How to analyse BTL deals | Buy to Let Money Matters | Touchstone Education

– Welcome to Money Matters. Today, I want to show you how
to analyse a buy-to-let deal. (engaging jiggle) I’ve been on Rightmove this morning, and I’ve found a house that
I’d be quite interested to buy to put a tenant in there. So I’m gonna be doing the figures straight with you guys now,
to show you what I look for, and what tells me if it’s
a good investment or not. So the first thing I
look at is market value. I’m gonna called it MV. So on the listin’ on Rightmove,
it’s says it’s on for sale for 60,000 pounds. But that might not always
be the market value. So what I’ve done is I’ve
had a little research down the street, and I’ve
worked out that market value for this street for two-bed houses, which this one is, is 72,000. So that’s the market value. Now, the purchase price for this is this price that’s listed on Rightmove, and it’s 60,000 pounds. So already, I know I’m gonna
get it below market value, but is it enough below
market value for me? So next thing I work is the possible rent that you can achieve each month. So what I do is I go onto Zoopla, I put the postcode in, and
I look at what’s rentin’ in the area, and what Zoopla
suggest to me is good rent, and it’s suggested for
this area 450 pounds. So for a house you’re gonna buy for 60,000 and get back 450 a month,
that’s not too bad, is it, we don’t think? So the other I then need to
work out is the mortgage. 75% loan-to-value mortgages. Now, I know people can
get buy-to-let mortgages that are 80, 85% loan-to-value, but 75% will keep you safe, and you wanna do the figures
so the figures keep you safe. So on a 75% loan-to-value mortgage, I’ll put 75% so we know,
you’re looking at a mortgage of 45,000 being left on the house. OK. So the next thing we need to look at to work out if it’s a good investment, is we need to calculate money in. The first thing we need
to work out is a deposit. So if my mortgage is 45,000 on 75%, the purchase price is 60,000, and know the deposit in
there is gonna be 15,000. 15,000 pounds. Now the next thing you need to work out, ’cause when you buy a house, you’ve usually got stamp
duty and tax to pay, and you’ve got your legal cost to pay, so I use, because I know this
varies across the country and it varies from place to place, but I just use 4% to give
me a really good feel for what the legals and tax are gonna be. So I’ve got tax and legals,
and I’m using 4% for those. And it’s 4% of the purchase price to give me what the
general tax and legals are, so in this instance it’s
gonna give me 2,400 pounds. Now the next thing I need
to work out is renovation. Do I need to do any
refurb to the property? Now, I haven’t actually
viewed the property yet, ’cause I will go and view it, and once I view, I will
redo these figures, so this is just to tell me
if I need to view it or not. So refurb. Now, I’ve had a good look at
the pictures on Rightmove. The kitchen looks fine. It looks like it’s got
a brand-new bathroom. The attic room looks
like it’s been redone, ’cause it’s got fresh carpet in there, and the outside looks fine, so to me it just needs a really good decorate, ’cause it’s decorated like my nana would decorate a house. (laughs) So yeah, I would want to redecorate that to attract some really
good tenants in there. So I’m gonna say, because
it’s only a few rooms that need decoratin’, I’m
gonna say about 2,000 pounds, so I’ll put refurb here, and
we’ll put 2,000 pounds there. Now, that should give us a total money in that we need to purchase this property. So total money in, comes to 19,400 pounds, so that’s just to purchase the property. We’re buying it with a
traditional mortgage. Now, well now we need to
work out monthly expenses. So I put monthly expenses here. So what do we have to pay
per month to keep the house? Well, the first thing we have to pay is your mortgage payments. So I’ll put mortgage payments there. Now what we do, we work
this out by saying, just generally, it’s gonna be on a 3% interest-only mortgage. Now, you can do capital and repayment, you don’t have to do it on
3%, but this is generally what we find from all the
properties that we purchased, 3%’s about right, and you can
start off on interest only, and we’ll be doin’ another Money Matters about whether you want to do interest, interest to capital payment,
but for today’s model, we’re just gonna assume 3%. So for this one, you do 0.03
times by outstanding mortgage, which is 45,000, divided by 12, ’cause you’ve got 12 months in a year for each mortgage payment,
you’re looking at one, oop, wrong colour. 112.50 per month to pay for your mortgage. Now, oh that should be down here, sorry. 112.50 to pay for the mortgage. Now, you’ve then got your management fees. A lotta people debate with me whether to have an letting
agent looking after it for you or not. I say as a business owner, I
wanna be working on my business not in my business, so I
feel it’s very important that I’m not tied up in the nitty-gritty, doin’ tenant reference, chasin’ rent, or you know, when they ring up, you’ve got a light bulb out. I’m not dealing with that, ’cause my mind needs to be dealin’ on
growing my business, so I always pay management fees, and 10% I don’t feel’s a lot to pay when that headache’s gone,
you know it’s fully managed, yet you might say this
figure doesn’t apply, ’cause you’re gonna manage
it, but that’s just my view. So management, and management
usually, typically’s 10%, and it’s 10% of the rent,
so we know we can get 450 pounds’ rent a
month, so my management’s gonna be 45 pounds. Oh, that looks like an 8, but it’s a 5. (laughs) I’m really rubbish
at writin’ on whiteboards. The other thing we need to look
at is maintenance and voids. And typically again, per
year, these are about 10%, so again, you do 10% of your
rent that you’re gonna save, and that’s 45 pounds. So your total monthly
expenses comes to 202.50, when we add those up. So now we’ve got two really
important pieces of information. We know the total amount
it’s gonna cost us to buy, and we know how much it’s
gonna cost us to run. So now we work out our
return on investment, and this is what every investor uses to work out whether
it’s a good deal or not. So ROI, return on our investment. So what we do is, we do monthly cashflow we need to know first off,
so we do rent minus expenses. So I’m gonna do monthly cash. So our rent is 450 minus our
expenses, which is 202.50, gives me 247.50, so that’s how much money I’m gonna make per month. Now, we need to get annual cashflow, so we need to work out how much
it’s gonna be over the year, so all we do is take
247.50 and times it by 12, and that gives me 2,970 pounds, so near three grand profit a year, once you’ve taken all them expenses out. Now, to get your ROI calculation,
your return on investment, to say is it a good deal or not, you do your annual
cashflow, so which is 2,970, you would then divide that
by your total money in. Now, your total money in we
worked out was 19,400 pounds, so 19,400 pounds, and then
you times that by 100, and that will give us 15%. Now, there is some debate about what’s a good return on investment. Some investors are quite happy with that. I like properties that are 20, 25% ROI, so for me, this might not
get me jumpin’ in my car going to view it. What I would do is I
would ring the agents, and see whether I could
get this price reduced before I went to view,
’cause for it to make my 20% I’m probably need to drop
that to about 50,000 to buy. So one of the things I like to do is I also like to work out
is this a no money down deal. So no money down deal would where you be, you would buy it cash, and
then you would refinance it, and be able to pull your money out after doing some work to the house. So, buy cash, refurb, and then remortgage, and pull your money out,
so we’re gonna work out whether these figures allow it. Now, what I do is I work
what my 75% mortgage would be on my market value. So my 75% mortgage on my
market value would be 54,000. That’s not even gonna give me enough to pay back purchasing the house, so that won’t be no money down deal. However, if I manage to
get this house for 40,000, so instead of my purchase price
being 60, it’s 40,000, say, then if after the works
I’m gonna do to it, it gets valued at 72,000,
54,000 out with a mortgage would allow me to pay back the cash, plus it would give me
some extra for refurb, and the taxes, etc., so it
could a no money down deal. Now in reality, I don’t think
the agent’s gonna drop that to 40,000 for me, but
you kinda see my thinking and where I’m going with it. So this is what I like to call a back-of-a-fag-packet analysis. It’s before I jump out my chair
and go and view something. I like to work out all the figures, and work out is it worth
my while going to view, and going to look at it. Is it gonna make me enough money back? And again, and like I say, I like it to be over 20, 25% return on investment to make my money back. But some investors would
be happy with that, so you need to just understand
what you’d be happy with, and what you’ve got to play with. This wouldn’t be a no money down deal, so I would need to have
19,400 to put into it. And that’s how you
analyse a buy-to-let deal. So I hope you’ve enjoyed
this week’s Money Matters. If you have, give us a like,
subscribe to our channel and share it, ’cause
we wanna show everybody how they can do this. Thank you very much. – That’s the end of this
week’s Money Matters. Watch out for next week’s edition. If you’ve liked it,
please literally like it, subscribe to the channel, get
your friends to do the same. You’ve been wonderful, I’ve
been Paul, see you next time. Bye-bye.

12 thoughts on “How to analyse BTL deals | Buy to Let Money Matters | Touchstone Education”

  1. When you buy cash and then refurbish and then 'refinance/remortgage', in reality you are not refinancing or remortgaging, you are just mortgaging for the first time.

  2. Gr8 video Abi. Even down to showing which apps you use, and why. I know others who use 6% for the mortgage interest rate, though. I suppose this builds in a safety factor, especially if there is an investor involved.

  3. Great video – thank you. I know that this is an illustration – but finding a house for £60K in the south of UK is impossible. Simply unrealistic. Lucky to buy a single garage for that 😐

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