Real Estate - Real Estate Investment

The vast
majority of automobiles sold in the United States are sold on a time payment
plan, and this method is becoming more and more popular, being applied to the
purchase of mobile homes, boats and even appliances. The purchaser does not pay
cash. In most auto sales, the purchaser trades in his present car as a down
payment and the balance is financed over a period of months, sometimes as long
as four years or even longer.

The
alternative method of payment is, of course, cash, and early in the history of
the automobile industry cars were sold only for cash. The trouble with a cash
payment requirement for a car is that few people can pay out $4,000 all at
once.

The question
immediately arises as to why a person does not save up his $4,000 first and
then when he has accumulated it buy his car, and not until then. The theory is
good, but in practice most people cannot accumulate such a sum. Other things
come along to attract buyers and they yield to the desire of the moment with
the result that away go their savings.

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Some buy to let landlords are beginning to feel the pinch of higher interest rates. This in turn has led to many lenders showing a reluctance to deal with new borrowers unless they can come up with larger deposits. The alternative is for the borrower to deal in property with higher rental potential - which usually means a higher capital cost. Of course, if you don’t have sufficient deposit in the first place, it’s unlikely that the higher rental properties are within your budget: a bit of a chicken and egg situation.
This can make it difficult for newcomers into the Buy to Let market who want to start low and build up their portfolio. That isn’t to say it can’t be done; there are still a few lenders giving ‘good deals’ but they are becoming few and far between.
With interest rates looking at a potential 6% by December 2007 the lenders are concerned that too many borrowers will be struggling to ensure that the rentals will cover their mortgage payments. In some cases lenders will accept that the rent is being subsidised by the borrower’s other income as long as that other income can be verified as more than ?75,000 pa. Below that income level you will be required to show proportionally higher rental cover to get the same deal.. By way of illustration, a loan of ?85,000 to an experienced landlord would require a monthly income of ?468 whereas a new landlord would need ?531 to meet the criteria. In other words, lenders are favouring those with experience unless there is a provable safety net of other income.
Concern has been expressed by the FSA that there is a growing number of repossessions among Buy to Let properties: by December 2006, 25% of these properties sold at auction had been repossessed. Many of them were new build flats. This has been caused partly by excess supply leading to lower rents and partly the failure of newbuilds to go to a premium. Statistics from one of the leading mortgage lenders reveal a fall of 4.4% in prices of newbuild flats against a general market growth of nearly 11%.
Advice from one experienced Buy to Let owner is that you must ensure that your first property produces a comfortable rental income which can stand you in good stead should any subsequent investments suffer a rent shortfall.
Four interest rate rises have exacerbated the problem: mortgage payments have increased by around 20% while rents have gone up by only 5%. However, there is a certain willingness to make up any monthly rent deficit from private funds as the potential for long term capital growth is generally seen as far outweighing any temporary blips.
So, before you launch yourself into the buy to let market, just make sure you have that little extra in hand against the next rainy rent day.