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New member - advice greatly appreciated!


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Hi all,

 

I am currently not a home owner however by November 2017 I will be buying my first property with my girlfriend. Fortunately, we are buying the property below market value (as long as the market stays at least where it currently is) as buying from a relative and will hopefully have an equity of around 80K. My ideal scenario would be to move out in the November and then several months after purchase my (our) first buy-to-let investment.

 

In the meantime, I am going to invest plenty of time into reading and gaining knowledge, as suggested by Rob & Rob, as well as listening to the podcasts you guys provide!

My aim is to be able to invest in a buy to let property every 18 months, approximately. With the great lessons provided on the property hub and my subscription to the magazine I’m sure by next November I will be more than ready to invest!

 

Some questions I have are;

1)      Would you advise that I set up a Ltd company to purchase our first buy-to-let, with the intention to grow a portfolio, or would you just purchase the property and consider starting a Ltd company further down the line (if at all)?

2)      I am debating whether to use an interest only or repayment mortgage for the buy to let, but I am not entirely sure on what happens after the term, e.g. I know HSBC do a max mortgage term of 25 years for buy-to-let. So after a 25-year interest only buy-to-let mortgage do you have to sell the property or can you re-mortgage elsewhere? I would assume the first answer but some clarity would be great!

 

I am going to purchase our first property on a repayment mortgage, as I don’t think my girlfriend would be swayed to the thought of no owning the house after ‘X’ amount of years, and the risk (even though I understand property only appreciates in the long run) that the property could be worth less in 20+ years.

 

Thanks in advance, and apologies for the essay!

 

I’m looking forward to attending meet ups nearer the time I will be fleeing the nest and would be keen to attend a Summit, also nearer the time I am ready to invest.

 

Regards

 

Jake, from Essex

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Hi Jake

 

There's a course on the hub about forming a company - have a look and see if it makes sense for you and your circumstances. TBH, I don't think I'd bother for the first couple of properties. Get your feet under the table as there is a lot to learn anyway, without forming a company and arranging corporate finance. I think that finance companies may even want to see a track record before they lend your company some cash.

http://thepropertyhub.net/products/

 

I am a quantity surveyor, and when studying for my degree, our economics lecturer explained that you should not take out an interest only mortgage if

1. it is for a property you will live in,

2. you intend to still have the property at the end of the loan period, and

3. you have no plan for paying off the loan at the time of expiry

 

We have a repayment mortgage on our home, and are in fact overpaying to pay down our debt and outgoings. But for our investment properties, we have an interest only mortgage. We don't expect to hold these properties for 20 years and are paying rental profits into stock funds in order to either pay off the mortgage without selling, or use as a cash payment for more properties.

 

The benefit of interest only is that you have lower monthly outgoings. Also, the effect of inflation reduces the true value of your debt over time. If you borrowed GBP 100k today and paid it back in 25 years, the actual amount repaid would still be GBP 100k but it would be worth less to you as you could buy fewer things with it.

 

With a repayment mortgage, you are paying off some of the original debt every month, and so the amount of interest reduces every year. But banks aren't stupid and tend to recover a disproportionate amount of interest compared to capital in the first 7 or 8 years. By that time, many mortgage borrowers would have transferred to another deal. This means the bank makes higher interest in the early years and recovers the bulk of the original loan when you move on. Even though I am aware repayments mortgages are more expensive in the short term, when it comes to your home, I would definitely put up with them.

 

hope this helps and good luck

 

Chris

chris-battle.jpg
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