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Dear property hub family, 

FIrst of all i would like to thank Rob and Rob for the property hub!! they are amazing! Secondly thank you for taking time out to read my post. I truly would appreciate your help in my situation - going over the numbers. Any comment, idea, suggestions or nuggets of wisdom will be greatly appreciated (big or small)

Here I am ready to plunge head first into my first BTL only to get thrown a speed camera moment that could end thing on track!

My wife and I have for our own house which has gone up nicely in value since purchase, two years on and the shinny mortgage deal comes to and end and the lovely brokers are only too happy to get you going with a remortgage.

Since I am already paying for the remortgage i might as well initiate the equity release process at the same time (read the books and attended the course but nothing will make me knowledgeable in 2nd property deals like getting physically involved) so had this chat with the broker and here are the figures:

 

currently without  equity:

monthly payment £816 (1.34%)

 

IF i was to release equity:

My monthly mortgage payment  will move to circa £1211.00 (£400 increase/month)

51.3%LTV

and all i can release and use -due to our affordability is a £30K  (taking the other expenses into account: potential refurb, fees .etc + plus savings)

 

That £30K

From that i will need to pay the 25% deposit and pay at the most 3% stamp duty (house below £125k) 0.25x+0.03x= £30K => circa property around £100K mark for my BTL.

 

That is all well however when i looked at the figures they did not align>

 Because a property OUTSIDE London with (rental potential) for £100K will roughly speaking attract a monthly rent of £550. MOrtgage payment of around £313 and so realised with the agency running fees, and bills i will not even get any cash flow! Not to mention the £400 extra/month from our main house mortgage.

+in addition to that i understand that the bank's are specifying that the house needs to be able to be let-able, immediately and so that affected our strategy-of flipping a on a house in need of modernisation. 

So from the case above what are your thoughts of the situation and is there an escape route that i am not seeing?  if you know of other ways we can do it please enlighten me! I know there is a solution out there...

 

Thank you very much for your time, regards

Abdul

 

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Yeah.... ya screwed. :-) 

So for flips, I use the rule of thumb that you need 50% cash. So you could be looking at properties in the £60k area, which are going to give you around the £10 - £15k profit margin.
I suspect that means going significantly out of area for you, but that's what you're looking at.
You'd then get bridging finance to fund the deal alongside your £30k of cash (from equity). 

As for a straight rental. 6.6% yield isn't awful, but you can push that closer to 10% if you look at other areas and other strategies. As I'm sure you know, if you even could buy something in London for that amount, you'd be getting around 4% yield. If you get a LHA tenant in Bradford, you might be closer to 14%. 
So it can stack up, you just need to not go for the 'standard' places where you can buy a £100k property. 

 

The other side of the coin though is, if you buy a half decent place for £100k and get zero cashflow on a monthly basis - you are taking the gamble that capital appreciation will kick in and pay off for you in the long run. 
Even at say 3% growth a year, that equates to a 10% ROI on your equity money. 
It's a risk and not something I ever take into account, but it's a strategy others follow. 

 

Hope that isn't too depressing for you. 
Alternatively - see how you can use your existing property as security for a second charge with a more adventurous lender. They may not use affordability as their deciding factors.  

Damien Fogg
MRICS CeMAP CeFA

Email: damien@theepinvestor.com

Web: www.theEPinvestor.com

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