Whats the Optimal Strategy?

[AIMelvin 0]

Hi All,

 

Im young (24) and new to BTL though I've done extensive research and learnt a lot from all the great sources out there (Property Podcast i'm looking at you).

 

As i've been pondering and re-thinking my own planned strategy infinite times, (waiting till I have the cash). I would love to know what people feel the optimal strategy would be (or near enough) with the following situation:-

 

£50,000 cash.

Requirements: A place to live and at least one investment.

 

1. How would you split the deposits?
2. How would you finance/Would you use any first time buyer or similar scheme?

 

(Those are two questions, of-course there are many many more but I don't want to be greedy with your time. I will likely be in this situation in 2 years time and want to have it well planned out and know what I'm looking for, and how I will finance the start of my journey into the property market).

 

Thanks!

Arin.

 

[richard brown 720]

Hi Arin

 

Welcome to the Property Hub and to your future as a property investor - I like your commitment to saving up for your investments very much

 

You raise an interesting question and different people will provide you with different preferred strategies no doubt - invest for income vs.invest for growth / flips vs. buy-to-hold / single lets vs. multi-lets / long-term retirement planning vs. short-term income supplement or replacement, etc. I do have some preferences myself but instead I prefer to answer this type of question in a slightly different way and have written about it on my blog here: http://sco.lt/8YgmbR

 

Essentially, it is to take a holistic view of you, your skills and preferences and your investment goals and priorities before settling on any given strategy - everything needs to be aligned if you like.

 

In summary from the article (inspired by a question posed to me similar to yours by the illustrious Rob D):

 

I was recently asked a question: if I was starting out and had saved enough for a deposit sufficient to buy an average home (say £30k-£40k), what would I do? A very good question indeed...

After some thought I would answer the question like this...

 

1. First of all define your purpose for investing in the first place - this is our reason why - or in Steven Covey's words 'begin with the end in mind'. [emotion allowed here]

2. Next, are you looking at a short-term or long-term return on your investment? 

3. Then, are you investing for income (yield) or for capital (house price appreciation)? 

4. Is this a one-time only investment or can you repeat the process in the future? 

5. Understand your personal skills, task preferences & lifestyle choices. 

6. Now what makes it all hang together - do the numbers! [no emotion allowed here]

I elaborate more fully in the blog post on each of these points if you care to look into it more fully but hopefully the message is: find a strategy that is right for you and this may or may not be the same as for me, or anyone else for that matter.

 

Good luck with your bright future - wish I had started out at 24!

[AIMelvin 0]

Hi Richard,

 

Really appreciate the detailed response, you breakdown and reiterate a model that is clearly attune with other experienced investors.

To be more specific I am looking to grow a portfolio as rapidly as possible, while maintaining a predominantly "investor" position rather than a "landlord" role. With that same money I will need a place to live also however, for which I could potentially use a first time buyer scheme to lend a hand and leave more for investing?.

 

I believe a strategy based on a high rental yield would be best, to reinvest profits for further growth and maintain a safety cushion of income as a newbie investor/first property with rising interest rates. HMO's are an obvious choice but can be very heavy on management and legal efforts which I am of-course inexperienced with. 

 

A key aspect I am also keen to learn more about are creative finance options for someone in my position in order to squeeze the most out of this start-up capital. 

 

Any and all help/constructive criticism is greatly appreciated.

Thanks!

[stuart h 1]

Hi Arin. In terms of being creative how about the following;

Purchase your principal primary residence as soon as you have saved the funds required. Put down as little as possible eg 5% under help to buy? Buy a two bed property that will rent well at a later date. This serves two purposes. It allows you to rent out the second bedroom under the rent a room relief scheme, tax free. It also allows you to benefit from house price inflation while you strive towards the £50k lump sum. Finally, you can rent the property out for a few years without, broadly speaking, paying any capital gains tax.