Rental Question

[desouzi04]

Hi,

Can anyone please help with a few rental questions.

I am looking at buying a BTL for £150K with Rental Income at £650 p/m and additional costs of service chgs at £75 p/m and letting fees (via estate agent) at £95 p/m (11.5% per year).

How can I calculate the yield on the above ? And also is it worth it buying considering the service chgs & letting agents fees which will also need to be deducted from my rental income of £650 before paying the mortgage.

Finally, is an interst only mortgage the way forward ?.

Many thanks

Ian

[MrWoof]

Calculating the yield is straightforward: calculate one year's income from rent, subtract one year's total costs, including mortgage payments, the result is your gross profit. Add six months' mortgage payments to your deposit (ignore solicitor's fees as a one off cost). Now calculate your gross profit as a percentage of this figure. If this is greater than 5% you are getting better than most savings schemes.
A lender will probably want to see at least a 15% deposit and rental income at least 30% greater than mortgage payments. As for interest only mortgages, BTL is a long term investment, the above ignores increases in property values, all my BTLs are interest only and my accountant recommends them. Think about it, 100k now seems a lot but in 25 years? I recently bought a place which was sold 25 years earlier for 17k, if I had to find 17k today to clear a mortgage, it is a bank loan but bear in mind that rents continually go up, its very easy to simply pay the capital off as you increase rents.

[desouzi04]

Thanks that's great.

Ian