Article 019 - The Problem with Buy to Let

The Problem with Buy to Let.

 

In 2013 there are approx. 1.46 million out of 11.26 million buy to let mortgages taken out in Britain.

Source: Council for Mortgage Lenders 2013

 

These may be both first and second mortgages.

 

In the economic property decade since the collapse of the American housing market then the instability of the funders of the same market around the world how effective is buy to let as a means of obtaining and retaining enough money to be economically stable ?

 

Here is an outline calculation

 

Investment calculation

Total property purchase cost                       = £100,000

Expenses in buying the property                 = £2,000

Deposit for the property                               = £25,000

Total deposit + buying costs                        = £27,000

Mortgage                                                       = £75,000

Mortgage and interest rate /month 5%       = £312.50

Total payback required for Mortgage         = £3750 per annum over 20 years

 

Return calculation 1 tenant

Per month rent per tenant                             = £500

Rent less Mortgage cost / month                 = £500 - £312.50

Rent income per month                                = £187.5

Rental income per year                                = £2,250

 

Ongoing costs for landlord

Interest rate per annum on any loans          = 5%

Council tax per year approx                         = £1,200

Services costs Elec, Gas, BT                      = £2,500

Allowable life cost per year                          = £8,300

= £692/month

= £173/week

= £25/day

Total cost per year                                        = £12,000

 

Summary with one tenant

The monthly rent with one tenant is not enough to pay for the mortgage repayments per month.

The monthly rent with one tenant is not enough to pay for the life costs of the landlord per year.

 

How many tenants are required in a single property to achieve financial stability and profit. ?

 

Return calculation 2 tenants

Per month rent per tenant x 3                       = £1000

Rent less Mortgage cost / month                 = £1000 - £312.50

Rent income per month                                = £ 687.5

Rental income per year                                = £ 8,250

 

Summary with two tenants

The monthly rent with two tenants is not enough to pay for the mortgage repayments per month.

The monthly rent with two tenants is not enough to pay for the life costs of the landlord per year.

 

Return calculation 3 tenants

Per month rent per tenant x 3                       = £1500

Rent less Mortgage cost / month                 = £1500 - £312.50

Rent income per month                                = £1187.5

Rental income per year                                = £14,250

 

Summary with three tenants

The monthly rent with three tenants is enough to pay for the mortgage repayments per month.

The monthly rent with three tenants is enough to pay for the life costs of the landlord per year and also achieve a profit.

The profit can then be for expansion or personal use.

If the income as a landlord is declared as a business and taxed then the landlord may also be able to obtain a minimum state pension and supplement it with the profit from the rents.

 

Method to increase money

Don’t become a landlord.

Be a landlord with more than one tenant in the same house.

Add in a months rent as a non-returnable deposit to each tenancy agreement.

Increase the rent per month.

Have a higher turnover of tenants.

Do minimal works to the property.

 

Conclusion

There is no way to make a living as a buy to let landlord with only one tenant.

Each property must have sufficient tenants in it to cover the yearly costs of the investment, interest payments and the yearly living cost of the landlord.

The property also deteriorates during the buy to let stage due to the number of people living in it. This also reduces its value.

If the property is intended to be sold then all of the tenants have to be removed from the property and the property returned to a single family home

This takes away the money earned as a landlord and so even in the long term the investment in the property and the mortgage is not a sure financial one.

Owning and buying to let multiple properties only increases the interest payment issue and the yearly costs to the landlord.

 

Solution.

Change the buy to let to a self build purchase scheme financed by a group investment by all the self builders.

This reduces the deposit amount needed by each individual.

This reduces the mortgage amount needed by each individual.

This allows the self build group to obtain a stronger purchasing power than as individuals for labour and materials.

Demolish redundant properties and allow new self build antonymous development on the land plots.

 

Ian K Whittaker

 

Website:

https://sites.google.com/site/architecturearticles

Email: iankwhittaker@gmail.com

02/08/2013

29/10/2019

14/10/2020

771 words 3 pages