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I Have 20k To Start. What Would You Do?


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Do you have skills in DIY or contacts that do?

 

Quickest growth, as far as I can imagine, would be finding something remarkably cheap - potentially even at auction - and overhauling it before selling on for the revaluation price.

 

It will take a lot of research to make sure you know what you're getting and what you can do to sort it though.

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Hi Brian,

 

That's a difficult question to provide a straight-forward answer to. It really depends on your strategy, which in turn depends on your goals (or put simply what you want from property). Once you know what property is to you, and what you want it to do for you, you can put together a plan to get there factoring in the following:

 

TIME

  • How much free time do you have?
  • How hands on/off can you afford to be?
  • Can you self-manage a BTL?
  • When do you want to reach your goal?

RISK

  • What is your attitude to risk?
  • How much 'debt' (or loan to value) are you willing to take on?
  • Do you want the certainty of buyer/tenant over a potential higher rental/sale value?

LOCAL

  • ​Do you need or want to be close to your investments?
  • This will obviously have an effect on the ability to self manage, if you wanted to do that.
  • Does your local area's housing market fit your goals?

Ltd Co. / Sole Trader

  • This is quite a topical (and key I might add) decision to make, but not one to be taken too lightly.
  • Big implications on tax strategy
  • Inheritance planning? Ltd co. can be far more efficient at handing down properties.
  • Lending - Maybe or maybe not the biggest factor at play here. A Ltd co. (at least in today's economic climate) will experience a smaller market of lenders, and stricter requirements. The interest rate will almost certainly be higher also, although this could  be offset by deducting prior to tax (something that will be no longer possible to a sole trader thanks to Mr O!)

This is by no means an exhaustive list, more just an indication of variables at play - I'm sure you can appreciate your 'ideal investment' would be dramatically different depending on your answers to some of these questions. Do spend time forming your goals (together with your partner of course!), and then spend the time to form a thorough strategy that works for you.  Having solid goals/strategy in place will answer your question for the most part.

 

Hope this helps and doesn't just muddy the waters for you! Feel free to question me on anything if it hasn't quite made sense.

 

Tim

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Hi Brian,

 

That's a difficult question to provide a straight-forward answer to. It really depends on your strategy, which in turn depends on your goals (or put simply what you want from property). Once you know what property is to you, and what you want it to do for you, you can put together a plan to get there factoring in the following:

 

TIME

  • How much free time do you have?
  • How hands on/off can you afford to be?
  • Can you self-manage a BTL?
  • When do you want to reach your goal?

RISK

  • What is your attitude to risk?
  • How much 'debt' (or loan to value) are you willing to take on?
  • Do you want the certainty of buyer/tenant over a potential higher rental/sale value?

LOCAL

  • ​Do you need or want to be close to your investments?
  • This will obviously have an effect on the ability to self manage, if you wanted to do that.
  • Does your local area's housing market fit your goals?

Ltd Co. / Sole Trader

  • This is quite a topical (and key I might add) decision to make, but not one to be taken too lightly.
  • Big implications on tax strategy
  • Inheritance planning? Ltd co. can be far more efficient at handing down properties.
  • Lending - Maybe or maybe not the biggest factor at play here. A Ltd co. (at least in today's economic climate) will experience a smaller market of lenders, and stricter requirements. The interest rate will almost certainly be higher also, although this could  be offset by deducting prior to tax (something that will be no longer possible to a sole trader thanks to Mr O!)

This is by no means an exhaustive list, more just an indication of variables at play - I'm sure you can appreciate your 'ideal investment' would be dramatically different depending on your answers to some of these questions. Do spend time forming your goals (together with your partner of course!), and then spend the time to form a thorough strategy that works for you.  Having solid goals/strategy in place will answer your question for the most part.

 

Hope this helps and doesn't just muddy the waters for you! Feel free to question me on anything if it hasn't quite made sense.

 

Tim

Thanks for the detailed reply Tim!

 

Basically I want to work my way to property being my full time job, In the future I want to be letting out several properties, however I need to figure out the best way to start and how to build up my capital.

 

So I'm after ideas of the best thing to do with my 20k, is starting small and finding a cheap enough property to refurbish and sell on the best way? or is there another option? As finding a property cheap enough to cover all the costs and refurbishment all for 20k is going to be very difficult from what I can see. Any advance please?

 

Thanks, Brian.

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Hi Brian

 

Tim does not answer your question directly, however, he has given you the perfect response! :)

 

I agree with all of what Tim said, that you must first 'begin with the end in mind'...or your goals - this ensures you know where your are heading

 

Then you need to look at your resources: time, money, skills, experience, contacts, etc. - this will rule in / out certain strategies that are possible

 

Your 'when' is also very critical - this will govern the speed of your action plan implementation and the risk trade-off required

 

The property cycle - some strategies lend themselves better to certain stages in the property cycle, so strategy timing is also important

 

Finally, don't forget your personal preferences: what you like / dislike will / won't do - there is no point saying go and knock on the doors of motivated sellers if you can't take rejection say

 

Once you have all of this in mind you can then set a course...your strategy.

 

And once you have your strategy you can then set your action plan to achieve it.

 

Some example strategies using your £20k starting pot:

 

  1. Long-term modest income goal (similar to a pension, so a 25+ year plan - buy an £80k property on a repayment mortgage in a high yield area (to service the repayments), overpay the mortgage once you have an annual income surplus and end up with a fully unencumbered property generating around 7% pa in gross yield. This is a steady-as-she-goes long-term, low-risk investment strategy
  2. Short-term income maximiser - through yourself into a rent-to-rent model, with loads of time trying to find a suitable property to pay a guaranteed rent to the owner and then sub-let either through HMO or short-term rental. This is hard work, make no mistake
  3. Medium-term investment pot builder - grow the pot as much as you can, as quick as you can. Examples include flips & buy-refurbish-refinance 'rinse and repeat' models. Given that £20k is actually quite a low starting pot to realistically achieve the (budget on having c50% of a property's purchase price in cash for it to be effective), consider teaming up with a JV partner to accelerate this option
  4. Short-term investment pot builder - here the focus is very much on raising additional funds to invest personally to get the pot up to a bigger size, perhaps to complement / accelerate one of the above alternatives. Suggestions: save aggressively, sell items of value to raise funds, raise equity from existing property, start a business (eg trading on eBay/Amazon), second job, cut costs (to save more), rent a room out at home and so on
  5. Mid-to-long-term peace passive investing model - give your fund to someone that will give you an expected return of at least your minimum ROI (say 6% to 15%)...could be a REIT via an ISA, could be a loan to another investor / developer. Issues to consider here are risk v reward v security and how little involvement you would have in property investing personally

There will be more options depending on your personal situation no doubt.

 

These are just some ideas for your to consider, but only after you have followed the steps that Tim and myself suggest: that you start with in setting your goals.

 

In truth, and not wishing to be unkind, £20k is not a huge pot for traditional property investment, although I am sure it cost a lot of blood, sweat and tears to accumulate, so you will either need to build the pot or consider something a little more non-traditional instead. Personally, I started with £10k only and adopted a combination of items 3 & 4 above when I first started. 

 

I hope that helps,

 

Best

Richard

Hi Richard,

Thanks for being honest about my pot being small it helped me to put my own thoughts into perspective. Ideally I want to flip property for a while to earn more capital to later on buy to let. I think finding a partner is going to be a good option for me as flipping a house on just 20k seems next to impossible. You're right about the blood, sweat and tears aha, we will be mentally ready for the challenge soon but just not financially Do you have any advice on hard money lending? I've seen that as an option but don't know if it's worth considering?

Thanks, Brian.

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