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Thinking about having another dabble in the property rental arena, as banks aren’t giving much return on savings. Looking at some marina apartments built early 2000’s. Came across one which is tenanted. Figures add up to a 6% net yield at the current asking price, circa £85k. Buildings insurance, cleaning of communal areas etc factored in, along with letting agency fees to manage all aspects. This doesn’t include communal/buildings maintenance/repairs.

The property in a bit of a deprived area, think Medway and the marina on a smaller scale. There is rental demand so that shouldn’t be too difficult.

The issue for me is the capital investment, the property originally sold for circa £120k when new, having now dropped almost a third in value. This is over 14 years with a few peaks but not anywhere near the original purchase price.

I’m thinking go in low to try and mitigate any further drop, given the current climate. Then think about the whole picture, rental plus -/+ equity and after 5 years hopefully we’d have made a bit. Best case scenario, investment in the area, which is happening slowly, plus no coronavirus equals equity increase.

Lower risk rentals would mean university towns, cities, tourist hotspots etc, though property cost is considerably higher. This property/area sort of appeals to me because of low outlay, modern building, nice setting and potential for equity growth.

Trying to avoid man maths and be objective, so any thoughts?

I thought the big profits had gone from the buy-to-let market? Mortgages more expensive, no tax breaks etc?

My brother-in-law bought a place in Nottingham last year - he's only just got the sitting tenant out (wasn't paying his rent) and finished the building work after the #£&#& trashed the place.

The problem with low-rent areas is you might get scum as tenants who pay the first month's rent and then stop - takes months to get them out through the courts, as my BIL found out...

So risk (I guess it’s a high risk given the drop in value recently) an £85k investment (plus legal fees and a nightmare to get sell off if needed) to get £5k back a year if your lucky

Or, take £5000 a year from your capital of £85k for the next 17 years

A couple of reality checks I guess, dealing with bottom feeders and is it really worth it?

I understand the tax relief side has hit landlords, particularly those with buy to let mortgages, though you can still make it work without borrowing, hence the reason for looking at lower cost properties.

Realistically I would hope for some gain in equity on top of the rental, I can’t see how they could go much lower?? An offer around 70k maybe where it’s at for me.

What would you do Tony? Your first or second option?

Hi Mike
I’ve got a buy to let property that is by a station near Orpington,
So far, touch wood
I've had 3 good families/Tennants since owning the property.
I got the property for a good price, paper Money it’s gone up £100k since I bought it. But I’m in it for the long term (Pension). A agent is key, to do all the checks, I only pay 8% as they only collect the money, hold deposit, and also ive got the backing of them if things were to go wrong. Wished I’d done it sooner, if I could.
All the best Mike

Kegco wrote:Hi Mike
I’ve got a buy to let property that is by a station near Orpington,
So far, touch wood
I've had 3 good families/Tennants since owning the property.
I got the property for a good price, paper Money it’s gone up £100k since I bought it. But I’m in it for the long term (Pension). A agent is key, to do all the checks, I only pay 8% as they only collect the money, hold deposit, and also ive got the backing of them if things were to go wrong. Wished I’d done it sooner, if I could.
All the best Mike

Thanks Kev, pleased it’s working for you. We’ve an agent to cover everything at 10%. Might be able to negotiate as every little bit counts. It’s a toss up between buying less holiday let’s in a tourist hotspot or more long term cheaper rentals as described. Looking at the medium term. 5-10 years.

The other half isn’t sure about me coping with holiday letting as I’ll turn the guests over every time a towel goes missing lol.

off the top of my head;
i'd be wary of flats which form part of a managed property as potentially many things out of owners direct control ( unless it comes with joint share of freehold ).
In theory little to go wrong inside a flat - save white goods/boiler, but potentially things that do go wrong need sorting fast - which isn't always the cheapest repair/replace option.

Logic says that there's only 1 way that 'value' will go, which is upwards over time, but need to check CGains position and how/what you can mitigate to see whether the appreciation in value is 'worth the effort'.

I don't know the exact numbers, but when AJ was at Uni, there was a company that had a business model which was; buy & convert old office buildings in Uni towns to upmarket accomm. The units were sold to private investors with a guaranteed return - bearing in mind this is a few years ago I can't recall the detail - but i have a feeling it was similar 6-7%? and basically the whole thing was managed by them. If those are the sort of figures, would be tempted to look at something along those lines.

as for potential growth in that particular one you've seen.....i guess all you can do is to research the rest of the area, compare what else is out there/has sold over past 12mths, and then take a realistic stab at what 'might' happen in the next 5-6yrs. Obvs some areas could be ripe for faster growth, others may grow slowly...

im selling a flat in Driffield east yorkshire. 65k and rental you will get 4800 per annum.

Has a long term tenant in situ. decent return and managed by Reeds rains in that area. in the past 10 years ive not once been to the flat and its all managed remotely, with rental protection and maintenance covered.

https://www.rightmove.co.uk/property-for-sale/property-69067839.html

We have six properties that we let and have for some time. Steer clear of a flat in a block as the annual maintenance charge will mean you only get generally 11 months rent and can be liable for very big bills such as repairs to the communial roof that cannt be passed on. We also make sure our properties are well decorated with good carpets and 'up market' compared to others in the area. This gets a better type of tenant.

Even with all that, we have had some rogue tenants - one trashed the place and never paid us a thing - local Council reference was perfect too(!). Another stopped paying and it took nearly six months to get him out. We have just had to re-decorate a flat that had been completely re-furbished (except for kitchen) only eight years ago Whilst we (I) completely replaced the kitchen units this time, it will take us a year plus to get back the cost.

Our properties are in 'better' areas as that also means we get better tenants (usually).

Always use an independant agent as the buck stops with the owner. They choose the tenants for you as well and that has benefits. We have had problems with the chains with the last one saying that the tenant had a right to live their lifestyle their way and despie the way they treated / left the property, we could not keep back all the deposit. Tha same agent thought it fine when a tenant painted the room badley without permission and painted around a lounge cabinet only spotted when she left!

Best yield is for a one bedroom property. More bedrooms cost more but rent is not a lot more. Find one bed houses or maisonettes.

Do you homework and make sure you have a spreadsheet showing all the costs vs the income. Empty properties now mean you have to pay the Council tax so between tenants can cost quite a bit.

HTH.

Thanks Mark.. that’s the bit I’m struggling with. Logic says they should go up but historically they have gone down. Can’t see how much lower they can go. Then they must go up at some point. Is it worth the punt though.

Richard appreciate the post really helpful a lot to think about. Nicer areas better tenants as a rule of thumb, dearer properties I guess.

Lee, nice flat, wrong area for me, sounds like you have had a good run with the tenant.