back in 2004 (in London). I could have afforded a small flat in a questionable area, but I wanted to make sure that the rent would cover mortgage interest in case I decided to go abroad. However I tried, I couldn't make it work unless house prices were 20-30% lower. That's when I decided not to buy.

Credit to the ThisIsMoney poster for doing their calculations! I suspect many haven't.

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Guest Winnie

Normally, this post would have brought out all the bull-trolls. Is it me or are they evaporating quite fast? Perhaps this should be taken as our biggest "indicator" of all?! :P

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"I am looking for my first BTL investment, having done much cost analysis it seems nearly impossible to find anything that pays for itself let alone makes any money. Even with a Rental Income which covers 125% of mortgage, after subtracting running costs, and I'm including all cost I can think of; Agent fees, service charge, insurances, allowances for "Voids" and mainetenance, etc I come out with a shortfall. Am I missing something ?"

BUY TO LET. DOES IT PAY?

Is there anyone out there that knows the answer?

Buy to let does pay but you need to be in it for the term. New BTLs today should be thinking about holding on to the property for between two and three thousand years.

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Guest d23
"I am looking for my first BTL investment, having done much cost analysis it seems nearly impossible to find anything that pays for itself let alone makes any money. Even with a Rental Income which covers 125% of mortgage, after subtracting running costs, and I'm including all cost I can think of; Agent fees, service charge, insurances, allowances for "Voids" and mainetenance, etc I come out with a shortfall. Am I missing something ?"

BUY TO LET. DOES IT PAY?

Is there anyone out there that knows the answer?

a lot of speculative vultures have made money over the last few years but imo anyone contemplating entering the BTL market now must have rocks in their head.

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I agree with ‘no’ but have a very boring justification.

I think it depends on future assumptions you make about interest rates, inflation and rent.

The yield on long term government stocks is around 6% p.a. gross, I believe. This is totally risk free and very easy to achieve.

If I bought a property to rent out, I’d want to earn at least 8% p.a., as I’m taking significant risks with capital (and might will be borrowing at more than 6%).

Let’s assume inflation increases at 3% p.a. for rent and management charges

Now we need to find a suitable property to buy. Choosing totally at random, why not spend £165,000 on a flat at Crown Heights, a sh1t development in Basingstoke? £165k is the minimum asking price among many people bailing out of this particular slice of BTL hell. Asking rents start at £750 per month. Let’s say you get £700 unfurnished net of letting agency fees, and have 2 void months each year. Your annual management fees are £1600, giving a net income of £5400 p.a.

Apologies for the maths, it’s summing geometric series, but I’m not going to go into detail.

The value of your future cash flow is discounted at a %age of (1.08/1.03-1)*100=4.854%.

Valuing this in perpetuity and assuming you get rents on average halfway through the year…..

5400*(1+.04854/2)* (1/1.04854+1/1.04854^2+ ……etc)

If my memory hasn’t let me down, this eventually simplifies to….

5400*1.0242/.04854

= £113940

This is how much you need to pay to get the minimum rate of return you think is reasonable, if you agree with my assumptions. I think I’ve been generous to BTLs. The trouble is, these are highly debatable, there is no correct set of figures to use and the outcome is very sensitive to what you assume. But to get to £165k would probably mean you get a lower return than gilts, unless you make bizarre assumptions - so what’s the point?

There are ‘new paradigm’ figures around intended to make BTLs think they are getting a good deal e.g rent/interest = A hundred and something%. It’s abject nonsense.

Hope you don’t regret asking, it’s a good question…..

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Does BTL Pay?

No.

F

Let's try and keep this a little more constructive.

If you buy a BTL and you're subsidising the tenant by £200PCM to cover the mortgage it's not necessarily doomsday news.

If you can afford to do this every month, then at the end of the mortgage period, you've bought a house for £200PCM (plus maintenance, voids etc), let's say £250 per month over 25 years.

This assumes you can afford the 200pcm and that you have a repayment mortgage of course.

I, like a lot of other people, save a great deal more than £200 per month, every month without fail, and I imagine I could go on doing this for 25 years.

Naturally, you'll be fed up if someone else bought a similar house for BTL at another time in the HPI cycle and is currently recieving more than the mortgage costs.

I'm not supporting BTL, but I think it's quite silly to make a one word answer to a very open ended question.

Mr.Mangle

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Let's try and keep this a little more constructive.

If you buy a BTL and you're subsidising the tenant by £200PCM to cover the mortgage it's not necessarily doomsday news.

If you can afford to do this every month, then at the end of the mortgage period, you've bought a house for £200PCM (plus maintenance, voids etc), let's say £250 per month over 25 years.

This assumes you can afford the 200pcm and that you have a repayment mortgage of course.

I, like a lot of other people, save a great deal more than £200 per month, every month without fail, and I imagine I could go on doing this for 25 years.

Naturally, you'll be fed up if someone else bought a similar house for BTL at another time in the HPI cycle and is currently recieving more than the mortgage costs.

I'm not supporting BTL, but I think it's quite silly to make a one word answer to a very open ended question.

Mr.Mangle

If you are subsidisng rent by £200 pm, then in the example above you would be paying £165k-ish for an asset worth £72k.

It's unfortunate (for BTLs) that BTL has descended to this level of misunderstanding.....

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Guest happy?
Let's try and keep this a little more constructive.

If you buy a BTL and you're subsidising the tenant by £200PCM to cover the mortgage it's not necessarily doomsday news.

If you can afford to do this every month, then at the end of the mortgage period, you've bought a house for £200PCM (plus maintenance, voids etc), let's say £250 per month over 25 years.

This assumes you can afford the 200pcm and that you have a repayment mortgage of course.

I, like a lot of other people, save a great deal more than £200 per month, every month without fail, and I imagine I could go on doing this for 25 years.

Naturally, you'll be fed up if someone else bought a similar house for BTL at another time in the HPI cycle and is currently recieving more than the mortgage costs.

I'm not supporting BTL, but I think it's quite silly to make a one word answer to a very open ended question.

Mr.Mangle

Surely the only criteria by which you must judge BTL is the same as any other investment i.e. risk versus return. BTL is mostly a case of eggs and baskets - a high risk which may pay off depending on when you enter the market.

It's my judgement that most who entered after about 2000 will end up either failing completely or struggling to see any return. Comparing subsidising tenants to the tune of £200 per month to saving is false: after a year you have -£2400 and the possibility of a rise in value at some indeterminate date in the future, I have £2400 stuffed in my mattress for fine wine, women and song.

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If you are subsidisng rent by £200 pm, then in the example above you would be paying £165k-ish for an asset worth £72k.

It's unfortunate (for BTLs) that BTL has descended to this level of misunderstanding.....

Actually it's already included in the £114k figure.

It's unfortunate (for somethingfishy) that somethingfishy's understanding...etc

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If you buy a BTL and you're subsidising the tenant by £200PCM to cover the mortgage it's not necessarily doomsday news.

If you can afford to do this every month, then at the end of the mortgage period, you've bought a house for £200PCM (plus maintenance, voids etc), let's say £250 per month over 25 years.

Yes.

If you can find a rent which AFTER COSTS (estimated by professional managers as over 25% of gross income) gives you a shortfall of only £200 on INTEREST + REPAYMENT then you have made only a moderately poor investment.

But there ain't a lot of properties in today's market where the net rent gives you only this shortfall.

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If you are subsidisng rent by £200 pm, then in the example above you would be paying £165k-ish for an asset worth £72k.

It's unfortunate (for BTLs) that BTL has descended to this level of misunderstanding.....

I don't understand your arguement. But nevermind.

I agree that most BTL people don't have a clue about finance, and a lot have personal finances on a knife edge. However, in this example, if you are to buy a house over 25 years, it would be better to have someone else pay for part of it for those 25 years. This is regardless of the value of it or the cost or whether there is HPI or not.

To view a typical example over 25 years you would have:

Rent: £600PCM 25 years = £180'000

Subsidy: £250PCM 25 years = £ 75'000

As I said in my first post in this thread, I am not a fan of UK BTL (just see my other posts for proof), and I don't think it's a smart financial move, but if you have a well paid job, and can afford the subsidy every month, then it might be a sensible thing to do.

If you're a recent entry into BTL, at the peak of a HPI cycle then you're probably stuffed. Particularly if you've MEWed your own home to get the ball rolling.

Mr.Mangle

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Surely the only criteria by which you must judge BTL is the same as any other investment i.e. risk versus return. BTL is mostly a case of eggs and baskets - a high risk which may pay off depending on when you enter the market.

It's my judgement that most who entered after about 2000 will end up either failing completely or struggling to see any return. Comparing subsidising tenants to the tune of £200 per month to saving is false: after a year you have -£2400 and the possibility of a rise in value at some indeterminate date in the future, I have £2400 stuffed in my mattress for fine wine, women and song.

Although the person would be £2400 worse off each year, they would now 'own' 1/25th of the house (give or take).

The price of the property might go up or down in real terms, but after 25 years, you will presumably own it, meaning that you could sell it, or take the entire rental income each month.

You would have purchased a property as a 25% contributor. (give or take)

Anyway, stop picking on me! I only said that using one word answers to a complex question wasn't so clever and gave a reasonable scenario where it might be a good idea. On each post I stated that I was anti-UK BTL so ner-ner.

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I don't understand your arguement. But nevermind.

I agree that most BTL people don't have a clue about finance, and a lot have personal finances on a knife edge. However, in this example, if you are to buy a house over 25 years, it would be better to have someone else pay for part of it for those 25 years. This is regardless of the value of it or the cost or whether there is HPI or not.

To view a typical example over 25 years you would have:

Rent: £600PCM 25 years = £180'000

Subsidy: £250PCM 25 years = £ 75'000

As I said in my first post in this thread, I am not a fan of UK BTL (just see my other posts for proof), and I don't think it's a smart financial move, but if you have a well paid job, and can afford the subsidy every month, then it might be a sensible thing to do.

If you're a recent entry into BTL, at the peak of a HPI cycle then you're probably stuffed. Particularly if you've MEWed your own home to get the ball rolling.

Mr.Mangle

I hope I'm not picking on you, but it's the logic I'm trying to get to grips with. If the cost of owning a property is greater than the return it produces, and you can get more money from saving in a risk-free building society, I don't understand what could be attractive about it.

There seems to be a hypnotic fascination with property regardless of financial consequences of owning. I guess that's why we're here.

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"I am looking for my first BTL investment, having done much cost analysis it seems nearly impossible to find anything that pays for itself let alone makes any money. Even with a Rental Income which covers 125% of mortgage, after subtracting running costs, and I'm including all cost I can think of; Agent fees, service charge, insurances, allowances for "Voids" and mainetenance, etc I come out with a shortfall. Am I missing something ?"

BUY TO LET. DOES IT PAY?

Is there anyone out there that knows the answer?

http://www.rightmove.co.uk/viewdetails-154...=2&tr_t=buy

You can get £400 a month from the DSS from a toilet like this - rented out to immigrants. Around 8% yield.

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Depends on what sort of property you are buying to let.

The vast majority of new build flats have been built for and sold to BTL investors.

This type of property with it's shoddy build quality, pokey sized rooms and high maintenance charges is not the sort of properties most people would want to buy to live in- BTL people aren't bothered about what a place might be like to live in because they don't have to live in it.

I see loads of flats for rent- whole blocks of them in fact- and I can't honestly see anyone wanting to buy one and actually live in it.

Dunno what this means for resale value and future capital gains- suppose it all depends on old BTlers selling to new BTlers.

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Depends on what sort of property you are buying to let.

The vast majority of new build flats have been built for and sold to BTL investors.

This type of property with it's shoddy build quality, pokey sized rooms and high maintenance charges is not the sort of properties most people would want to buy to live in- BTL people aren't bothered about what a place might be like to live in because they don't have to live in it.

I see loads of flats for rent- whole blocks of them in fact- and I can't honestly see anyone wanting to buy one and actually live in it.

Dunno what this means for resale value and future capital gains- suppose it all depends on old BTlers selling to new BTlers.

Exactly right. Most new build 2 bed flats will never be bought by owner occupiers - who on earth would want them either because they are poor quality properties or they are occupied by poor quality renters.

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Somethingfishy, my brain is in knots.

Your maths sounds convincing. But I don't know anything about discounted cash flows and so on.

Where can I find more about these cash flow calculations?

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Guest Yeahbutnocrash

I think it's tough for anyone starting btl from scratch now without much of their own dosh

But I guess anyone with a decent lump sum or existing btler releasing equity could make the sums look a bit more promising

However I did read an article a few months back by one experienced btler who said he would not buy at todays inflated prices

Edited by Yeahbutnocrash

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I hope I'm not picking on you, but it's the logic I'm trying to get to grips with. If the cost of owning a property is greater than the return it produces, and you can get more money from saving in a risk-free building society, I don't understand what could be attractive about it.

The cost isn't greater that the returns, and I don't think you'd get more money in the bank.

The return is the value of the house when sold (x). Your contribution is y. Tenants contribution in z.

y+z = x

Imagine if you had to subsidise the tenant by 50%, you would still get 100% ownership = 100% sale value, after splitting the costs with someone 50/50. In reality it might be more like 70/30 in your favour.

I'm not defending it, but I can see why people do it. As I have repeatedly said, if you have the funds and income to support BTL ups and downs, then it's viable. It's just not profitable for most, especially late comers.

There seems to be a hypnotic fascination with property regardless of financial consequences of owning. I guess that's why we're here.

That was the oringinal question - financial.

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THE DANGERS OF BUY TO LET.

It looks like I've found the answer to my question.....And the following statement seems to state that gains of 15% per year won't go on forever!!!

However, long-term statistics paint a different picture. The average annual increase over the past 30 years is 9%, according to lender Nationwide. And data from Halifax show the average rise since 1930 to be less than 7% a year.

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