One bed flat – first time BTL is it a good investment ?

by Readers Question

13:22 PM, 3rd March 2015
About 4 years ago

One bed flat – first time BTL is it a good investment ?

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One bed flat – first time BTL is it a good investment ?

I am in a need of any suggestions you may have please.
I am looking for a property for investment, mainly for capital growth but at the same time give me the rental that should cover the mortgage expenses. The sums are below:

Price of property: 310000
Deposit: 124000(40%)
Mortgage rates: 2.29 tracker HSBC or 2 year tracker/fix around 2.19 or little less
Rental: 1200/ month
Service charges: 2000 pa
Property type: 1 bed

I did tried using yield calculator but there are couple of things which I wasn’t sure like mortgage rate which is of course not fixed and rental which is again not fixed so can’t get my rental yield to be exact.

I like the property and it’s very near to station and town centre. Properties in same block was sold for 320000 in April 2014 and if I go before then they were sold for 250k in 2012 and earlier.

Any suggestion if I am doing right in buying it. This is our first time in BTL so very much a possibility that I may take wrong decision 🙂 so please give me any suggestions you have based on your past experience and above numbers.

Many thanks

Kapsadvice



Comments

Neil Patterson

13:34 PM, 3rd March 2015
About 4 years ago

Hi Kaps,

Non of us have a crystal ball and advice should always be consider with your attitude towards risk and personal circumstances.

Yield = 4.6% which is average to slightly below

What happens to the interest rate after the initial product period. I personally would factor in a safety margin on the mortgage of 4%

Therefore Gross profit before costs =

Rent £14400pa - £2000 service - £7440 mortgage (interest only)

= £4960

Factor in 20% costs of £2880

Still leaves you some margin approx £2880

Are you looking to buy more property and have you left yourself a big enough cash reserve for a rainy day?

Please also read our guide to become a respected and profitable landlord >> http://www.property118.com/how-to-become-a-respected-profitable-landlord/60765/

And also our property research tool to help you check demographics and potential demand for the property >> http://www.property118.com/property-reseach-tool/

Adrian Jones

14:30 PM, 3rd March 2015
About 4 years ago

When you are doing your sums don't forget to check how long is left on the lease. Lease extensions on a £310k property could be substantial.

Good luck.

Claudio Valentini

15:09 PM, 3rd March 2015
About 4 years ago

Personally I prefer to go freehold. During voids you will still need to pay the service charges, and a one bed flat limits your marketing. I also prefer houses..
Also, have you not looked at a BTL mortgages at 75% LTV? £124K is quite a sum to tie up on a 1 bed leasehold flat IMO.

Peter & Di Cole

15:39 PM, 3rd March 2015
About 4 years ago

Interesting discussion - where in the UK is the property being purchased - in our neck of the woods, we could buy 2 x 3 bedroom houses with that sort of deposit - I'm guessing it's the South East then?

Paul Baker

22:50 PM, 3rd March 2015
About 4 years ago

I agree with Claudio. Although I did start out my portfolio with a 1 bed flat and I do still own it after 22 years, I would not buy a 1 bed flat knowing what I now know.
I would never buy Leasehold again as there can potentially be so many more restrictions and issues put upon you by the Freeholder. Some leases even stipulate you can not sub-let. Some Freeholders will charge you for permission to rent and so on.
Also, as Claudio mentioned, there is usually a plethora of 1 bed flats in the letting space and your likely tenant will either by a single person starting out in life, or a young couple taking their first steps into property. Either way there is a high probability that they will be look to move onwards and upwards in a relatively short space of time so expect a high turnover and a lot of wear and tear.
If you can stretch to more than two or three bedrooms you may attract a family who will view it as their home, settle down for the long term, spend time and take pride in the place.

kaps z

8:42 AM, 4th March 2015
About 4 years ago

Thank you all for your replies. Much appreciated.
I myself was in dilemma that should I be going for 2 bed or 1 bed, and as this is my first property as BTL I didnt wanted things go wrong at first place. Although still dont know if I will be buying more properties or not as this is purely to be used as a long term investment for my daughter. Having said that, atleast in the areas I am looking for there is no 2 bed flat near the stations for anywhere near 300-325. So probably I will keep an eye if anything comes up.

Now a question on leasehold as I can see everyone has mentioned it here, we know all flats generally comes with leases around 100+ years left, is this still a problem ? With no doubt freehold is the first preference but purpose built flats are never with freehold with some exceptions out there in the market like around 999 years lease but very less supply of these flats.

Adrian Jones

9:11 AM, 4th March 2015
About 4 years ago

Reply to the comment left by "kaps z" at "04/03/2015 - 08:42":

Hi Kaps,

Loads of articles and information already on property118.com, just enter lease extensions.

But just to give you an example, my son recently extended his lease on a flat in London and the total cost was pushing £25k.

Neil Patterson

9:37 AM, 4th March 2015
About 4 years ago

Hi Kaps,

If it is your intention for your daughter to live in the property now or in the future it will become a regulated BTL and the options on mortgage providers is then very small.

Claudio Valentini

10:09 AM, 4th March 2015
About 4 years ago

Hi Kaps,
Perhaps you can consider a 75% LTV BTL mortgage. At £124k deposit you are then looking at ~£500k property (less legals and stamp duty).Just a thought...

Claudio Valentini

10:15 AM, 4th March 2015
About 4 years ago

Just another comment, your quoted mortgage rates look very residential!
Don't consider using a resi mortgage for a BTL. I know this is an obvious point, but given your relative newness to the topic, you wouldn't want to start out and be in breach of any mortgage Ts&Cs from the Getgo.
And someone correct me if I'm wrong, but a BTL mortgage rented to an immediate family member is a no-no I think...

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