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sammade

What are the issues with low value properties?

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Hi, I'm an accidental landlord having kept hold of a studio apartment I bought years ago and renting it to family (for minimal profit and no hassle). 

 

Last family member has moved out and I had it valued to rent or sell and thought the figures seemed to stack up well as a BTL at £50k with rent of £400 pm. 

I've always been interested in BTL and have the funds to get into it now so I started to look for further properties.

In the same area I can get a 2 bed semi for £125k with £700pm rent. These seem to be very popular with investors. Why? Why not just buy 2 and a half of my studio flats instead? 

 

The standout problem I can see is purchase costs aren't necessarily a percentage of purchase price, for example most mortgages seem to have an arrangement fee of £1k+ regardless of property price. Are there other issues that make low value properties less attractive to investors?

 

I've been told another studio in the block will be up for sale after Christmas and am very tempted to buy that. I'd appreciate any thoughts on this.

 

As a bit more background I have around £100k capital plus  £2k per month for the foreseeable future plus reinvesting any profits. I plan to buy and hold forever (where sensible), will have to be completely hands off and won't need to withdraw profits.

 

Thanks for any help and advice.

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Hi sammade,

Initial thoughts about studios vs 2 bed houses, the purchase price and the returns....

Studios are leasehold, you pay service charge, possibly ground rent, plus costs to extend the lease. They have clauses in the lease on what you can and cannot do.

These expenses will eat into your profits on your returns.

Getting finance on studio flats is tricky, under 30m2 its get very difficult ( not impossible ).

Getting finance on properties under £50k gets tricky anyway.

So getting BTL finance on a studio, under 30m2 and under £50k is very difficult. These factor keeps the purchase price down, but it doesnt effect the rental price as tenants dont care about getting a mortgage usually.

2 bed semi detached houses are easier to finance, easier to understand because they are freehold and most people understand what they are looking at and buying. They generally dont have restrictions on renting or letting out etc etc.

Other factors to consider are market influences, is the demand for 2 bed houses more or less than that of studios, what is the supply like, does the amount of studios match the demand in the area you are looking in. Same for the houses.

There is a whole host of factors to consider.

Note:

Be aware that some lenders do not like you owning multiple flats in the same block. There are many other criteria like how many flats in total there are, how many floors etc etc.

Just because you can buy another in the block, doesnt mean you should.

How this helps

Conrad


Conrad Paton

+44 7957 959851

conradpaton@yahoo.co.uk

https://www.linkedin.com/in/conrad-paton-424446110

 

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@sammade, I agree with conrad comments.

my comments ... location, location, where is it you are considering buying investment property?

as conrad mentioned there are many factors, not just return on investment, cash flow - but also can you do what it is you want to do, can you get a mortgage, the right tenants, even right down to how you are going to manage an income property.

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Thanks very much Conrad, plenty there I hadn't considered.

 

Been thinking about your reply all day and am now unlikely to go with buying another and am in fact wondering how wise it is to leave my £50k tied up in my flat, in my head it's the £15k I bought it for but obviously it isn't.

I do like the area and the studios seem to have very short voids, there are only about 20 in this area which services a business park so they're in demand for professionals moving to the area but only wanting somewhere short term whilst they orient themselves and so I guess sourcing new tenants will be at least an annual cost.

 

Many thanks

 

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4 minutes ago, REinvestor said:

@sammade, I agree with conrad comments.

my comments ... location, location, where is it you are considering buying investment property?

as conrad mentioned there are many factors, not just return on investment, cash flow - but also can you do what it is you want to do, can you get a mortgage, the right tenants, even right down to how you are going to manage an income property.

Thanks for this too, my replies are taking a while to show. 

 

I do think it's a good area to invest in, there's a rapidly expanding business park and the geography limits new housing, I've been watching the rental market for about 2 years and rental properties don't hang around for long.

 

I really do want to go down this route, I have cash just sitting around waiting to be put to use, but can't decide on what property to aim for, and whether to buy within a LTD or not (I drop hours at work to stay at basic tax rate and an about to drop some more).

 

I have been concentrating my thoughts and calculations on the studio but I'll do some more thinking around larger properties. 

 

Cheers for the reply. More food for thought.

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Hi Sammade

You've got some great feedback from Conrad and REinvestor already, just thought I'd add my thoughts on the studio option.

If you purchase the studio, think about what the potential exit strategy is. If it's located in the city centre or you're planning to hold indefinitely, then you might be alright. However, you're still quite limited in terms of who your potential buyers might be if you needed to sell it - e.g. most likely another investor, a single/double-income - no kids, or a recent divorcee. 

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