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Which would you choose and why?


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Hello all,

 

I would be interested to see which route you would go down and why? Please see scenario below - 

 

By May of next year, I will (hopefully) be in the fortunate position of having about £100-£120k cash, I plan to use this to buy property. Now here comes the tricky part.... I've been fixated on using this money to buy one big HMO property costing around £300-£325k and producing roughly net £1000-£14000 PCM, however the more I think about it, the more I wonder - should I use the money to fund 4 vanilla buy to lets or even a refurb?

 

Option 1 - 

Buy a large HMO for £300k-ish

Net £1200 PCMish

I'm aware HMO properties scare many landlords away, but my Father has a substantial HMO portfolio and has shown me how to manage them successfully should I need to do so.

 

Option 2 - 

Buy 3-4 single lets, 85k-100k each

If I chose this strategy it would give me a chance to save up an additional £20k over the time it takes to purchase them

Net £1000 - £1200 PCMish

I'm thinking this could be a more beneficial approach as it increases chances of capital growth

 

Option 3 - 

BRR Method (Buy, Refurb, Refinance)

Look for a rundown building and bring it back to life

This method should allow me to grow my finances by a considerable amount, providing the project goes to plan. 

Being based down in the South East and having limited finances, this could prove tricky. Could look at doing BRR further afield though..

 

I'm looking to increase monthly cash flow as much and as quickly as possible, giving me more options in my professional life. I'm 24 at the moment so having problems like this, well lets face it, it could be worse..

 

Any feedback would be much appreciated, I would love to hear about what you would choose in this scenario!

 

Kind regards,

 

James

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Agree with RJW that your purchases need to link to your goals. If you need the money now to live off, option 1 may be the best, but if it's a long term investment, option 2 may be better, due to capital appreciation, although that depends on what you're thinking of buying and where. Also think of the exit strategy - if it was say a student HMO and the local university builds their own accommodation, what could you do with the property? If it's a large, old house in a reasonable area, you may be able to convert to flats or a lovely family home in the future, either of which may give you better appreciation than several sub-£100k properties.

An issue with HMOs to consider is that you may struggle to get a mortgage if you have no experience of being a landlord, so check that out.

As for option 3, do you have the time to do it? And if you're thinking of doing it away from home, have you considered the logistics of managing it remotely and are there other options you could do with your time that would be just as profitable e.g. overtime or even a 2nd job, whilst using your capital to do options 1 or 2? If you were planning on just using the capital you have for buying and renovating a property, you're probably going to make £10-20k, before tax due to the starting price for several months of work and stress. Whether that is worth it is only something you can answer.

 

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1 hour ago, dino v said:

Agree with RJW that your purchases need to link to your goals. If you need the money now to live off, option 1 may be the best, but if it's a long term investment, option 2 may be better, due to capital appreciation, although that depends on what you're thinking of buying and where. Also think of the exit strategy - if it was say a student HMO and the local university builds their own accommodation, what could you do with the property? If it's a large, old house in a reasonable area, you may be able to convert to flats or a lovely family home in the future, either of which may give you better appreciation than several sub-£100k properties.

An issue with HMOs to consider is that you may struggle to get a mortgage if you have no experience of being a landlord, so check that out.

As for option 3, do you have the time to do it? And if you're thinking of doing it away from home, have you considered the logistics of managing it remotely and are there other options you could do with your time that would be just as profitable e.g. overtime or even a 2nd job, whilst using your capital to do options 1 or 2? If you were planning on just using the capital you have for buying and renovating a property, you're probably going to make £10-20k, before tax due to the starting price for several months of work and stress. Whether that is worth it is only something you can answer.

 

Appreciate the replies. I should have been more specific in my first post, my current goal is to replace my wage for a passive income. Nearer to the time I will have a look at each specific route and go with which one suits my lifestyle/goals the best, I was just putting the feelers out there to see what people would choose if they were me. I completely understand everyone's goals and situations are specific to them, this was more a general overview of what's best.

 

Thanks 

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  • 2 weeks later...

As others have said, it's all about the goals, ROI over yield or vice-versa? Appreciating we don't know a great deal about your circumstances but your age alone suggests long term investment would be the way to go, so option 2. 

 

I have HMOs but am considerably older than you so higher yield works for my goals, which HMOs deliver. HMOs can be hassle without a good managing agent, so option 1 poses another question about whether you want to be hands on or off, I'd guess your Dad's experiences will guide you in that regard. 

 

What about a mix of options 1 and 3? You could possibly pick up a HMO outside the South East with part of your cash (means a bigger mortgage but the yield should be sufficient to handle that) and then use the rest for a BRR project to generate funds for the next deal. A few more things to consider with that one i.e. managing agent for the HMO is a must if you are remote and you may be taking a chance with refurb contractors if you have no local contacts and experience. 

 

Whatever you do it sounds like good fun and I really wish I had been thinking like you when I was 24.  

 

Good Luck

OT

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With options 2 the only issue I see is you want to buy potentially four properties with a budget of 120k. Lets say the purchase price is 100k on each property and you get 75%LTV meaning you deposit 25k on each property. That leaves you with 20k for legal fees, work that needs doing and anything else inbetween (5k per property) that’s a tight budget. Maybe look at doing 2 or 3 BTL in nice areas that you have extensively researched for good capital growth, rental income etc.

 

It might be worth spending a little more on 2 nice properties in good areas. Gain as much rental income and capital growth as you can and do it all again! 

Obviously you need to run through the numbers to decide this. 

 

Hope me this helps and good luck with it all!!

 

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Hi

 

Really great advice, as I'm in a very similar position.  I'm a fair bit older (almost double!) and my plan presently, is to go along with your option 2. I'm seeing my accountant to work out whether to buy individually, jointly with wife, or in a company, as well as heading to London to meet with RMP Property to see if they can help.  The more research you do the better, I think.

 

Good luck!

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  • 1 month later...

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