Author Topic: Rental Property - Thoughts/Feedback/Advice!  (Read 649 times)

LadyMustache

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Rental Property - Thoughts/Feedback/Advice!
« on: March 15, 2017, 08:59:01 AM »

Hi all,

In urgent need of some good old Mustachian advice.

I'm a UK citizen living with my husband and family in the US. We have about 65,000 GBP sitting in UK taxable investment accounts earning 0.20%. Investing in the stock market is a no-go as my husband works in financial services in the US and his company will only let him invest via Fidelity here. The exchange rate has plummeted so we don't want to transfer to dollars. We have emergency fund and investments in US. We are considering buying a UK rental property and have found one in our range but I just can't decide whether to push the button. It doesn't meet the 1% rule, but I don't think that ever works in the UK!

Here's the deal:

1-bed, 2-bath property with parking in pristine condition - no work needed, very nice safe area that is known to me. Valued at 75k but owners have emigrated and need a very quick sale and have already said they would accept 62k. I think they'd go down to 60k.

Monthly rent: 425
Monthly insurance, HOA, ground rent: 86.33
Monthly landlord's insurance: 10
Monthly management fees (12.5%): 53.12
 
Closing costs: 750
Stamp duty (a one-off 3% tax due on purchase): 1800

We can pay in cash in full for speed and to snag a good deal, but would consider getting a mortgage down the road if leveraging it makes more sense in the long run.

The 89-year lease on the property will need renewing in the long term: cost about 5,000 but could wait five or ten years. Value of property would probably go up once this is paid for, perhaps by about 10k. All other major building costs covered by management company.

What do you all think? Any advice at all would be appreciated. Seriously, anything!
 


LadyMustache

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Re: Rental Property - Thoughts/Feedback/Advice!
« Reply #1 on: March 15, 2017, 09:02:04 AM »
One more thing to add: an identical property to this one (literally identical) sold for 80k eighteen months ago. The property market is sluggish in that area, plus the owners are desperate, plus their realtor/estate agent is poor, which I believe accounts for the low price, but I thought I'd throw this out there.

jviska89

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Re: Rental Property - Thoughts/Feedback/Advice!
« Reply #2 on: March 15, 2017, 09:23:00 AM »
Is this a condo or something similar? Do the HOA fees cover everything other than issues that arise inside the unit? If not, I feel one major repair bill may eat an entire year or two of earnings. I feel bad for investors outside the US, getting a decent return seems incredibly difficult.
Forget the five year plan and retire instead

LadyMustache

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Re: Rental Property - Thoughts/Feedback/Advice!
« Reply #3 on: March 15, 2017, 09:29:22 AM »
Is this a condo or something similar? Do the HOA fees cover everything other than issues that arise inside the unit? If not, I feel one major repair bill may eat an entire year or two of earnings. I feel bad for investors outside the US, getting a decent return seems incredibly difficult.
Thanks for replying!

Yes, it's a condo (aka a 'flat' in the UK). Yup, the HOA fees cover everything associated with the building (roof, windows, structure, parking lot, communal hallway, heating system) but not within the unit itself (floors, kitchen, showers). The building itself (with five units) is 9 yrs old and doesn't need any work at the moment.

AMandM

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Re: Rental Property - Thoughts/Feedback/Advice!
« Reply #4 on: March 15, 2017, 10:55:53 AM »
Well, if you can get the price down to 60k then your net income would be about 5% of the total purchase costs.  That's a better return than you're getting now.

jviska89

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Re: Rental Property - Thoughts/Feedback/Advice!
« Reply #5 on: March 15, 2017, 11:19:05 AM »
Well it sounds like the flat is in good shape and has low likelihood of needing repairs. And you potentially have significant percentage of equity "growth" right at the time of purchase. The deal is certainly no home run, but it is a solid single and would earning more than a CD, bond, or savings account. If the UK is like the US I would think an all cash offer and quick close could even get you a better deal and would be what the buyer needs.
Forget the five year plan and retire instead

LadyMustache

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Re: Rental Property - Thoughts/Feedback/Advice!
« Reply #6 on: March 15, 2017, 11:36:21 AM »
Well, if you can get the price down to 60k then your net income would be about 5% of the total purchase costs.  That's a better return than you're getting now.

Thanks. I'm getting it to come out as about 4% based on a month of vacancy per year, plus about 300 GBP per annum for minor internal repairs. Agreed a better return! Just trying to weigh up risk versus reward as I'm naturally risk-averse!

LadyMustache

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Re: Rental Property - Thoughts/Feedback/Advice!
« Reply #7 on: March 15, 2017, 11:37:32 AM »
Well it sounds like the flat is in good shape and has low likelihood of needing repairs. And you potentially have significant percentage of equity "growth" right at the time of purchase. The deal is certainly no home run, but it is a solid single and would earning more than a CD, bond, or savings account. If the UK is like the US I would think an all cash offer and quick close could even get you a better deal and would be what the buyer needs.

Appreciate your reply. Yes, US very much like UK in that cash is king. Being chain free on both sides is always good :)

Cwadda

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Re: Rental Property - Thoughts/Feedback/Advice!
« Reply #8 on: March 15, 2017, 11:45:10 AM »
Quote
his company will only let him invest via Fidelity here
I just want to mention: Fidelity is a fantastic company, right next to Vanguard. They offer a series of stocks that are almost identical to VTSAX and the like. Just FYI!

I crunched the numbers in this spreadsheet. I came up with a 4.8% return on this investment, with a cashflow of $250/month. Hope this helps!

LadyMustache

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Re: Rental Property - Thoughts/Feedback/Advice!
« Reply #9 on: March 15, 2017, 12:11:50 PM »
Quote
his company will only let him invest via Fidelity here
I just want to mention: Fidelity is a fantastic company, right next to Vanguard. They offer a series of stocks that are almost identical to VTSAX and the like. Just FYI!

I crunched the numbers in this spreadsheet. I came up with a 4.8% return on this investment, with a cashflow of $250/month. Hope this helps!

That definitely helps, thanks! Love the spreadsheet. And when I add in vacancy, it's exactly 4%.

Agree about Fidelity: we're using them for investing here in the US. Or at least, we've just started, since I decided to grow a LadyMustache ;) But the current UK-US exchange rate hurts me too much to consider cashing out of Great Britain.