1.6m investment advice needed

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    1.6m investment advice needed

    Hello,
    I'm thinking about moving into the buy to let market and I would like some advice and thoughts/ideas from experienced members.
    I currently have 16 units on one site that I lease to one company with a ten year lease in place,
    I am 3 years into this lease.I tied them up pretty tightly regarding voids and even though I allowed them a small number of voids per year there have been none so far.
    I have estimated the market value of all 16 to be around £2.25m
    I already owned the building and land outright which was worth £430k and spent £800k converting the original property and building the other four.
    This is achieving £110,100/annum but £9240 is servicing a £100,000 bank loan with a 15 yr term.
    I would potentially/eventually like to raise a 70% loan to value of 1.6m which, based on £160k properties would allow me to buy around 33 properties with a deposit of £48k each. Assuming each property brings in £800/month rented 10 months/annum I think would achieve a yield of just under 10%.
    Am I thinking along the right lines or has anyone got any good advice?
    Many thanks Peter

    #2
    That's a massive debt ratio.

    You'd have a loan of 1.6m on the current property, and just under £4m mortgaged in the BTL properties.
    Assuming you could get that amount of finance with a decent rate, running the debt's going to cost you more than £250000 per annum (assuming interest only at just under 5%).
    You'd cover it and make about £110k per annum.

    That's me scribbling figures down (and I am prone to be a zero or two out).

    I can't see any conventional lender going for it.
    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).

    Comment


      #3
      Yeah you aint going to be able to borrow £1.6million on a rent of £110k. At 4% your repayment amount would be circa £8500 per month = £102,000 add in your existing loan and your losing money. I have used a rate of 4% which you may be looking at. By the sounds of it you may even be looking at a 15 year commercial loan which would be even more to service as this sounds commercial to me. We just financed 20+ properties and had to take a part commercial loan on some of it due to there being a commercial lease.

      you would not want to borrow that money even if you were offered it as with interest rate rises, possible complications in your current deal it would be utter madness. I would have to inspect the lease, covenants, tenant etc... in a lot more detail but I would be very careful of gambling everything on possible capital value increases. Loanarranger will give you more details on what you could borrow but I would certainly be factoring a minimum cost of 4% as you will be looking at commercial finance and at this level you need to know what your are doing as the banks are no longer friendly

      Comment


        #4
        If you add in the income from the 33 properties, the income is about £360k - with £250 interest costs.
        You'd have to do it as a business because the personal tax would be a killer under the current plans.

        I doubt you can borrow as a business with that kind of exposure at less than 5%.
        It's just a mad growth plan - and vulnerable to changes in interest rates, house prices and the tax regime.

        If the OP could release £1.6m in equity, they could buy 10 of their target properties outright, delivering £80k per annum income.
        Obviously there'd be less capital growth with less than 1/3 of the properties, but you'd be in control, with valuable (and relatively flexible) assets, rather than potential liabilities.
        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).

        Comment


          #5
          If you are not already into BTL, why the need to go big straight away? Surely it would make sense to buy a couple of properties first and see how it goes? Personally I wouldn't be looking at financing at 70% loan to value - I wouldn't go above 60%LTV. It makes riding a storm a bit easier should it come your way.

          Comment


            #6
            hech123 is right - there is no way you would be able to borrow that sort of amount on what is essentially a commercial proposition (you have let it on a commercial lease after all) with a rental income stream of £110k.

            As a very rough guideline the high street lenders will lend you between 5 and 7 times the passing rent and they don't like short leases but you should scrape in with 7 yrs remaining at the moment. The secondary lenders, on which you are likely to be paying as much as 200 bps higher on rate, will lend up to around 9 - 9.5 times the rent. At best therefore you will be able to raise nearly £1.05m - nowhere near your target figure, and out of that of course you will need to redeem the existing first charge.

            Forget LTV it is all about loan serviceability and what the individual lenders build into their calculations.
            CFA

            Comment


              #7
              You have a rental income of £110K and a bank loan of £ 100K and required to repay £9240 over 15 years.

              If you are able to take a large loan on the same terms as the existing 100K bank loan, yourannual rental income at £110 K would be able to support afurthe £1 Mil loan requiring £92400 repayment .

              This means your income is £110K and your bank repayment is £ 9240 x11 = £ 101 K leaving 9K surplus at end of year. Your taxable income may be £110K- £50K loan interest = £60K ( tax = 14 K approx and rising to 24K in 2020 ) .


              If you decide to proceed raising £1 Mil, you could buy 20 properties by £48K deposit and borrowing £112K . So total asset value is 160K x 20 = £3.2 Mil and total loan = £112 x 20 = £2.24 Mil.

              The rental income from 20 units = £800 x 10 months x 20 units = £160 K and if on interest only = £2.24 Mil x say 6% = £135K . which is covered by the rental income and leaves £25 K surplus.

              But if the changing tax rules make loan interest not allowable as an expense which is deductable from rental income, then you may have negative income to consider.

              Comment

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