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Where would your money go?


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Hi all, 

I am looking at getting my first buy to let property in the liverpool area for my newly formed LTD company. 

My dilemma is do i:

A: purchase something similar to the below out right for cash which will give me about £3,500 per year profit (if what they say is correct and accurate)

https://www.rightmove.co.uk/property-for-sale/property-71988603.html

Or

B: look at getting two 2-3 bed properties at about £80k and use the same money for the 25% deposits and rent both out with slightly lesser yield but benefit of both and the hope the value of the houses appreciate more than the value of a student flat?

 

Dont know if anyone has had a similar dilemma or can offer any impartial advice

Thanks in advance

Joel

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Personally, I would avoid purchasing Studio apartments because studio flats can often be difficult to get a mortgage on. This will obviously impact your exit strategy in terms of the resale in future and limit the sale to mainly cash investors.

I would probably purchase properties by getting mortgage. This way you maximise the growth by leveraging your money. And like you say, benefit from the capital appreciation.

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To add to other comments, these are student only flats and not eligible for a mortgage. You're therefore tying a lot of money in an asset that probably won't appreciate at the same rate as surrounding areas. When you come to sell, you can only sell to another investor (or rich student), so your market is limited. If something happens (increased tax on investments; purpose built student accommodation elsewhere; pandemic closing universities) you're going to be stuck with it and potentially have no rent.

The Robs have said to avoid student pods and this is just a bigger, more expensive version. A student HMO is a bit different, as although some of the risks still exist, you can at least put a different type of tenant in it, turn it into a single BTL or even sell it as a family home.

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1 hour ago, dino v said:

To add to other comments, these are student only flats and not eligible for a mortgage. You're therefore tying a lot of money in an asset that probably won't appreciate at the same rate as surrounding areas. When you come to sell, you can only sell to another investor (or rich student), so your market is limited. If something happens (increased tax on investments; purpose built student accommodation elsewhere; pandemic closing universities) you're going to be stuck with it and potentially have no rent.

The Robs have said to avoid student pods and this is just a bigger, more expensive version. A student HMO is a bit different, as although some of the risks still exist, you can at least put a different type of tenant in it, turn it into a single BTL or even sell it as a family home.

Thank you Dino, makes perfect sense. Thanks for taking the time to reply 

Joel 

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  • 2 weeks later...
On 7/23/2020 at 1:42 PM, joelp1 said:

A: purchase something similar to the below out right for cash which will give me about £3,500 per year profit (if what they say is correct and accurate)

https://www.rightmove.co.uk/property-for-sale/property-71988603.html

Or

B: look at getting two 2-3 bed properties at about £80k and use the same money for the 25% deposits and rent both out with slightly lesser yield but benefit of both and the hope the value of the houses appreciate more than the value of a student flat?

As the studio side has been answered I will look at the cash vs leverage question.

I personally advise all of my clients to buy on mortgage.  This enables leverage (as you say you can buy 2 properties rather than 1) but it also reduces your risk.  In March when the world decided to go crazy how would you have personally felt if you had just completed on a property bought with cash? No-one saw it coming.  You would be sat there looking at your property wondering if it was going to drop in value (usual headline media scare stories) feeling like you are basically trapped. If you had bought 1 on mortgage you would still be worried about capital values but would still be able to exit a lot easier due to less money being tied up, plus you would still have a chunk of cash sat there in the bank.

On the positive side leverage as increases you returns when times are good.  capital growth on 2 houses combined is more likely to be bigger than capital growth on one.  Growth is rental figures on 2 houses is going to be more than what it is on one.  You make slightly less on each of the mortgage properties per month because of your mortgage payments but combined your make more together than you will on one unencumbered property.

Buying cash is useful if you are buying, renovating and then looking to re-mortgage to squeeze your returns, but as above it is still a risky strategy as you literally never know what is around the corner (Covid has been one hell of an example).  We are still not 100% sure what will happen in the final quarter of this year either.

On a personal note I have ignored the advice I give to my clients and bought a load of properties in cash.  They were really cheap and need a tonne of work and I am in this long term.  As long as I can mortgage them I am not too fussed if I dont make as much money as I initially forecast.  What I do know is that houses aren't getting any cheaper.  If you look back in 10 years time today is probably the cheapest that any house will have been.  People try over think these things far too much sometimes.

Darren

 

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