Is Buy-to-let Still Worthwhile?
Buy-to-let investors have reaped the rewards of a rising property market during the last ten years. Soaring house prices and cheap mortgages have been a recipe for buy-to-let success. Investors have been able to borrow money to buy property and cover all their costs from the rental income, thereby meaning that any increase in the value of the property will be pure profit for them as and when they decide to sell.
Now, however, the property market is showing signs of a slowdown, particularly in the North East and the Midlands, and of course, mortgage costs are on the rise. It may signal tough times ahead for buy-to-let investors.
However, they remain bullish and suggest some tactics to continue to make money even if the property boom is over.
One buy-to-let investor owns dozens of former local authority properties in Cardiff. She started out in the ‘80s and now lets out her properties to council and housing association tenants. She knows the market well, but says she is a cautious investor, so looked for properties from which she would get enough rent to cover the mortgage, and not in fancy properties. In particular she looks for high yields (rental return compared to the price), wanting an income and a cushion against potential mortgage rises. Whereas in 2000 she might have hoped for a yield of 20%, she now aims for a more conservative 8%. She also takes a personal interest in her properties and her tenants, so she has a better understanding of what she’s bought and how things are progressing. Expanding this and to help others she has set up a company called Handywoman which provides skilled women to assist with property maintenance jobs.
In order to boost her return on capital investment she looks for properties which need some refurbishment, or might be right for enhancement or an extension. To keep her risks low, she chooses fixed mortgage rates in the main, and she sensibly remortgaged when she saw the increasing trend of mortgages.
Another successful buy-to-let investor in Edinburgh bought his first flat there in 1996, and had several within two years, when he quit his regular job to become a full-time landlord. With more than 100 properties now, he also runs an associated business which helps amateur investors to find properties which are right for buy-to-let opportunities. Between himself and his business he buys about 800 properties a year. He also says that yield is the key, and looks for a minimum of 6%.
He has considered, but doesn’t recommend London, because yields are not high enough, as they have been driven down by soaring prices in the capital. Instead he, too, looks for homes which are run-down in affordable areas. He can add value through refurbishment and lets to young professionals, house-sharers or corporate tenants.
This buy-to-let investor agrees that in the current environment returns are harder to achieve, but capital values are still rising, despite a reported market slowdown. Buyers are wary, but good opportunities still exist.
Published on September 24, 2007
Digg | 
del.icio.us | 
StumbleUpon | 
Reddit | 
Yahoo! | 
My favourites
Latest Mortgage Articles
Darling's Budget Report Highlights
Chancellor Alistair Darling delivers his first Budget Report yesterday. Highlighted in this article are some of the main points... Read More
March 13, 2008
Lending Falls Again Says CML
The amounts borrowed by first-time buyers and home movers continue to drop as the credit crunch takes further grip on the UK mortgage market. Remortgage activity is on the increase as many switch from fixed-rate deals to tracker mortgages in anticipation of further base rate decreases from the Bank of England... Read More
March 12, 2008
Interest Rates Kept At 5.25%
Yesterday, 6th March, the MPC decided to keep the base rate at 5.25 per cent. This decision was to be expected as the Bank focuses on the pressures of rising inflation and a slowing economy. Analysts are predicting another cut to 5 per cent to happen in May unless economic conditions weaken substantially. Whilst some feel the MPC shouldn't wait too long before the next cut, many agree with yesterday's decision... Read More
March 7, 2008
20 Per Cent Of Homeowners Fear Repayments
The UK's financial watchdog, the FSA, published a survey of over 500 mortgage holders which revealed 1 in 5 are worried about being unable to keep up with their mortgage repayments. It is estimated that 1.4 million fixed-rate or discount deals will expire this year raising monthly repayment amounts. Twenty five per cent of those surveyed admitted they had no contingency plans to meet these costs... Read More
March 6, 2008
Mortgage Criteria Becoming More Difficult
Mortgage borrowers are once again being hit with more criteria from lenders as the credit crunch becomes solidified in 2008. Not only have 100% and 125% mortgages been pulled from the shelf, now many lenders require a minimum of 10 per cent deposit in order to qualify for credit. It is now highly recommended to save as much as possible for your deposit and improve your credit history before applying... Read More
March 3, 2008
Refer a Friend
Why not tell a friend about Money Outlet? Click here
