Yesterday I was thinking it’s a long time since I looked at the papers to check on house prices in my area. So I
picked up a couple back copies of the Enfield Independent lying about in the house and turned to the property
I saw that on average one-bedrooms were selling for £140k with average rental of £650 per month. So I crunched some
numbers in my calculator assuming 6 % interest rates on an 85 percent loan and came up with an interest only payment
of £595 per month. The calculation goes something like this-85% x £140k =£119k. Then 6% of £119k = £7140 per annum.
Finally dividing £7140 by 12 gives a monthly charge of £595.
So what does this mean in terms of an investment proposition? Is it worth buying such a property? Well, I am not
qualified to give mortgage or financial advice so, anyone reading this is advised to obtain professional legal and
financial advice. This article is merely my own personal opinion and is to be considered as information only.
My own view is that it could work but there are some risks. On the positive side of the equation it looks as if
there is some positive cash-flow. If you read the books by Rich Dad he is always stressing the importance of making
sure your property is producing a positive cash flow. A positive cash-flow is the life-blood of your business
without which your business will collapse.
It so happens that in the last week or so I read two books, which I will mention later in this article and, am unto
my third book which is Rich Dad’s book ‘Real Estate Advantages’ by Sharon L.Lechter and Garrett Sutton. I am at page
115 in the chapter on ‘Real Estate and Retirement Plans’. This article is not about a review of the books which you
can check out for yourself.
I have decided to focus on property investments which seem to be at the centre of a lot of the things which affect
my life. Only last week there was some news in the media about sub-prime mortgages. I am no expert in this area but
it appears that these form part of what are known as ‘second chance’ lending.
These are loans to borrowers who do not qualify for market interest rates because of problems with their credit
history. These people have low credit scores or histories of payment defaults or bankruptcies.
I think this covers most people as how many of us with mortgage, council tax, electricity, gas, telephone, water
rates, food, clothes etc have not been late or being in dispute over a bill which has been recorded negatively with
the credit agencies. You would have to be ‘abnormal’ in some way as to have not a single blemish on your record.
I also heard that interest rates are likely to soar in 2008 and people are being advised to take care of their
borrowings before the end of 2007. I checked out current Bank of England base rates which the market follows and, at
the time of writing their interest rate is 5.75%. Over the last few years base rates have steadily crept up from
3.75% in February 2003 to where they are today.
So, if I can borrow at interest rates of 5.75% or less for a buy-to-let property investment as above I may be
tempted. The immediate risk as I see it is potential cash-flow problems because the property is only producing cash
amounts of £55 per month (£650 rental less interest only mortgage payments of £595 per month).
There are other expenses to consider such as insurance of the property, maintenance charges, ground rent, council
tax etc. If I could get the property at a lower price and better interest rate terms then that could make such a
purchase a worthwhile investment. On a worst-case scenario if I could not break-even where all my outgoings are
covered by my rental income then I would have to decline this as worthy of my time and money.
I see property investing as the business it is and not some get-rich-quick scheme or hobby. As a hobby I am
interested in internet marketing and I read as much books as I can. However, by background is insurance which all
ties in neatly with property investing.
As to the two books I mentioned I read last week, the first one is ‘The Millionaire Maker’s Guide to Creating a Cash
books and I had a great week last week.
I love self-development books and as and when I read one I think is great I will mention it if you are interested. I
will write again shortly but I must go now to check my emails.
Please leave your comments on the above article until we speak again.
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