Updating post from Reddit.
Hello everyone! I'm new to Reddit and this community. I'm considering investing in a property around Abbey Wood, Belvedere, Erith, or Slade Green, as I live nearby and would prefer the property to be within a 20-30 minute drive. Rental rates in this area seem to be around £1,500 - £1,700 per month. My plan is to keep this property as a long-term investment. I have a deposit of about £90,000 - £100,000 and have been consulting with my mortgage advisor. Do you think this area would be a good investment, especially since I’ve heard that many landlords are selling their properties? This is my first investment, so I’d really appreciate any insights or advice. Thank you!
How much is the mortgage for?
You need to carefully run the numbers. With today's mortgage rates you probably find rent nearly covers an interest only mortgage so your profit will be when the property is ultimately sold.
In the longer term you are betting on property prices increasing over time but when running the figures you should consider all costs against profits.
Stamp duty and additional 3% stamp duty if this is your second property.
Management fees, insurance, yearly GSC, 5 yearly EICR, void costs between tenancies, matainance and repair costs, EPC upgrades, renovation costs over a long period of ownership etc.
3 when you sell you have to calculate CGT implications currently 24% of gain.
It's difficult times ATM for BTL investors so really consider everything.
Also factor in your lost interest on your initial investment capital. So if your investing 100k over let's say 25 year term then calculate that lost interest amount. Let's say average interest rate of 3%pa then this equates to 75k interest lost over 25 year period.
So let's do the sums:
Let's assume property costs 400k overall and you have 100k to invest.
Sdlt is your first figure. For a second home this is 6% so that takes the cost to 424k. Add on convayencing costs and looking at 426k.
You invest 100k so your mortgage is on 326k at let's say 5% interest only over 25 year period. Mortgage is £16300 per annum.
Your rent is higher value £1900 per month minus management fees of between 7% rent collection only and 15% fully managed. Let's go with lower amount here. So rental is 21k approx. Now you take off income tax and if you already earn 50k with your job then income tax on all rental income will be at 40%. You can claim back lower rate tax relief on mortgage payments I believe. So you take 80% of 21k so 16.8k.
So after mortgage and without maintenance costs you make around £500 a year that profit will obviously be swallowed up by GSC, repairs etc.
So if you left your 100k in the bank at 3% you would have made 3k.
So this shows your totally gambling on property prices rising in the long term to see a profit when you eventually sell.
Could outline these costs too but it's hard to predict the property value increases over a 30 year period from this point.
Thank you for the detailed response. I’m planning to purchase this in my partner’s name, as they qualify as a first-time buyer. From what I’ve seen online, first-time buyer buy-to-let purchases don’t incur stamp duty tax. Both of us have made some investments (such as ISAs) and are considering property as a long-term investment. Based on my research, property values tend to appreciate over time. So far, I’ve only discussed this with my mortgage advisor, but I’ll need to sit down with my accountant to review the numbers in detail.
You're partner can purchase and use her sdlt exemption only if she lives in the property as her primary residence. If she doesn't reside you would need a different type of mortgage a BTL mortgage not an owners mortgage.
Historically property prices would have more than doubled in a 30 year ownership but the rate of increasing property value has now slowed largely due to interest rate increases and personal affordability compared to wage growth. If a property is 11x average wages how much more can it go up without significant movement in wage inflation?
I'd be cautious here because I think their is a definite ceiling on how much property can gain in the future.
I once calculated the yearly profit based on the assumption the house doubled in price over my ownership and I found out that the profit for ownership worked out to be 7k each year I owned the property.
I truly believe this is a terrible time to be a BTL LL and think the figures really don't stackup and also as property prices are already fairly unaffordable to the masses that I can't see them having the type of gains they have in the past moving forward. Personally today I wouldn't take the gamble it's just too high risk for me.
I cant see any attraction in BTL these days.
The current government have made it VERY clear that this is not the end of the war on LLs if anything its the start.
It is a massive massive risk in the current environment, who knows what madness they will introduce next.
Making 6% return on a high risk, high effort investment made sense when interest rates were 0, when you can make 5% from a bank account, BTL is insanity. You are in effect subsidizing your tenant in the hope that you will make a profit when it comes time to sell.
Leverage, yup makes sense, not so sure when your return is barely more than your interest rate.
You may not be able to make 5% from a bank account forever. The dynamics could change several times in the next 10-20 years. Going all in on BTL is silly, but having it in the mix is not imo.
Yeah, if this is OPs first investment I’d definitely avoid and focus on other instruments first. I think BTL is a good way to diversify. But even then, if you’re high or additional rate tax payer, LTD is the thing that makes most sense.
Oh my god seriously, I want to kill myself after reading that, talk about wanting to scare the shit out of you. How the hell did anyone make money out of property for all these years when it is this bad? 😂
Don’t listen to this. If you invest in the right property, and do the sums properly unlike this bloke (or bird) then, you’ll be fine. Obviously someone had a bad experience.
It’s a promising area to invest in, being within London. If you decide to go through with it, using an estate agent isn’t your only option; with homelessness on the rise, companies are increasingly taking on properties for temporary accommodation, meaning you wouldn’t need to manage the property yourself or pay management fees. I personally manage 80 properties in the area for a company, so if you’d like more information, I’m happy to go through it with you.
Spoken like a true agent, it's a terrible investment, he shouldn't do it.
Look at the numbers but just based on what you've said here it sounds like a terrible ROI. Also capital growth in London doesn't look great ATM it seems to have reached a ceiling as it's so unaffordable for average people.
Also the tax will be eye watering stamp duty and income tax especially if you are a higher rate taxpayer.
I would put that money into a pension or ISA, it's no work and almost certainly a better rate of return
Can I ask, why do you need to be within a 30 minute drive?
I also do some handyman tasks myself and would prefer to manage the property personally rather than through an estate agent. This way, I can easily drive down if any issues arise.