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  • Buy-to-Let

    20%+ ROCI on Established London Property

    Hello all

    I did some research this weekend to help a newbie who posted a Readers Question on Property118.

    With the benefit of gearing and a bit of investigative work on what to buy and where I was able to demonstrate how to obtain a 20%+ cashflow return on a two bed flat in an established area of London, walking distance from Greenwich University. Furthermore, the break-even interest rate on borrowings worked out at 9.5% having factored in using 25% of rental income to fund costs over and above the mortgage interest.

    I have provided a full breakdown of how this was achieved below and as you will see I haven't even factored in any capital growth whatsoever!

    London properties need not cost a fortune. My stepson is living in Charlton whilst he is at Uni and walks to the University of Grenwich daily. He shares a two bed flat with his girlfriend and a house mate and they pay £950 pcm. The capital values are circa £150,000 giving a gross yield of 7.6%.

    I have run these figures through our Landlords Calculator and based on a 60% mortgage with the Principality Building Society at 1.99% the figures come out as follows.

    Purchase price £150,000

    Deposit £60,000

    Mortgage £90,000

    Rent £950 pcm

    Gross yield 7.6%

    Allowance for other costs £237.50 pcm. This is 25% of rent to be used as a budget for costs of advertising/letting, management, Gas checks, maintenance, ground rents, service charges and void periods (lost rent due to arrears or when the property isn’t let.

    Monthly cashflow £563.25

    Return on capital invested = 11.27%. This is your net cashflow expressed as a percentage of your capital invested (excluding borrowings and any capital growth)

    Breakeven interest rate 9.5%

    After an initial 6 months you could look to withdraw £30,000 of your capital through an Equity Loan, see >>> http://www.property118.com/equity-financ...rds/44713/ This would not affect your monthly payments and would increase your return on capital invested to 22.54%.

    You can find properties like this in SE7 6PX. See our Property Research Tool for more details and also to use the landlords calculator I used to provide the above figures >>> http://www.property118.com/property-search-tool/

    Mark Alexander - Property118.com
    Twitter: @iAmALandlord