Limited SPV: Buying BTL with a mortgage OR Buying cash and releasing equity later ?

[Proprio]

Hi,

 

I am an absolute novice in all this so forgive me if my question is dumb or else...

 

I have a bit of cash on the side and formed an Limited SPV to invest my hard earned cash in some BTL.

 

Initially I thought of buying Cash a property and seeing how it goes but I am now having second thoughts: What happens if I want to buy another property and all my cash is locked into my first property !!? 

 

I am wondering what is best for Limited SPV:
1/ Buy the first property with a mortgage which gives the advantage of leaving some cash for a second property.

2/ Buy the first property Cash and ask a lender for a mortgage later to release equity when I want to buy a second property. This has the advantage of making me a cash buyer, which I guess sellers like more. But I have no idea how the equity release aspect will work etc. also I could have a surprised if the lender values my property much lower than where I bought it. However I though that maybe a lender will be more inclined to give better terms if the asset is already bought and (hopefully) tenanted.

 

Hopefully someone with experience in the matter will share their knowledge/experiences .... and I thank you very much in advance.

 

Best regards 

[miatang]

I'm in a similar situation and we be interested in everyones opinion on this

[Myriad Mortgages]

Hi Proprio, 

 

It's a personal decision and it depends on your investing goals. 

 

Be aware that many lenders will insist you have owned the property for a minimum of 6 months before they will allow you to raise any further capital.

[webnik]

A couple of notes from my recent experience on this.... NB: I'm a beginner too....

 

- If you already own an unleveraged house personally and sell it into your company, we found our lender didn't need to wait 6 months before letting us take a mortgage out to release equity.

 

- Legal fees!! It's not like buying as an individual. In retrospect we would've been better off buying it into the company with a mortgage. We paid solicitors when we bought the house for cash and then again (which, remember, can be three lots of solicitors - to represent the bank, your company and to advise you on your personal guarantee) when we took out the mortgage. The fees are higher than when you buy as an individual too. Find a lender with free legal and I guess you might cut a chunk out of that.

 

- Fees in general! Buying for cash, there's your one solicitor and that's about it. Buying with a mortgage, you've got your broker, extra solicitors, valuation fee, etc etc. Expect that to easily cost you an extra couple of thousand (our bank's fees for valuation and just their solicitors came to £1500). You'll probably want a homebuyers-type survey either way, but remember to factor that in too.

 

- If you're spending/investing most of your money, having no mortgage will help you build up a contingency fund more quickly (might not apply in your case as you're only doing one house at a time, sensibly).

 

- On the other hand - ROI - calculate it for both plans and see the difference a mortgage makes. The less money you have tied up in a house, the harder you're making it work. But that only works if your finance is right, your tenants pay on time and you have a plan to do something with the money you didn't put in. If you have all your money tied up and the ROI is 2%, it's probably not worth all the hassle involved unless you're expecting the house price to rocket.

 

FWIW, we changed our mind pretty quickly about owning one house outright and so have mortgaged it to release the equity. It released enough to buy a second one for cash, if we choose. While we're beginners at this, two houses seems enough, so we'll probably end up buying for cash again rather than stuffing money in the solicitors' pockets. I'm happy to be advised against that plan though!!

[Jessica D]

Hi, in my experience an important factor in cash vs. mortgage is if you can get a good deal paying cash - if you find a motivated seller who is willing to lower the price on a 'guaranteed' sale that will go through quickly because you have cash and aren't at the mercy of a lender (especially as you may be a first time buyer) it may be worth the trade off of locking in your cash for 6 months if you get enough of a discount. 

[TopQat]

As an expat investor without access to low mortgage rates and with the prospect of paying huge arrangement fees, I decided to pay cash for a property last summer. Being a cash buyer helps you complete quickly. Sellers like a cash buyer, as do estate agents. I was lucky enough to find a motivated seller and ended up paying GBP 78k for a property that was originally on the market for GBP 97k. 

 

I now have a couple of options. Release equity from this property and buy a second investment property for cash. Or, keep saving and buy another property for cash in the next 18 months or so. While I continue to be an expat investor, I feel it's prudent to continue buying in cash as I don't have access to competitive mortgage rates. Once I return to the UK I'll look at releasing the equity to expand my portfolio.