Are you a budding landlord looking to buy a rental property? Want to know what initial investment you’ll need? Read on to find out…
Property
Property prices vary wildly depending on the type of home you’re after and where it is. We’ll be basing figures on the property type most popular with both our landlords and tenants: a three-bed house. In our area, this is around £350,000.
Deposit
A buy-to-let mortgage typically requires a higher minimum deposit than a residential mortgage, usually 25%. On £350,000, 25% is £87,500.
Mortgage
Although you need more money upfront for a buy-to-let mortgage, rates are often more favourable, especially on an interest-only product. Right now, rates for an interest-only buy-to-let mortgage are between 3% and 5%, averaging around 4%. Monthly repayments on a 75% LTV at 4% are about £800.
Rent
Rent for a three-bed house in our area is around £1,500pcm, giving you £700 profit per month after mortgage repayments. This is a nearly 10% return, compared to a c.5% gross yield (as an investor, focus on the cash you’ve put in, not the yield on the price of the property).
Stamp duty
New rates mean an additional property at £350,000 will incur £25,000 in stamp duty.
Conveyancing
For a property purchase, conveyancer/solicitor fees are £1,200 on average. This includes local authority searches, Land Registry fees, and various other aspects during the process.
Surveys
The company we recommend at Orchards charges £450 for a standard homebuyers survey. Mortgage surveys are likely to be included with your product.
Cleaning
A pre-tenancy clean costs c.£250. The property may need a lick of paint as well.
Total out: £114,400
Total in: £8,400pa, plus equity and all-important capital appreciation
As ever, property investment is a solid prospect if you’re looking to make long-term profit.
In our next instalment, we break down the cost to rent a property out. Watch this space…
