Buy to Rent

SallyT

Member
57 1
Hope you don'y mind me posting this new thread but you guys seem so knowledgeable about so many things, I thought I would ask anyway!

I've recently received details about buying new houses for rent, that's with no deposits down and a cash-back of around 10%.
You know what they say, if it sounds to good to be true, it usually is. But I can't see the catch, apart from having an empty property for a few months and interest rates going through the roof!
I've worked out that interest rate would have to be over 7% to exceed rental income, even at commercial rates, to cover mortgage repayments. I think that will take a few years yet to get there and in the mean time there will be some capital appreciation, irrespective of what's happening in housing market.

I just wondered if anyone out there had seen anything similar, or got involved, what's the general opinion?
Sally.
 

mully

Established member
967 3
You have to understand the term" VOID"
In London there is a potential surplus of rental property and in my part of town rental values are down 25%. So all calculations about returns have to take into account the strong possibility of a void period.

Type of building is very important. If you are buying into a block, are there other potential flats to let. What price did their owner buy (Can they afford to undercut you in offering their flat etc...)

They may be opportunities in other parts of the country.

But remember Buy-to-Let has been around for sometime now and the juicy returns have gone. You have to be properly financed (I know as my wife owns a property company which also rents out properties.
Like trading it is a full time job, with lots of callouts for silly problems (tenants are much more demanding/knowledgeable these days). If you treat it as a hobby-remember most hobbies cost you money!
Think seriously about it before committing. Can you secure cheap fixed finance for a significant period, so at least you will know you costs, can you turn up at any time of the day or night to answer a leal pipe, noise problems, wasp nests... I could go on (we have experienced them all.) Obviously you could an agent to manage your property but that will cost you an additional 5% on top of the agents 10% fee to find a tenant.
Rising interest rates, as you quite rightly point out, are not the most helpful back drop.
 

mully

Established member
967 3
On re-reading your post you talk of no deposit, which means a 100% mortgage. Madness.
In London rental yields are down towards 3.5% in places. If you are looking at long term capital appreciation, I would stress the long term.

In trading terms, it is like buying the stockmarket, fully leveraged, on an expensive rating. There is a small chance you will make money, but the probabilities are all against you. It will, also, do nothing for your emotions.
 

RogerM

Established member
752 6
SallyT - what do they mean by "cash-back of 10%"? Is that the rental yield? I very much doubt it in this market, and if it is, it will be dealing with the very bottom of the market. Or do they mean that they rebate 10% of the purchase price back to you after completion? If so, then it's already built into the price and is just a device to be able to get you to be able to raise a 100% mortgage at the outset. As Mully has said - look at it very carefully. I have sold my rental property in favour of trading - far greater liquidity! I also got fed up with tenants locking themselves out, assuming that the vacuum cleaner had a self emptying bag and calling me out when it stopped working. Disputes between tenants over who cleans the bath and loo - so no one does! Complaints from neighbours about noise, rubbish, language, smells. New carpets being a "write-off" after 12 months. Then there are voids in the occupancy, and even worse, tenants who don't pay at all so you have to get a court order to get them out which takes months! Sometimes it actually pays you to pay them to leave rather than wait to get a court order.

Never again!
 

mully

Established member
967 3
We run a number of rentals so renting is a profitable proposition still. We, therefore have diversification, (voids if they occur are only a small impact on overall rental income) and we have very little debt. This means that, if we have too, we can undercut to get a rental.
I just think it is the wrong time of the cycle, especially if you are anticipating 100% borrowings.
 

RogerM

Established member
752 6
Mully - I agree that now is not the time to get in. Presumably you are profitable because your current properties were bought at well below current values, and with low borrowings rental voids are of little consequence. Buying property is like buying anything else. The time to buy is when no one wants it - like back in 1992/93 - not when everyone wants to own 2 or more houses, because when these people sell they have no need to buy a replacement. Another contrary sign is the plethora of TV programs about property development. Everyone who wants to do this is now doing it!
 

mully

Established member
967 3
Couldn't agree more Roger. We are being outbid at property auctions on develepment properties by neewbies who clearly have a different "funding" approach than us. Either they have not budgeted for cost overruns on repair/development work, haven't taken into account planning restrictions on eventual resale values or they are not pricing in their own labour, or they are working on extremely thin/non-existent margins.

But then we have only been into property development/rentals for the last 15 years.
 

eminem

Active member
185 1
I have received information which sounds similar to what you have referred to Sally and I went to a free seminar which was a means of selling their course on how to get into the buy-to-rent market. I learnt enough from the free seminar not to want to go on their course (which started off at £12,000 for a week and ended up at £2,000 and "bring a friend for free if you sign up today" :rolleyes: )

There is money to be made in that market but as with most things timing into the market is crucial and now might not be the best time with the BOE putting up interest rates and hinting at more to come and like others have said the whole world and his dog are on the "property development" bandwagon - if you can see a bandwagon its too late. The time to get in this market is when all the empty rental properties are on the market coz they can't let them out. OK you have to be brave at that point but its those that enter then that make the real money.

PM me if you want any other info I gleaned from the seminar.
 

mully

Established member
967 3
These propositions sound just like all the dot.com madness that occured before the March 2000 top. I would check out the credentials of these promoters. Odds are, that they have not actually invested in the buy to let market themselves. So what is their expertise they are passing on. Me thinks it is fleecing innocent victims!!!!
 

darrenf

Well-known member
481 3
The time to buy is when no one wants it - like back in 1992/93 - not when everyone wants to own 2 or more houses

It's like the anecdote that says that the time to sell a stock is when cab drivers start giving you buy recommendations.

ie it only happens when everyone who wants to buy already has and the market only has one way to turn.
 

SallyT

Member
57 1
Thanks Mully, Roger Et-Al.

I get your message loud & clear, well made.

The company concerned is not suggesting old clapped out properties, they only suggest buying quality new build. It looks as though the builders inflate their price with a promissory to rebate the purchaser about 10% to 15% on completion, using the rebate to fund the initial deposit. Not sure who's fiddling who here, anyway it's considered to be tax free.

The things that some people get up to! If I can find out more, I'll post it.

On another note,

Anyone ever been involved with debt management? Apparently these are a well known Bank debts taken over by a debt management company. Returns look good (far too good) invest £15K and receive £2.5K per month over the next 12 months!

Any comments please.
 

Trader333

Moderator
8,655 981
The biggest risk to anyone entering this game is if you are over geared. I rent out property and my gearing is such that I could take a 70% rent cut and still make a good profit.

If interest rates rise too much then all at once there will be a lot of Buy to Let properties geared at 100% suddenly coming on the market which in turn will force prices down. This could result in some properties falling below their mortgaged value which would be disastrous for anyone caught in this trap.

However, this may not happen but it is a market like any other and markets can and do reverse.


Paul
 

hjk

Junior member
44 0
Hi folks

SallyT said:
Anyone ever been involved with debt management? Apparently these are a well known Bank debts taken over by a debt management company. Returns look good (far too good) invest £15K and receive £2.5K per month over the next 12 months!

Any comments please.


That must surely go in the "Not to be Touched with your Neighbour's Barge Pole" category.
Better than 100% return after 1 year? :eek:
Banks happily take in money at 1% and lend it out at 5% (on a mortgage). No way are they going to pay out 100%+
There are no magical, mysterious 'financial instruments' that are only privvy to big banks/institutions.

Just my tuppence worth.....

p.s. isn't this thread in the wrong place?.........[update] ah, it's been magically moved now!
 
Last edited:

madasafish

Well-known member
470 5
"Apparently these are a well known Bank debts taken over by a debt management company. Returns look good (far too good) invest £15K and receive £2.5K per month over the next 12 months"


Sounds like the letter I received from an awfully nice Nigerian businessman who had $25 million (or was it $50 million?) he needed to get out of Nigeria. No-one knew he had it but he wanted my help to get it out and I would get $5 million.. .Just a small matter of £25,000 for his expenses and my bank account details.

It would appear not much changes.. the words differ but the scams remain the same... well there IS a sucker born every minute:)
 

ChartMan

Legendary member
5,580 46
Interest rates are set to go to 5.5% in a year/18 months.With a 100% mortgage and the risk of a void AND the glut of rentals, it has to be a bad move, unless it's a 10 year + plan with adequate funds to bridge the voids. Plus isn't the concensus of opinion that the housing market has ( nearly) peaked?
 
 
AdBlock Detected

We get it, advertisements are annoying!

But it's thanks to our sponsors that access to Trade2Win remains free for all. By viewing our ads you help us pay our bills, so please support the site and disable your AdBlocker.

I've Disabled AdBlock