Unveiling The Truth About
Buy To Let

Everyone seems to be talking about the wonders of properties to buy and let......

But is it all that it seems?

"The buy to let way" is the magic phrase that most people think of when considering properties to buy and let. They believe that getting involved in the buy-to-let game will set them up financially for a wonderful pension in the future.

Unfortunately, most of those people get an unwanted reality check after it’s far too late.

Before we continue, please review this article now. How investors started to profit from buy to let for investment in the 1990s. I'll wait right here.

Back so soon? Great!

Okay, now let’s see what has been happening in the buy-to-let market in 2007.

In case you haven’t noticed, we’ve experienced a lot this year:

• Huge immigrant inflow from EU countries
• Expansion in the mobile workforce
• The highest divorce rates in Europe
• Fragmenting families
• A shortage of properties
• A growing UK population
• A reduction in the number of council-owned properties.

All of these factors obviously have contributed to the high demand for property, and will continue to do so in the foreseeable future. During this time, we’ve also experienced the lowest interest rates on record in the past 10 years. Finally, an increasing number of lenders who offer buy-to-let mortgages are further fuelling the demand for property.

Is it any wonder that UK property prices doubled between 1998 and 2002?

So, what does all this mean?

Let’s take a quick look at the same examples we used previously to see how the numbers stack up today.

(You did click on the link above to see the examples from the 1990s, didn't you? I certainly hope you did!)

In 2007, the same two-bedroom terraced property in the Middlesex area is on the market for £210,000, with a monthly rent of £800.

Rent per year	£9,600
Less
Mortgage interest (6.5%)	£11,602
Management 12% plus V.A.T	£1,353
Buildings Insurance	£250
Repairs say 5% of rent	£480
Landlord's yearly gas certificate	£70
Void period say one month	£800
Total reductions	£14,555
Total loss	£4,955 per year

As you can see the same property bought now in 2007 has made a loss of £4,955.

In 2007 this three Bedroom flat available in the Brighton area South of England is on the market for £205,000, with a monthly rent of £750

Rent per year	£9,000
Less
Mortgage interest (6.5%)	£11,326
Management 12% plus V.A.T	£1,269
Buildings Insurance	£225
Repairs say 5% of rent	£450
Landlord's yearly gas certificate	£70
Void period say one month	£750
Total reductions	£14,090
Total loss	£5,090 per year

The same property bought now in 2007 has made a total loss of £5,090.

In 2007 a two Bedroom Terrace Property available North of England in Newcastle area is on the market at £60,000, with a monthly rent of £450

Rent per year	£5,400
Less
Mortgage interest (6.5%)	£3,315
Management 12% plus V.A.T	£793
Buildings Insurance	£200
Repairs say 5% of rent	£270
Landlord's yearly gas certificate	£70
Void period say one month	£450
Total reductions	£5,098
Total profit	£302 per year

As you can see from these examples, the numbers do not stack up.

The only place where the numbers do stack up is in the final example in North East of England and Buy to Let in Scotland. Anywhere else in the United Kingdom, you'll be running at a loss.

Remember, buying properties to buy and let is similar to running a business. All businesses have ongoing costs.

Here’s what you need to consider when purchasing properties to buy and let.

You have the following costs of buying a property:

• Valuation fees
• Solicitors’ costs & disbursements
• Land registry
• Mortgage set-up costs (possibly added onto the mortgage)
• Stamp duty

Depending on where you buy, the above costs may be around 2-3% of the purchase price. Of course if you buy in an area where the stamp duty is exempt, the fees will be lower.

You will also have the following ongoing costs when renting property as an investment:

• Property management
• void periods (average of 4 weeks)
• Buy to let House insurance
• Maintenance costs
• Furniture costs
• Service charges
• Buy to Let Mortgages
• Property tax
• Tenant deposit scheme

The location of your investment property is very important. Most people buy property that is near where they live, so that they can keep an eye on it.

When you’re in the buy to let game, you’re in the world of business. As long as the numbers stack up, don’t limit your self to a particular location – you may want to consider investing overseas.

If, after reading all of these tips, you still want to purchase properties to buy and let, then consider areas in northern England and Scotland. Prices there are currently below the national average and yields are around 7-8% but be aware that the market is experiencing huge demand from first-time buyers and investors, so you need to get into this market quickly, or you’ll end up being left behind!

Want to see what it was like in the olden days? Click here and let's take a look at how UK investment property all began.

Check out the calculations used by professional investors and buy to let mortgage lenders to assess the viability of a property investment. Click here….

UK Property Investment Information

Investors often ask me for information about what part of the UK is the best place to invest in property. Check out my recommendation

Return from Buy to Let to Home Page

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