Finance or Buy out right?

[GuyHarris]

Forgive me for my naivety or if this has been discussed already. 

If you had £150k for a 3 bed house in a nice area, would you buy out right or split money to buy 2 properties with finance?  

(House would only need decorating)

Obviously, £800 a month income would be good but would we be missing a trick not borrowing??

[Julia Urquhart]

Borrowing allows you to make money on someone else's money - its called gearing. There is also the advantage of offsetting some /all of your mortgage costs against your profit. It certainly allows you to make much more capital growth on your own money because you get to keep the capital growth made on the bank's money too.

You will need a plan to pay off the mortgage but I would buy 2 properties with mortgages - maybe of different sizes so you are not competing against yourself for tenants.

Good luck!

[london21]

I will buy 2 with a higher deposit you are able to get a good rate with low loan to value can everage the bank’s money. Buying cash also has its benefit because no interest charge but then again rates at present are competitive.

[GuyHarris]

On 3/6/2019 at 3:05 PM, Funmibiz said:

I will buy 2 with a higher deposit you are able to get a good rate with low loan to value can everage the bank’s money. Buying cash also has its benefit because no interest charge but then again rates at present are competitive.

Thank you. We've taken the plunge and bought it cash. Will still go up in value as the houses around it are all really nice too. I guess can always borrow against in in future. 

[alastairkennedy]

Guy

Congratulations.  We're a few months behind you but also looking in Wakefield.  I'd be interested to pick your brains on the purchase rental side, and would be grateful on a steer for area in the local market (still a few years from securing formal 'yorkshireman' status).  If you're free for a coffee sometime I'm paying, and very happy to share my surveying/construction knowledge.  

thanks

alastair

[goldmansnacks]

I would recommend listening to or reading Rob's book 'the complete guide to property investment'. He breaks down this exact situation, if you had 250k to put in one or two houses, he also does it for if you were to buy HMO, Single let houses, or flats and what it would look like over 20 years and what to do after. 

[GuyHarris]

Great thank you. Nice one

[amasonestates]

I know you have done this already for cash, but if it was me I would buy 3 houses for 150k with 50k deposit for each.

Lowers your risk and increases your profit, using your 800 rent as an example, mortgage on each one would be 100k so @ 4% (should be less)the mortgage payment would be 330 so even if you allowed for 170pcm for expenses(also higher than expected) you would make more pcm than the single house. 

I would probably look to buy them 4-6 weeks apart to make it easier to manage.

The reason I say less risk is even if 2 houses are empty the rent from 1 almost covers all 3 mortgages, 2 rented covers them with some profit. Whereas 1 house when empty brings in no money.

This all assumes you know the market and it is expected to be attractive to tenants and your not simply speculating.

If speculating buy 1 for cash. 

[GuyHarris]

16 hours ago, amasonestates said:

I know you have done this already for cash, but if it was me I would buy 3 houses for 150k with 50k deposit for each.

Lowers your risk and increases your profit, using your 800 rent as an example, mortgage on each one would be 100k so @ 4% (should be less)the mortgage payment would be 330 so even if you allowed for 170pcm for expenses(also higher than expected) you would make more pcm than the single house. 

I would probably look to buy them 4-6 weeks apart to make it easier to manage.

The reason I say less risk is even if 2 houses are empty the rent from 1 almost covers all 3 mortgages, 2 rented covers them with some profit. Whereas 1 house when empty brings in no money.

This all assumes you know the market and it is expected to be attractive to tenants and your not simply speculating.

If speculating buy 1 for cash. 

This is great thank you. I went to see a mortgage broker today who told me most investors do Interest only mortgages too. Is that the case? Why are most not wanting to pay them off? Thats why I'm confused.

Buy to let putting £50k, a 2.92% interest with lenders Accord.

The houses I'm getting for around £150k-£160k are great and rent quickly with professional tenants. 

I feel I've been doing it wrong by NOT leveraging any of them.

[amasonestates]

8 minutes ago, Guy said:

This is great thank you. I went to see a mortgage broker today who told me most investors do Interest only mortgages too. Is that the case? Why are most not wanting to pay them off? Thats why I'm confused.

Buy to let putting £50k, a 2.92% interest with lenders Accord.

The houses I'm getting for around £150k-£160k are great and rent quickly with professional tenants. 

I feel I've been doing it wrong by NOT leveraging any of them.

Not wrong just not maximising your cash, never wrong to be taking action.

You get a tax break on the interest that is why people dont pay them off via repayment mortgage. If your goal is to pay them off it's better to invest the money until such time that you have enough to pay them off if you so wish, but simply you control the money and payments rather than the bank. 

[GuyHarris]

9 minutes ago, amasonestates said:

Not wrong just not maximising your cash, never wrong to be taking action.

You get a tax break on the interest that is why people dont pay them off via repayment mortgage. If your goal is to pay them off it's better to invest the money until such time that you have enough to pay them off if you so wish, but simply you control the money and payments rather than the bank. 

Amazing thank you so much. Maybe a new plan for this year :-)