Is Buy to Let feasible?

[Crevette]

I was running over some figures the other day, trying to wrok out if it's feasible to buy to let.

I have seen a place for 160,000. Rents in the area for a property like this one (unfurnished) are around 800 a month.

I could get a 25 year fixed mortgage at 4.5% where I would be paying back 800 a month (after a deposit of €15000).

So it seems at first glance that it's a good investment, as the property would be mine in 25 years time.

On the positive side, rents are likely to go up (and my salary), but the mortage would stay the same amount.

BUT against this there are the risks ;

i) Tenant doesn't pay

ii) Charges go up

iii) Don't find a tennant

iv) Other charges - tax? Improvements?

Maybe some others? Do you pay tax on the income?

Anyone out there "been there done that"?

Is it better to look into "Robien" or "Borloo" type deals?

My view on the housing market in general is still quite pessimistic for the next few years, but I do think that the occasional good deal can be found if you look hard enough.

Regards,

-Rob-

PS: I don't have a property of my own - I could never afford the place I rent at the moment, but am considering buy to let as a means to get on the ladder and have something for retirement.

[Guest]

I think that in principle the numbers stack up, though the law seems so heavily weighted in favour of tenants that the risks, especially those associated with non-payment of rent, are a lot worse than in the UK. One alternative might be to consider a leaseback?

BTW, what are Robien or Borloo-type deals?

[Pierre ZFP]

Can you get 25 year fixed mortgages at 4.5% ?  With rates set to rise significantly in the reasonably near future that could be a bargain.  I work with a French chap who does exactly as you propose.  He has I think 3 appartments now.  He has places near Monpelier university and rents to students.  A little bit more on maintainence but no probs with tenants not moving on.

[Pickles]

[quote user="Crevette"]

I have seen a place for 160,000.

[/quote]

Have you included the purchase costs in that price? Otherwise add another 7-8% for the notaires fees (which include what amounts to stamp duty ...) which you will have to fund.

[quote user="Crevette"]

Rents in the area for a property like this one (unfurnished) are around 800 a month.

[/quote]

Visit a couple of the competing properties to see if they really are comparable

[quote user="Crevette"]

I could get a 25 year fixed mortgage at 4.5% where I would be paying back 800 a month (after a deposit of €15000).

So it seems at first glance that it's a good investment, as the property would be mine in 25 years time.

On the positive side, rents are likely to go up (and my salary), but the mortage would stay the same amount.

[/quote]

How are the rest of your finances? I think you know that you will spend more than just the mortgage - how much can you afford to contribute before it starts to hurt you? There will be costs such as Taxe Fonciere, insurance (building structure and Landlord's responsibilite civile), voids, repairs, etc.

[quote user="Crevette"]

i) Tenant doesn't pay

[/quote]

Particularly if you have it managed by an agent, you may be able to insure against this (but of course use of an agent will eat into the rent payment - I seem to recall a quote of an agent's fee of around 11% including unpaid rent insurance etc, vs about 7% without the options). If you or the agent are strict about your renting policy (good agents are generally very strict on this - and have their own definitions on what strict means, as other posters have found when trying to rent!) you may be able to reduce the likelihood of unpaid rent, but if despite all this you get a bad tenant, it will still cost you - can you afford the risk?

[quote user="Crevette"]

ii) Charges go up

[/quote]

Have they ever gone down? However, I suspect that this would be amongst the least of your worries  - yes, they will rise, but unlikely on their own to be enough of an increase or in terms of the timescale of an increase to knock your finances off balance.

[quote user="Crevette"]

iii) Don't find a tenant

[/quote]

Voids will be a fact of life unless you are assiduous and react rapidly to receiving notice from your tenant - and even then are likely to occur. A good agent would minimise these, but obviously adds to your costs.

[quote user="Crevette"]

iv) Other charges - tax? Improvements?

[/quote]

You will have to maintain the property and administer the rents - eg establishing the state of the property for incoming and outgoing tenants, drawing up the lease, receiving rents, dealing with requests from tenants, etc. Many of the tasks are straightforward, but the thing is that they have to be done ...Any problems are guaranteed to occur at the most inconvenient times, and since you are dealing with someone's HOME, it is incumbent on even a halfway decent landlord to ensure that problems are attended to quickly. Again a good agent will deal with most of these issues.

[quote user="Crevette"]

Maybe some others? Do you pay tax on the income?

[/quote]

Yes, but net of costs ... (the capital repayment part of the mortgage is not an allowable cost, but the interest is ...). It would be worth doing the calculations to see whether you would be better off in the micro-bic regime (fixed percentage deduction) or real cost regime (allowable real costs deducted).

[quote user="Crevette"]

Is it better to look into "Robien" or "Borloo" type deals?

[/quote]

I'm presuming that you are resident in France, because if not then in general because of the way that non-residents are taxed, IIRC it is very difficult for a non-resident to actually benefit from the tax deduction, because in most cases they will be negated by the flat 25% tax rate on taxable income.

These types of investment need VERY careful study. They are based on the creation of a fiscal deficit which you can offset against your tax liability from other sources. This deficit arises because the rent has a ceiling which doesn't cover the mortgage, and there are other resrictions depending on the particular product that you go for (eg in terms of to whom it can be let). Hence they reduce your tax bill, and the money saved from the tax is essentially going into the property. Some commentators caution that in their eyes many of the properties offered under these schemes are overpriced compared with the market value of similar property in the same area that is not available through the fiscal reduction schemes, and that you may end up with a property at the end that is less saleable - ie the capital appreciation may be somewhat lower. In addition, IIRC, they must be held for a significant period, so if your circumstances change and you need to sell up, there will be penalties and you might find the property difficult to sell.

Overall, it really comes down to your attitude to risk and your ability to absorb the costs if things go wrong (eg can you cope with a 6-9 month loss of rental payments?). Some of the risks can be reduced by the use of an agent and insurance, but these eat into the rent that can be used to pay the mortgage. A good agent can be worth far more than the cost ...

Regards

Pickles

[Crevette]

Hi Pickles,

Many thanks for the detailed reply - it's exactly the kind of advice I was looking for.

To be honest I am really not sure if I will go ahead with the investment or not as the alternative (investing money I am able to save) is a lot "less risk" and "less hassle" initiative - although the gains are not likely to be as good.

Regards,

-Rob-