Property ... should I invest?

Discussion in 'Finance, Property, Law' started by k13eod, Oct 3, 2008.

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  1. Ok chaps, looking for some advice. I have an investment bond just about to mature and am getting all the usual correspondance from Abbey International recommending different bonds to re-invest in. But in the current finacial climate I am a little cautious about what to do with the money. I don't need it immediatly but don't want to re-invest in something that may prove high risk.

    So, I got to thinking; what with property prices plummeting and people being turned down for mortgages surely there is an up turn in the leasing market? Would my money be better invested in a small flat which I can then rent (around £6-700 pcm in my area) and boost my pension? My situation is that I am mortgage free and, judging by property prices in the local papers this week, could just about afford a flat without going to the bank for a top up. Would this be a big gamble or are bricks and mortar still a good investment?

    Any help/advice is much appreciated.
  2. Agree,
    Too many buy to lets on the market, Yes there's is a market for it but you'd have to chose very carefully on the property plus many if not all are way over the price mark for what they are actually worth. Do your homework see where you want to buy and look at the average rent price/amount of properites that are being advertised as for let plus take into account letting agents fee etc. Also can you make anything from it landlord has just had to pay for the council to come out and sort out a rat problem had 4 visits in total.
  3. The best bit of advice is ... don't believe anything you're told, and that includes what I write below. Get a calculator, do the sums, look at what could happen as well as current conditions and only go ahead if the numbers make sense.

    First off, national trends don't matter, it's what happens locally that counts. And if you don't have a very good grip on local conditions your risk increases.

    For instance, some parts of the country are awash in flats - loads of new builds popped up in some city centres and were bought on BTL mortgages at stupid prices by idiots stretching themselves and counting on capital growth to pay for them. Cue bursting bubble, they're now worth less than the mortgage is for, payments for same have gone up, they're desperate for renters and so rents are going down in some places. Equally, if you've got a nice flat somewhere people want to live it'll always be full. If. And there's the challenge.

    Personally I'd start looking at small houses and aim at families, arguably the number of them renting will increase the most. But even if the number of renters increases locally, if it's due to redundancies then they might not be able to afford to pay what they're paying now, and housing benefit is a notorious nightmare in terms of slow payment to landlords.

    Oh, and treat it as a business not an investment. Cash flow is king, you need to cover all costs, put money aside to cover voids, repairs, unexpected repairs, any certification (eg gas), problems with tenants, accountants fees, tax bills (*) and only then can you think of profit taking.

    Next thing is to compare returns to what you could get elsewhere. If you end up generating less of a return on your capital than you'd have got sticking it in the bank you're doing it wrong. Look at what-ifs - if you have to wait two months between tenants how much does that drop the return ?

    Next, how far will prices drop ? No point investing now if another 12 months will get you the same for less. If. I don't know the answer to that I'm afraid.

    (*) Increasing number of stories now about the IR targeting the large numbers of recent BTL landlords.
  4. Krugers, under the mattress.

    They're reporting a run on household safes and handguns over here - it'll be like the Year 2000 panic all over again.
  5. Spanish_Dave

    Spanish_Dave LE Good Egg (charities)

    Student lets are a premium income I am told :D
  6. in_the_cheapseats

    in_the_cheapseats LE Moderator

    I wish. It depends how much you have to fork out for the property. In Scotland, to legally let to students costs you a licence fee and a lot of other hassle that is tiresome and expensive.

    I agree with One of the strange - his advice in the first sentence is bang on :D . Do the sums (carefully) and work out if it is possible to turn a penny. My own view is to sit tight and watch for the cheaper buys in the next year to 18 months. The market has a way to fall yet.

    Also make sure you get a new quote (and check feasibility) of getting a buy to let mortgage in the current climate. You may find it more difficult than you think.
  7. I agree with ITC.

    And I think this market has a way to fall yet. The only reason the indices haven't plummeted is that the number of transactions has plummeted.

  8. IIRC recently some changes to methods of payments from the DSS are to be paid to the ‘client’, not directly to the ‘Landlord’ or company, this means rent will not be directly paid in some cases.

    I’m sure others are more knowledgeable on this subject on here, but just what I have heard, something to keep in mind.
  9. Some good advice chaps, thanks. But do bear in mind that it will be a property bought without mortgage so not entirely reliant on immediate or regular cash return ... of course that would be nice! Just looking for something useful to do with the dosh!
  10. I would check the tax position quite carefully. Mortgage interest is an allowable expense.

    If you live in a nice part of the country, why not look at holiday lets; very different tax regime.