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SAMPLE BUY-TO-LET REPORT,

based on the following proposal information being provided.

Local Authority

Property Price

Loan Needed

Rent per week

Bedrooms

Islington

£180,000

£162,000

£280.00

3-bedroom

Buy to Let, Project Appraisal Report.

June 17, 2003

For ;

-Mr You

Project ;

22 North Road, Islington

1.) General.

As a short-term investment, Buy to Let is generally a gamble with rent offering a lower net return in the

short-term and with property value having a possibility of falling in the short-term also.

As a longer-term (10 years plus) investment, Buy to Let is generally a good prospect as increasing rents

give increasing returns and property value is also more likely to involve real increase.

2.) This Buy to Let proposal.

a.) Rent and Loan. (many buy-to-let lenders use the rent level to decide how much they will lend)

The expected rent for this project

£280 pw

should allow raising a mortgage loan of at most

£145,600

This project may actually attract a rent of maybe

£269 pw

and getting that rent for this project would

allow raising a mortgage of maybe

£139,900

and the return on investment be

reduced.

Raising a loan of the size wanted could need a weekly rent of about

£310 pw

but some lenders do not use rent

and almost all buy-to-let lenders may also set an 85% value cap on the loan at around

£153,000

b.) Return on investment, with the expected rent.

Over the longer term, you should be able to increase rent annually on average by 3.5%, and hopefully have

voids averaging 3% (1.5 weeks per year). With this and a 25 year loan the returns on your total investment

(the property price) are forecast in current money as being ;

GROSS :-

expected

expected

expected

(Rent less Voids, Insurance and Maintenance)

rent profit

value profit

total profit

Gross return Year 1

£12,863

£11,880

£24,743

return %

7.1%

6.6%

13.7%

NET :-

expected

expected

expected

(Gross less Loan Cost & Deposit Opportunity Cost)

rent profit

value profit

total profit

Net return Year 1

-£902

£11,880

£10,978

return %

-0.5%

6.6%

6.1%

Net average 25 year

£2,240

£12,003

£14,243

average return %

1.2%

6.7%

7.9%

Net return Year 26 (+)

£14,913

£12,003

£26,916

return %

8.3%

6.7%

15.0%

c.) Report conclusions.

For comparison, the likely total net return on a safe bank savings account is expected to be around ;

Net return % Year 1

3.5%

Net 25 year return %

4.5%

Hence, your proposed Buy to Let should beat safe return rates

- especially over the longer term.

If you get a low start loan, then your net return for the first year would be improved by about half the difference between the quoted year 1 net return and quoted year 1 gross return. Here 5% is taken as the likely long-term annual increase in property value, but this can have big short-term variation.

Your expected rent and property value will not get you the loan amount you want from standard lenders.

Consider letting your house, and buying a house for yourself with a normal loan up to 100%, or try to

find an exceptional buy-to-let lender or mortgage consultant.

On your expected costs, the lowest weekly rent that should at least match safe return rates is around £190 and around that rent level you should face little letting difficulty with likely tenants seeing such as low. But, setting rent that low should only be considered if you are to let directly yourself, while an agency letting rent should be nearer to the £269 given above - and possibly higher if you can get a company let.

(Rent levels quoted are local for your project, but a good local letting agency might possibly advise on local market latest rents better ?)

d.) Tax.

Your year 1 Buy to Let taxable profit is estimated at £3,143 with a 40% tax liability estimate of £1,257

Income from any additional let second property is taxable as a 'Schedule A business' income, on annual rental income less management, maintenance and loan interest annual expenditure costs. Your annual receipts and expenses from such property are aggregated to produce a profit or loss. Your profits are taxed for the tax year (6 April to the following 5 April), and are dealt with under your income tax self-assessment. Your actual tax liability will depend on you own current income tax position, and be as if you increase your normal income by that amount. Special rules apply to the UK rental income of non-UK residents, see http://www.inlandrevenue.gov.uk/cnr/index.htm Your total loan cost and income tax liability can be reduced if you have a mortgage on your own home that can be reduced by increasing your Buy To Let mortgage. Total income tax liability may also be less if you do a joint Buy To Let with a spouse. If you later sell such let residential property (which has never been your main residence), then any gain (i.e. increase in value between buying and selling) is normally liable to capital gains tax less its allowances. Note:- Your Buy to Let would have somewhat higher returns with a lower property price, or with a loan at

a lower percentage of property price, if you can get the same rent. Some lower priced properties are likely to give bigger than average increases in value, as in areas now gentrifying or now flats in local authority blocks where Right To Buy has recently taken off and owners are improving their properties.

But it should be noted that real net loss is possible on any Buy to Let in the short term.

DO have a report run again later, if your Buy To Let details change or if you can supply details of the terms of an actual mortgage offer

and/or details of a proposed management contract. This report's accuracy will improve with improved details.

Vincent Wilmot, www.buy-to-let.me.uk

To send your simple details needed for a report :-

otherwise contact me, (e-mail vincent@buy-to-let.me.uk):- .. and I will get back to you asap.



Some websites you may like to look at :-

. . Council of Mortgage Lenders .


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