Bad time to Invest? Needing Advice!

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    Bad time to Invest? Needing Advice!

    Hello Everyone,


    I'm 21 and currently looking into investing into more property in the East Midlands area (Lincoln to be exact). I was left with a property when I turned 15 and this has been rented out since then. I'm now in the position where I want to invest and expand my portfolio. I've been looking at property for months and going back and forth with mortgage advisors and estate agents trying to understand what I'll be getting myself into. Is it a good time to invest? Is there ever a good time to invest? I can't help but see these articles that always seem to be along the line of 'buy to let is dead' or 'landlords cashing in before it's too late'

    I fail to see how how buy to lets can just disappear when there are so many people doing it. I understand that the costs are getting higher (stamp duty etc) but I still can't see this being enough to deter me.

    The house is currently worth £125,000 and there is no mortgage.

    My plan is to take 65% of the equity out of the property and invest this into 2 others properties. I'll keep my current house as a repayment mortgage and then have the other 2 as interest only. The mortgage rates I've been given seem really good! I can definitely see a profit but are there any costs that may catch me off guard? As I've never been through the process of buying a property I want to make sure I know the costs before I go into it.

    Hopefully once I'm comfortable with 3, I'll be able to expand further.

    Any advice would be greatly appreciated!

    Thank you,

    -Reece


    #2
    There’s never a right or wrong answer to this question because there are loads of variables and, ultimately, no one has a crystal ball.

    I don’t know your area, so you’d do well to speak to local agents and other local landlords about which areas are desirable and which have performed well over the last 20 years or so.

    But the basic numbers of what you’re doing sound reasonable. You’ll have about a third equity across your portfolio of three houses which should give you adequate protection against another downturn (the banks are unlikely to allow you to put yourself in a risky position anyway).

    But you will need a significant “rainy day” fund. If a boiler needs replacing you have to act promptly, if a tenant stops paying and won’t leave, you could be looking at 6-8 months without income plus legal costs (you can get insurance for all of these things).

    Keeping a working float of 6 months rent should cover you well enough for the worst case scenarios.

    Comment


      #3
      as an alternative have you considered seeing how much you can get your current property valued at, id try for £150k valuation and look to put a 75% btl mortgage on it, this would give you £113k cash to play with, being a cash buyer helps you buy properties below market value as sellers know youre not gonna drop out through financing difficulties.

      i dont know the numbers in lincoln but working on how i do things and assuming prices are a bit higher id then do this

      id look to buy something thats cheap as it needs work doing to it

      so lets say you buy something for £85k and spend £15k doing it up youre in it for £100k, at that amount of investment id want £625.00 pcm rent

      then look to get a btl mortgage on it, id assume youd be able to get it valued at £125K which would get you a mortgage of £94k, an interest only mortgage should cost you about £200.00 pcm giving you a monthly profit of £425.00

      this system works if youre looking for immediate income and the possibilty of long term capital growth

      you get nearly all your cash back to go again with, it works for me with slighly lower values, ive bought 5 over 6 years and have got my initial pot of cash still and have invested on average £10k in each property on refurbishment, when i last calculated values the properties should sell easily marketed at £125k more than the mortgages against them

      regarding btl being dead, i dont think so, its not as lucrative as it was once your income puts you into 40% tax bracket and also the extra stamp duty effects everyone a little bit although i just put it into my calculation as a cost so in effect the seller is getting 3% less rather than me paying 3% extra

      Comment


        #4
        Stamp duty is a cost to buy, so while you do have to fund it at the front end, you can deduct it from your profit when you’re calculating CGT when it’s time to sell.

        Comment


          #5
          Lincoln is a University City that is expanding, so there will always be rental possibilities across the board. However, this means that bargains are few and far between, as there are plenty of Landlords wanting to buy. I would just wait six Months or so, as I am just starting to see price reductions on right move!

          Comment


            #6
            Originally posted by HantsAgent View Post

            But the basic numbers of what you’re doing sound reasonable. You’ll have about a third equity across your portfolio of three houses which should give you adequate protection against another downturn (the banks are unlikely to allow you to put yourself in a risky position anyway).

            But you will need a significant “rainy day” fund. If a boiler needs replacing you have to act promptly, if a tenant stops paying and won’t leave, you could be looking at 6-8 months without income plus legal costs (you can get insurance for all of these things).

            Keeping a working float of 6 months rent should cover you well enough for the worst case scenarios.
            Thank you, i'll keep this in mind! 6 months is what I was aiming for. I expect there will be a couple of hiccups at some point so this'll come in handy.

            Comment


              #7
              Originally posted by BROOSE View Post
              as an alternative have you considered seeing how much you can get your current property valued at, id try for £150k valuation and look to put a 75% btl mortgage on it, this would give you £113k cash to play with, being a cash buyer helps you buy properties below market value as sellers know youre not gonna drop out through financing difficulties.


              regarding btl being dead, i dont think so, its not as lucrative as it was once your income puts you into 40% tax bracket and also the extra stamp duty effects everyone a little bit although i just put it into my calculation as a cost so in effect the seller is getting 3% less rather than me paying 3% extra
              I haven't, It's definitely something I will keep in mind! The only problem I can see is when it comes to refurbishing the properties. I'd like to build up a list of contacts who would be able to do some of the bigger jobs (re-plastering, new kitchen/bathrooms etc.). I'm hoping this will just come naturally over the years of expanding my portfolio.

              Maybe starting off with refurbishing properties would be best but if not then there's nothing stopping me in a few years.

              Comment


                #8
                Originally posted by amazondean View Post
                Lincoln is a University City that is expanding, so there will always be rental possibilities across the board. However, this means that bargains are few and far between, as there are plenty of Landlords wanting to buy. I would just wait six Months or so, as I am just starting to see price reductions on right move!
                If I leave it 6 months could my current mortgage rates rise though? I suppose it's all about finding that right balance of low house prices and good interest rates.

                After speaking to a few estate agents houses definitely aren't selling for what they're put up for. Are house prices really going to drop that much when everything else is going up? Is there a possibility that a recession could happen? It's been 10 years since the last one.

                Comment


                  #9
                  Timing the market is for mugs.

                  At 21 years old it is a great time to invest (as well as enjoying yourself at the same time).

                  But so many variables and individual circumstances.

                  What about this for consideration;

                  Flog the inherited property, CGT free.
                  Buy in Lincoln (I know it a bit) a 3 or 4 double bed Victorian freehold house with a bit of character in a potentially up & coming area. Research 'your' selected area so you know it far better than anyone else.
                  Buy on sq M.
                  Buy at trade.
                  Complete it to a high standard. Fully furnish. Put in the extra baubles. Charge top, top whack.
                  Be a live in landlord to quality students, young professionals. Kip in the attic/storeroom/garden shed if needs be. Clean up after them with good grace.
                  Treat yourself at the Wig and Mitre on Steep Hill now and again.
                  Choose your tenants very carefully. Keep a professional distance, they aren't your mates -a crèche for adults.

                  No SDLT.
                  Rent a room allowance.
                  Live in landlord rules.
                  No CGT.
                  Even reduced IHT!

                  20%+ yield

                  But it takes work, organisation, management, bollocks and leadership.

                  Comment


                    #10
                    Originally posted by boletus View Post
                    Timing the market is for mugs.

                    Buy on sq M.
                    Buy at trade.
                    Complete it to a high standard. Fully furnish. Put in the extra baubles. Charge top, top whack.
                    Be a live in landlord to quality students, young professionals. Kip in the attic/storeroom/garden shed if needs be. Clean up after them with good grace.
                    Treat yourself at the Wig and Mitre on Steep Hill now and again.
                    Choose your tenants very carefully. Keep a professional distance, they aren't your mates -a crèche for adults.

                    But it takes work, organisation, management, bollocks and leadership.

                    As awesome as that would be I probably should've mentioned that i'm not actually living in Lincoln at the moment. I moved down south 8 months ago with my gf to maximize our income and increase our savings. Our rent is dirt cheap (family member owns our flat so we're getting a better rate) and we're both on decent money so it's a win win.

                    I love your enthusiasm though!

                    Comment


                      #11
                      Ah! OK, makes sense.

                      If you've not already done so, have a look into nominating your property as your main home with HMRC to avoid CGT.
                      (Might not be possible if you've never lived there but there are limited exceptions for working away.)

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