My Rental Property – Part I

Thanks to theFIREstarter who suggested that I do a post or two about how I got into buying my rental property  – please note that this is just an account of what I did (as a complete novice) and that there are no doubt other/better/cheaper ways of doing what I did!  All the advice/info I got, I got from the internet and the  local library – I did not seek out professional advice.
Why BTL?

As very briefly described somewhere here, following my split with the ex, I moved into the empty family home and the house that I shared with the ex was sold, with the funds split 50/50. My share was around £43k. The first thing I did was use £4k to finally clear the last of my credit card debts. The second thing I did was to transfer the rest into a high interest savings account. 
My parents suggested that I live in the family home on a permanent basis if I wished, paying them a ‘nominal rent’ and for the upkeep and repairs on their house. I agreed, and so, my funds sat untouched in my account for nearly a year.

It was in April 2011, during my annual trip to Hong Kong that my mum suggested that I buy a property to rent out and I said I’d look into it. At the time, I don’t think I was actually being serious about it, I was just agreeing to stop her nagging!
Research

Anyway, when I returned home after my holiday, I did some research and homework on letting properties as I knew absolutely nothing about the renting business, apart from renting digs myself as a student and all I recalled was that my landlord was rather dodgy and elusive!
I borrowed some books from the library on the subject and spent a lot of time online, reading everything I could find. I even joined a ‘landlord’ forum to get a feel of the kind of issues they faced, asking a few questions myself, which were answered by experienced landlords. There were some real horror stories on the forum about nightmare tenants, evictions etc but I continued with my research, reading up on costs, looking through sites like Zoopla and Rightmove to see what the going rate was for rent in the areas I was interested in, the perils of void periods (ie when there are no tenants in the property), non-payment of rent, obligations of the landlord etc. There was a lot to read!

From my research, I found that there were lots of things to consider for BTL, some of which I list here:

  • Location – is the property in an area with a good rental market, is it close to amenities and convenient for public transport?
  • Property type – house or apartment/flat? The latter will generally require the payment of management fees for the upkeep of the apartment block/facilities.
  • Target tenant –  who do you want to rent out to? Young professionals? Students? People on benefits? Families?
  • Rental yield – rental yield is the annual rent received as a percentage of the purchase price of the property, eg, a property bringing in £10k worth of rent that costs £200k has a 5% yield, a useful guide to compare different properties and their potential as BTLs. Usually, the higher the yield, the better the opportunity but all other factors need to be considered.
  • Landlord duties – be a hands-on landlord, seeking out tenants, dealing with and sorting out tenancy issues, be on call should boiler etc need repairing, or employ a letting agent to handle all the hassle but at a cost?
  • Size of the mortgage – how big/small, what is affordable?
  • Tax implications – rental income is taxable, but can be offset by mortgage interest etc. Self-assessment is required

After nearly a month of research, I’d made up my mind that I was going into Buy To Let! A big decision, as I was doing this all on my own – it was very scary yet very exciting!

So, what was I looking for?

1. A one bedroom apartment, close to Manchester city centre.
2. My budget was £65k (to any Southern folks reading this, this is still pretty much average price for a good but basic one or even two bed apartment in many areas of Manchester).
3. The purchase would be made using my funds and a small mortgage.
4. Target tenants – young professionals

After ringing around several estate agents, I finally found one that was going to be open on the Bank Holiday so I made an appointment to view several properties that day.

Of the four that we looked at, one was out of my price range and the other three, whilst decent, needed quite a bit of work doing, ie more than just a lick of paint required. On the way back to the office, the estate agent said that there was a property that wasn’t yet on the market as the owner wasn’t sure if he wanted to sell or let. I agreed to have a look.

Property Found!

As I walked into the apartment, I knew immediately it was what I was looking for! I tried very hard to hide my enthusiasm from the estate agent as I asked him what the asking price was. He said offers over £60k would be considered and I nearly laughed out loud that it was within my budget! I asked what rent could be expected and he said £450 pcm was the going rate in the area, so the yield would be 9%.  Ground rent was £250 pa, management fees around £900 pa. I said I would call him about an offer when in fact, I wanted to make the offer then and there!

When I got home however, my excitement somewhat cooled – I wasn’t sure that I should just choose the first property that I liked and so quickly after only viewing a few other properties. I mulled it over for a week and finally, gut instinct prevailed so I decided to jump in with both feet and made an offer of £60k, which was accepted!

Property Details

  • Modern one bed apartment, 6th (top) floor, lounge opening onto the kitchen, with a small balcony.  
  • Located 3 miles from city centre, walking distance to a bus stop and two tram stops.  Also walking distance to Old Trafford football ground. 
  • 2 years old but had never been lived in so it was like NEW!
  • Brand new quality fitted kitchen – oven, fan extractor, fridge freezer, washing machine and dishwasher, all still wrapped in plastic sheet and the polystyrene they were shipped in!
Apparently, the owner had planned on buying several apartments in the same block but had run out of funding, so for two years, the apartment had been left empty and forgotten! 
Mortgage

Anyway, the next step was to get a mortgage. BTL mortgages are not the same as standard residential mortgages as generally, the interest rates are higher, a higher deposit is required, arrangement fees are higher, proposed monthly rental income needs to be 125% of mortgage payments and often, the best mortgages can only be obtained via a mortgage advisor. However, unlike residential mortgages available these days, BTL mortgages can also be interest only.
I ended up borrowing £25k on a 2-year fixed interest only mortgage at 5.2% over 20 years with NatWest – this was the best mortgage available to me because at the time, my salary only just about scraped the £25k minimum salary requirement for BTL mortgages! Although interest only, the mortgage allows me to repay up to 10% of the capital every year if I wish.

Fees: Mortgage fee – £499, mortgage arrangement fee – £995

Legal Stuff

I decided to use the solicitor who managed the sale of my house since she had been fairly competent, easy to contact and good with her communications, although her fees were above average.

Fees: £840 (Conveyancing, etc)

Inspections

My mortgage provider NatWest conducted their basic survey of the property. I also paid for an independent snagging inspection (as the apartment was still classed as a new build), which highlighted defects such as kitchen cupboard doors that didn’t shut properly, light switches on the wrong way round, untidy paintwork etc. These things were all rectified by the builders at no extra cost.

Fee: Standard inspection £150, snagging inspection £185

My apartment on the 6th floor

And So…

..a little over two months after I initially started looking into it, I surprised everyone (including myself) by becoming the owner of a buy to let property! Woo hoo!

Perfect?

Of course not. It’s certainly not in the posh end of town but over the years, the area has seen a lot of improvement and the council has pumped in a fair amount of investment to regenerate the area.

There was a big patch of land over the road from my apartment being renovated for something, either more residential or perhaps business properties (nothing serious or untoward, according to my solicitor’s conveyance report) and the boards surrounding the area depicted some rather colourful graffiti:

Graffiti just down the road from my apartment

In Part II, I’ll talk about how I got my apartment ready for tenants and my experiences thus far as a landlord.

4 thoughts on “My Rental Property – Part I

  1. Hi Weenie,

    Great write up. I'm also starting to think about buying a buy to let sometime in the future so to get the view of somebody who has been and done it is great.

    Looking forward to the next post

    All the best MrsFinancialFreedom

  2. Hi MrsFF and thanks for stopping by!

    I hope my post has been of some use to you – the main thing to consider (aside from the financing) is to do all your research and be aware of the pros/cons so there are no surprises.

    I've started to draft Part II, so hopefully will be able to publish that shortly.

  3. Excellent information weenie! Thanks!

    I never knew about the £25k minimum income for the BTL mortgage for example, that is interesting and useful to know.

    I'm still picking my jaw up off the floor on the £60k purchase including brand new kitchen though… :oO

    Any idea what it is worth nowadays?

  4. Hi TFS
    Yes, I thought the £60k price tag would be a bit of an eye opener for you Southern folks! However, I was very lucky with the brand new kitchen and an owner who obviously wanted to get rid of the property quickly!

    There are plenty of properties under the £60k price up here which look ideal for BTL. Instead of getting one property in London, you could probably get two up North, with potentially higher rental yields! 🙂

    Just checked online and a flat from the same block has recently gone on sale for £69,950, which is a nice surprise, as I didn't buy the property with capital increase in mind.

    Anyway, glad you found the post useful.

    I'm in the middle of drafting Part II!

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