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Hi everyone, I hope you're all doing okay. One of the benefits of "lockdown" for me has been that it has given me time to "refocus" on future plans. Just before lockdown I had had an offer accepted on a flat which subsequently fell through because the service charge, as a percentage of the mortgage was too high so the building society wouldn't lend. Looking back, I think it was a blessing to be honest.

My situation is that I currently live in a rented property and have no plans to buy here, I'm only until my children finish their education in 5yrs time. I'm fortunate in that I have circa £160000 in savings which I was going to use for deposits on buy to lets. However, I'm now wondering whether I would be better off buying one quality 3 bed house for example (for young professionals rather than students which I was considering before), outright in cash and letting it out at say £700/mth (typical rent for area I'm looking at) and using the income to allow me to reduce my work hours ( I'm self employed but may consider diversifying into full time property investment). If I allow for say £120k I would potentially have £40K remains for a deposit on another property which I'd take a mortgage on.

My reasoning for the above is that I'm aware that as I don't currently own a property there is a limited supply of buy to let mortgages and therefore buying now could increase my exposure to the market. The other reason is that using the money now could potentially provide a better yield than the 4% it's attracting at the moment. My question mark over this idea is whether it really is a viable proposition if I'm putting all my own savings into a property and not making use of leverage through a mortgage ? 

I's be really interested in hearing any opinions/ideas from the community please and welcome any advice.

Many thanks 

Craig

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15 minutes ago, royal2020 said:

Hi everyone, I hope you're all doing okay. One of the benefits of "lockdown" for me has been that it has given me time to "refocus" on future plans. Just before lockdown I had had an offer accepted on a flat which subsequently fell through because the service charge, as a percentage of the mortgage was too high so the building society wouldn't lend. Looking back, I think it was a blessing to be honest.

Hi Craig,

I think the recent events have made quite a lot of us think about the future.  This pandemic was so out of the blue that it knocked most of our "beliefs" in safe jobs etc.  Before this most people would never have thought their job/industry could just vanish over night, then suddenly this happened and looking in you suddenly start to think about protecting your own income.  I know from a personal perspective I have changed my focus slightly.  I am fortunate to already have a decent size number of properties, but these events made me think about a few of the flips that I was planning to do and now I am keeping them as I know it will secure my own income permanently for the rest of my life, and that is now the most important thing for me and my family.

18 minutes ago, royal2020 said:

My situation is that I currently live in a rented property and have no plans to buy here, I'm only until my children finish their education in 5yrs time. I'm fortunate in that I have circa £160000 in savings which I was going to use for deposits on buy to lets. However, I'm now wondering whether I would be better off buying one quality 3 bed house for example (for young professionals rather than students which I was considering before), outright in cash and letting it out at say £700/mth (typical rent for area I'm looking at) and using the income to allow me to reduce my work hours ( I'm self employed but may consider diversifying into full time property investment). If I allow for say £120k I would potentially have £40K remains for a deposit on another property which I'd take a mortgage on.

Mortgages when you do not own your own property are more difficult to get, but not impossible.  I have had clients in similar positions.  What they have done is initially buy a lower price property outright in cash (Lets say £50k).  They have completed some work on it and know that it should be worth £70k if they got a mortgage on it.  As they now own a property (that is now a tick in the lending box), they then buy their second property with a BTL mortgage.  This completes and now they own 2 properties.  6+ months have usually passed by this point so they now apply for a mortgage on the property they own in cash.  They have increased its value by doing some works and when they finally get a mortgage on it they can release more of the funds than if they had just bought something vanilla.  This process obviously takes longer and you need to have a plan with your mortgage broker but it helps negate the issue of not owning a property and allows you to use leverage rather than having all of your cash tied up in one property.  If you work things well and put time and effort into planning you will find that £160k can go an incredibly long way.  I source a lot of lower purchase price properties for my clients £50k upwards properties) and we are achieving rents of £475-£650 depending on the type of property.  These are with normal working tenants in normal areas, I am just fortunate that where I operate is very cheap and you get a great return.  For someone looking for income generation these properties are ideal.  I personally own 9 active rentals bringing in just short of £3k per month after expenses and will have doubled this by the end of this year.  Personally I would never buy anything above £80k as I am focused on forcing capital growth through improvements rather than waiting for the market to naturally increase.  If I can get a property where the physical cash input is between £8-12k then I have a cheap house and my money goes further.

 

28 minutes ago, royal2020 said:

My reasoning for the above is that I'm aware that as I don't currently own a property there is a limited supply of buy to let mortgages and therefore buying now could increase my exposure to the market. The other reason is that using the money now could potentially provide a better yield than the 4% it's attracting at the moment. My question mark over this idea is whether it really is a viable proposition if I'm putting all my own savings into a property and not making use of leverage through a mortgage ? 

Again, personally I use mortgages now to leverage.  I do buy mine initially in cash and then look to refinance at 6 months to get most of my money back out.  I do however have most clients buying initially on a 2 year mortgage product, completing works to increase value and then they look to revalue at the end of the 2 year product to extract additional funds.  This can work well if you are buying say 2-3 a year, as eventually you get to the point where you will have 2-3 properties being refinanced and that money coming back into your business (which equates to your next deposit).  Keep adding up the rents, any money that you extract, and eventually your little snowball starts to grow to a point where rental income alone allows you to buy a property (with a deposit) every 6-8 months.  Keep adding to the pot, this reduces etc etc.

 

Everyone is different and everyone has their own tolerances for risk etc.  The best advice is for you to sit down with a pen, pad and calculator and just throw out some rough numbers.  Compare buying one or two in cash to maybe 4 or 5 with mortgages?  Have a chat with a mortgage broker to see what options are available for your personal circumstances.  I always find putting it down on paper helps me as you can see then with figures what works.  Then its a case of cracking on with it!

Hope this has helped a bit (and not confused you even more)!!

 

Darren

 

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Hi Darren, 

Thanks so much for your reply and for the great advice; it is definitely a sound solution to my query but the only thing I have to consider is that I am totally incompetent as far as anything remotely connected to DIY is concerned and would have to subcontract any works on the property to be able to flip it. My intention infact is to be as "hands off" as much as possible because I don't have a great deal of spare time as a single parent of 2 young daughters. 

I'm now going to look agin at what's available at the lower end of the price spectrum and go back to my mortgage broker...:-)

Thanks so much Darren and have a good day.

Craig 

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On 6/10/2020 at 10:25 AM, royal2020 said:

Thanks so much for your reply and for the great advice; it is definitely a sound solution to my query but the only thing I have to consider is that I am totally incompetent as far as anything remotely connected to DIY is concerned and would have to subcontract any works on the property to be able to flip it. 

Just had a conversation this morning with a client who did his first few renovations himself and then had that light bulb moment of "why on earth am I doing this?"

Doing the work yourself can save you money, but once you factor in full time working, family commitments and then going to a property in the evenings and weekends it suddenly doesn't seem such a bargain vs paying someone to do the job.

 

On 6/10/2020 at 10:25 AM, royal2020 said:

My intention infact is to be as "hands off" as much as possible because I don't have a great deal of spare time as a single parent of 2 young daughters. 

This is completely possible.  I work with a number of clients from London and abroad and this is the type of work we do for them.  People have busy lives, whether that's with the pressures of work or busy family lives, it's hard to fit everything in which is why property procrastination can easily occur.  What i have tried to do is create a service that ticks every box for busy people, we find the property, renovate the property and manage the rental of the property.  All in house and under one umbrella.  Our clients like this as there is the one point of contact (me!) and I am available literally any time of the day so I can work around their life commitments.

On 6/10/2020 at 10:25 AM, royal2020 said:

I'm now going to look agin at what's available at the lower end of the price spectrum and go back to my mortgage broker...:-)

You can easily get mortgages at £50k and above.  If your broker cannot find them then get a new one, lol.

Hope that helps, if you need anything feel free to get in touch.

Darren

 

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