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.

hayes house

Example

The yield for this investment is 4.6%

Yearly rental x 100 = Yield

Property price

£9,600 x 100 = 4.6%

£210,000

Breakdown of Costs

Rent per year

Less

Mortgage interest (6.5%)

Management 12% plus V.A.T

Buildings Insurance

Repairs say 5% of rent

Landlord's yearly gas certificate

Void period say one month

Total reductions

Total loss



£11,602

£1,353

£250

£480

£70

£800


£4,955 per year

£9,600








£14,555


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



renting property

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

Example

The yield for this investment is 4.3%

Yearly rental x 100 = Yield

Property price

£9,000 x 100 = 4.3%

£210,000

Breakdown of Costs

Rent per year

Less

Mortgage interest (6.5%)

Management 12% plus V.A.T

Buildings Insurance

Repairs say 5% of rent

Landlord's yearly gas certificate

Void period say one month

Total reductions

Total loss



£11,326

£1,269

£225

£450

£70

£750


£5,090 per year

£9,000








£14,090


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

northeast buy to let

Example

The yield for this investment is 9%

Yearly rental x 100 = Yield

Property price

£5,400 x 100 = 9%

£60,000


Breakdown of Costs

Rent per year

Less

Mortgage interest (6.5%)

Management 12% plus V.A.T

Buildings Insurance

Repairs say 5% of rent

Landlord's yearly gas certificate

Void period say one month

Total reductions

Total loss



£3,315

£793

£200

£270

£70

£450


£302 per year

£5,400








£5,098

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.


How to Calculate Buy to Lets

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



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Check if the figures for buying property add up



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