3% more expensive property or 5% cheaper property [post v pre-'revenue' rules]

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    3% more expensive property or 5% cheaper property [post v pre-'revenue' rules]

    I'm trying to understand the full investment strategy behind BTL's before jumping in. I'm looking at the lowest end to begin with sub 30k and sub 50k and to have a repayment and interest mortgage on them.

    Looking at the numbers, both will accrue around 16k in interest over 25 years. Which makes the 50k property the better investment I'm guessing. However, you can repay early after 5 years on either after 5 years with no fees.

    Before the rules came in you likely didn't want to repay too early as you could offset your earnings. Whereas now you can't do that, as you're taxed on revenue, as far as I understand it.

    Am I right in thinking then that the 50k property used to be the more attractive option, and now the 30k is better as you can just repay faster after 5 years and pay less interest overall?

    Sorry if my thinking is crude, I'm new to this and sort of working it out as I go along!

    Who sold/presented this strategy to you, please?
    I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...


      Originally posted by theartfullodger View Post
      Who sold/presented this strategy to you, please?

      Hi artful,

      no-one, just myself coming up with these ideas. Started with looking at a cheap BTL, and then running the numbers, and comparing number with more expensive places as most lenders won't lend lower down etc..

      Sort of ended up wondering what's better for a first time investment. 30k or 50k flat. Both have similar rents around 380 to 400 a month, which makes the cheaper one sound like a better deal, but the interest is nearly 2% higher.


        Originally posted by endlessfees View Post
        Before the rules came in you likely didn't want to repay too early as you could offset your earnings. Whereas now you can't do that, as you're taxed on revenue, as far as I understand it.!
        Unless you're a higher rate tax payer (or are just below the threshold) I don't see what's changed and why that would affect your planning.
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).


          You will have a very very difficult job in finding a lender prepared to fund such very low value properties. In the climate of uncertainty lenders views are compounded by an ultra conservative view by valuers.


            Where in UK , can you buy property in a safe street at night for £30K or less ?

            Most mortgage lenders start their loans at £50K minimum.


              Gordon is indeed correct, I recall several years ago a client who somewhat foolhardily entrusted monies via a Property Educator who promised high returns on low value properties, at no time did he do any due diligence. When I was engaged he had already experienced serious Arrears so I was asked to visit the area in the North East and quickly established that the vast majority of units were former ex local authority properties on what at the time were considered by local estate agents as being in sink estates and the type of tenant was at the bottom of the socio economic league and relying entirely on state benefits . Since that time lenders have become much more rigid in their assessment of low value properties and ask the valuers for expressed comment on the Suitability. Needless to say I recommended he cut his losses and eventually sold all twelve properties as a job lot to a cash investor suffering a significant loss.
              Sometimes all that glitters just turns out to be fools gold.
              Caveat Emptor


                I remember some older houses in Hull , Yorkshire could be bought for around £25K .

                The houses were cheap because they were in poor condition but no one was doing them up to rent out.

                The reason is because some other houses in the same street were abandoned and the windows and doors were boarded up.

                It was not safe to walk along the street at night .


                  Firstly thanks for the replies and I'm further along since posting originally. I went to see a bunch of these low value propositions yesterday and have a better understanding of the reality behind them. There are places going in areas like Sunderland and Bradford, even Newcastle which look like incredibly good value on the face of it. Selling under original purchase prices and lower than comparative properties in the same block or street. Or pods in central locations which have guaranteed rental income.

                  After going to see these and doing some digging I'm massively distrustful of the agents who were advertising them. Two places had advertised photos that were not of the property. Management fees on one place took days of digging to discover, and came to over 2k a year inc ground rent which is set to increase every 5 years. The agent that showed me one place said he was working in the business for 23 years and never heard of anything like I was suggesting when I asked him if the ground rent increased every 10 years or so. Said it was impossible, that's just not heard of. Found that odd because the news is always talking about leaseholds but I didn't know that area (Sunderland) so left it at that and decided to dig into it later. Shocking that they'll actually lie that blatantly to your face. Either that or the ignorance is astounding.

                  One place in Newcastle looked nice in the photos and was a whole 15k less than the flat beside it, which was also for sale. Agent said next door had hugely overpriced theirs and would mean the 35k flat would sell quickly. We turned up early to check it out and was shocked. Windows all boarded up on several flats and possibly even the flat we were supposed to see. Lots of dodgy characters outside so I had another Google and news turned up of a flat there being broken into, the guy living there having his throat slashed, and then left to die as they set his flat on fire. Guy managed to escape but that might explain the condition and low price. Messaged agent to cancel appointment.

                  Bradford had some stuff like the Gatehaus which looks like a great proposition, but digging into it looks like the situation there is dire:


                  Anyway.. I've given up on the sub 50k places. I'm sure someone savvier or with better appetite for risk can make it work for them, but I'm too green for anything I've seen so far. As for lenders - Clydesdale/Yorkshire do lend sub 40k.


                    You mention Clydesdale, interesting , definitely not my first choice for placing a client with.

                    Your research mirrors the views expressed on your posting. In the areas you mention , if a property is honestly offered below the OMV ,beware there is invariably something wrong otherwisehe units would be snapped up. Keep on researching.


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