How am I doing?

by Readers Question

9:08 AM, 9th January 2014
About 7 years ago

How am I doing?

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How am I doing?

Hi Everyone,

First of all, an introduction. My name is Nathan, I’m 27 years old, originally from the UK but currently living in Brisbane, Australia.

I have always been interested in property and bought my first buy to let investment in 2012 with my Wife. We knew we would be returning to the UK in the next couple of years and wanted to take advantage of current property prices being quite low. We are lucky that our income is quite high in Australia and hard work and being good with money allowed us to save enough for our first purchase. We bought a 2 bedroom apartment that was originally priced £120k as a repossession for 60k. We paid a 25% deposit and took a bug to let mortgage of 45K. The property has been rented out to a close friend (I’m aware this is usually a big “no”, nowhere, this friend is a very reliable,stable and house proud person so we have had no issues.

The mortgage payment is £221 per month on a repayment mortgage and the property carries a £50 per month maintenance charge. I’m doing my friend a favour at £400 PCM rent however I have saved on letting agent fees. I currently make a profit of £179 PCM. How am I doing?

We have just put an offer of £70k on another 2 bedroom apartment, the mortgage will cost £265 repayment and interest or about £130 interest only. I’m inclined to go for interest only after more research for reason I will explain in a moment. The rent will be approximately £475-500 PCM. Maintenance charges yet to be confirmed but estate agent “thinks” £60 PCM. I will also need to factor in letting agent fees.

The reason for me wanting to invest is that I would like to return from Australia with a sizeable deposit for my own home and look to make enough profit each month to cover the mortgage payments on my own home.

My question is, what would you do next in my position? Continue to buy more property? (This is what I feel I should do).

My income in The UK when I move back is unlikely to match what we earn now hence the reason for me wanting to increase my income and putting it in an appreciating asset is the best thing i feel I can do. On an interest only basis I’m hoping that inflation will erode the value of the loan substantially.

Another question is, given the figures above for my second property, what would you say was reasonable for letting fees?

Thank you

Nathan



Comments

Mark Alexander

9:40 AM, 9th January 2014
About 7 years ago

Hi Nathan

Whether you are doing incredibly well, just OK or terrible is very much subjective, i.e. only you can decide.

With regards to your question full property management, it is available for £24.99 + VAT per month from a reputable ARLA member in which the owners of Property118.com own 26% of the share capital - please see >>> http://www.property118.com/full-property-management-from-just-14-99-a-month/34413/

To help answer your main question, please run your deals through our Landlords Calculator which is part of our Property Research Tool. It will help you to calculate the real cashflow on your property investments and also the mortgage interest rate at which your property will break even - see >>> http://www.property118.com/property-search-tool/

Also in the property research tool you can do a far more in depth analysis of the area your property is located including comparable properties for sale/rent and sold, crime statistics, the local MP, doctors and dentists, public transport, schools and even get ratings on the local pubs 🙂

I also provide a Consultancy service, details here >>> http://www.property118.com/consultancy-mark-alexander/61522/
.

Gary Nock

10:07 AM, 9th January 2014
About 7 years ago

Nathan there's a lot of stuff in your post so I will be cheeky and just pick out the bits I feel "qualified" to comment on.

1. Interest only mortgage - yes. Increases cash flow and is fully allowable against UK tax.
2. Maintenance or "service charges". Be careful with these as if you get a freeholder aligned with the managing agent then you will be paying over the odds. £60 a month service charge for a two bed appears cheap. A reasonable SC is around £850 per annum if the development is to be maintained properly. Estate Agents always underestimate these so they can sell the property more easily.

Before you hand your money over ask them:

a) How long has the apartment got left on the lease. Under 70 years these days and some BTL mortgage companies will not offer a loan;
b) Ask to see a copy of the current service charges for this year, and see if it is inclusive of insurance;
c) Ask for a copy of the lease to see if there is any prohibition on letting ( I have been told recently of a whole development where the landlord has implemented this and given the BTL landlords 12 months to sell up);
d) check out the Freeholder and Managing agent on google to see what "horror stories" it throws up on service charges, permissions to let etc.

If you do all this and it comes up okay, then go ahead. Remember when buying property, ask yourself the question "If I buy it today, can I sell it tomorrow and make money? " If the answer is no then reduce your offer or walk away.

I hope this helps.

Gary

Adrian Jones

10:17 AM, 9th January 2014
About 7 years ago

Hi Nathan,

Can I be cheeky and ask what part of the country you are interested in. £475-£500 on a £70k property sounds a great return.

Good luck.

Mark Alexander

10:28 AM, 9th January 2014
About 7 years ago

Hi Nathan

With regards to interest only vs repayment mortgages, please see this article >>> http://www.property118.com/interest-only-vs-repayment-mortgages/

Also heed Gary's advice which is very good 🙂
.

Don Holmes

13:51 PM, 9th January 2014
About 7 years ago

All good advise of course, But the question you need to answer other than just assisting your UK mortgage, is how do I get out? Too many people are exited by the prospect of becoming a "Landlord" and dont realize it is easy to get in, even in the current economic climate, but maybe not so easy to get out when the time comes.
Buying with your exit strategy in mind is vital.
And also it would seem from your comments that you are buying for income, so this could challenge the exit plan, as to generate better income you could be encouraged to buy at the lower end of the market, which is fine, but also always bear in mind The cheaper the property, the cheaper the tenants, the cheaper the return! If you are Northwest area on your return which is likely given the prices you are paying and return, I am based Merseyside if we can help http://www.godirectlettings,com Good Luck. O" final question Why you coming back here??????

Sue P

13:56 PM, 9th January 2014
About 7 years ago

Reply to the comment left by "Don Holmes" at "09/01/2014 - 13:51":

you have a , rather than a . in your link

Nathan 1986

22:30 PM, 9th January 2014
About 7 years ago

Thank you for your responses so far,

Thank you Mark, I will look into the property management link at £24.99 per month.

I think I am going to go down the interest only path with this one as I feel that this best suits what I'm trying to achieve at the moment. Maybe I will reassess this in 10 years time when rental cost rise and creates a bigger profit, I guess it's possible I may be able to switch to a repayment mortgage and maintain close to the profit I would make initially.

A vehicle to repay the additional capital I borrow that I have been thinking about is for every two properties of similar value I purchase I could sell one and repay the loan and use the capital gain to pay the mortgage off on the second.

I'm based in the northwest ( when not in Australia of course!).

We have been in Australia almost four years and almost eligible for citizenship which in turn allows me to become a dual citizen and have an Australian passport. I refuse to move home before we get this as I want my children to have the option to live in such a fantastic place when they grow up! (We must have them first of course). The reason we plan to come back is simply home is home. We never planned to go for good and wanted to experience something different while we are young. The last six months I've had a nan and grandad pass away and my younger brother was diagnosed with cancer. Things like this really do highlight the distance between the UK and Australia. We also have a close family and want our children to know their grandparents and vice versa.

At the moment I work full time as a mechanic but my passion and interest lies in property and property finance. I would like to do something in the industry when I return to the UK and I'm currently looking at different areas and opportunities that I can make a comfortable income from. Anybody have any suggestions?

Thanks

Nathan


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