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.

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	£9,600
Less
Mortgage interest (6.5%)	£11,602
Management 12% plus V.A.T	£1,353
Buildings Insurance	£250
Repairs say 5% of rent	£480
Landlord's yearly gas certificate	£70
Void period say one month	£800
Total reductions	£14,555
Total loss	£4,955 per year

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

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	£9,000
Less
Mortgage interest (6.5%)	£11,326
Management 12% plus V.A.T	£1,269
Buildings Insurance	£225
Repairs say 5% of rent	£450
Landlord's yearly gas certificate	£70
Void period say one month	£750
Total reductions	£14,090
Total loss	£5,090 per year

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

Example The yield for this investment is 9% Yearly rental x 100 = Yield Property price £5,400 x 100 = 9% £60,000

Rent per year	£5,400
Less
Mortgage interest (6.5%)	£3,315
Management 12% plus V.A.T	£793
Buildings Insurance	£200
Repairs say 5% of rent	£270
Landlord's yearly gas certificate	£70
Void period say one month	£450
Total reductions	£5,098
Total profit	£302 per year

As you can see from these examples, the numbers do not stack up.