Discussion
Hi, i'm currently looking to buy a property (which may be the start of a small porfolio in years to come).
At the moment i have £95k in various accounts, i currently work full time and am doing a foundation degree (will be on a £30k salary soon). Now i am unsure of how to spend this/the most wise way of spending these savings.
Initially i was looking at buying myself a property to my own requirements, 3 bed semi, garage in a nice area for around £160,000, with a £60,000 deposit. With a mortgage around £500 p/month. Leaving myself with some savings for a rainy day.
However the more and more i think about it, i could buy an £80,000 - £90,000 house with cash, no need for a mortgage. Then let this for an approximate £450 net return per month.
Using this income i could save around £15,000 in a year, for a smaller deposit, then put this down on another property for myself, negating the requirement for a buy to let mortgage, but have two properties within 18 months.
What is the best way of spending this money to make full advantage of it?
At the moment i have £95k in various accounts, i currently work full time and am doing a foundation degree (will be on a £30k salary soon). Now i am unsure of how to spend this/the most wise way of spending these savings.
Initially i was looking at buying myself a property to my own requirements, 3 bed semi, garage in a nice area for around £160,000, with a £60,000 deposit. With a mortgage around £500 p/month. Leaving myself with some savings for a rainy day.
However the more and more i think about it, i could buy an £80,000 - £90,000 house with cash, no need for a mortgage. Then let this for an approximate £450 net return per month.
Using this income i could save around £15,000 in a year, for a smaller deposit, then put this down on another property for myself, negating the requirement for a buy to let mortgage, but have two properties within 18 months.
What is the best way of spending this money to make full advantage of it?
You need to look at it as return on equity.
eg. You buy one house for 100k no mortgage, get 7% return per year.
Or, you put a 25k deposit down for the same house, still get 7k per year income, but pay 3500 per year for quite a cr@p interest only mortgage - this still leaves you with 3500 which is 14% return per year.
You'd still have 25k equity in the property, if values go down it won't make a difference if its mortgaged or not (unless they go down more than 25%...very unlikely)
If you had 4 houses, obviously this example 14% would still be 14%.
So its a question of, would you rather make 7kish per year extra income or 14k+?
eg. You buy one house for 100k no mortgage, get 7% return per year.
Or, you put a 25k deposit down for the same house, still get 7k per year income, but pay 3500 per year for quite a cr@p interest only mortgage - this still leaves you with 3500 which is 14% return per year.
You'd still have 25k equity in the property, if values go down it won't make a difference if its mortgaged or not (unless they go down more than 25%...very unlikely)
If you had 4 houses, obviously this example 14% would still be 14%.
So its a question of, would you rather make 7kish per year extra income or 14k+?
Do both now?
When I shopped around last year 70% LTV was the magic number to get decent rates, so 50k down on 160k for yourself and 30k down on a 90k renter and 15k in your pocket still for a rainy day.
To me it's a no-brainer, but I'm quite happy with being fairly highly geared looking at the long term picture.
When I shopped around last year 70% LTV was the magic number to get decent rates, so 50k down on 160k for yourself and 30k down on a 90k renter and 15k in your pocket still for a rainy day.
To me it's a no-brainer, but I'm quite happy with being fairly highly geared looking at the long term picture.
Hmmm thanks for putting a different perspective on things, certainly very interesting. One thing that i am is very very cautious with my financial position (which probably isn't very good in terms of real 'business'). However i am going to go away an punch some numbers into a calculator and see what can work for me.
Why not buy six £60k properties you can rent out for £450/year - on interest only mortgages. After around 15yrs (you'd have paid for all of them).
If the properties all stay at the same value you'll have £360k at the end of it - for £100k outlay (obviously excluding tax and void periods).
Not a bad return and a good old retirement fund.
If the properties all stay at the same value you'll have £360k at the end of it - for £100k outlay (obviously excluding tax and void periods).
Not a bad return and a good old retirement fund.
RJD223 said:
Why not buy six £60k properties you can rent out for £450/year - on interest only mortgages. After around 15yrs (you'd have paid for all of them).
If the properties all stay at the same value you'll have £360k at the end of it - for £100k outlay (obviously excluding tax and void periods).
Not a bad return and a good old retirement fund.
Sorry, run that by me again - I assume you mean £450 a month? Do you mean pay the interest and save the rest of the capital to pay the capital off?If the properties all stay at the same value you'll have £360k at the end of it - for £100k outlay (obviously excluding tax and void periods).
Not a bad return and a good old retirement fund.
In a rising market where rental income will exceed interest then capital growth is maximised by maximum gearing ie borrow as much as possible. So if I buy a property at £100k with no debt and it increases in value to £125k I have made 25%. If I borrow 75%, use £25k of my own money and get the same outcome I have made 100%
In a falling market the reverse is true.
Ultimately the decision probably rests on whether it is a medium/long term investment or a quick in and out. If you have to turn it around quickly there is always a chance that the market will move against you and you will lose but over anything more than five years property is a very good investment
In a falling market the reverse is true.
Ultimately the decision probably rests on whether it is a medium/long term investment or a quick in and out. If you have to turn it around quickly there is always a chance that the market will move against you and you will lose but over anything more than five years property is a very good investment
daytona365 said:
'How has he paid for them if he has interest only mortgages, no capital would have been repaid?'...........This. Plus in void periods they'd be quite a hefty mortgage repayment to pay out of his own pocket ?
True, but surely the risk of void periods is significantly less with 6 properties than 1 or 2?mikees said:
Can any one offer some advice near Aylesbury? Slightly higher buying prices.
I presume you are talking about a BTL in Aylesbury? I also presume that you live there.My advice is look a bit further north, plenty of towns not far north where you will get a lot more your money and better returns (yield). Northampton, Kettering, Corby all spring to mind.
I know for a fact you can get a 3 bed house in Corby for less than £100k that will return between £500 - £550 p/m. I have one of my BTL's there. I've not lived in Aylesbury for 30 years but I guess you would need £200k at least for a 3 bed that may give you £800p/m?
Don't forget if buying outright you obviously have to pay tax on the full rent and can't deduct any mortgage interest.
If your buying multiple properties you will have to cover multiple mortgage repayments, multiple council tax if you don't have tenants for any length of time .
I'd start slowly buy 1 to see if your cut out for BRL it's not for everyone.
If your buying multiple properties you will have to cover multiple mortgage repayments, multiple council tax if you don't have tenants for any length of time .
I'd start slowly buy 1 to see if your cut out for BRL it's not for everyone.
I would be a bit more cautious you will also have legal fees and arrangement fees on any purchase, I was in a similar position and bought two proprties in exeter for £125k each with a £50k deposit on both. when I rolled the mortgage over I turned one of them into a repayment mortgage and have left the other one as interest only.
You need to keep some of the rent money back, I have just had to replace a boiler £1100)
let them unfurnished, people who own furniture tend to be less transient and stay longer, if their own stuff is in the house they also look after it better.
If its local just use an agent for tenant find, usually 50% of first months rent, they will do the viewings, credit check and do the AST.
good luck, its better than a pension
You need to keep some of the rent money back, I have just had to replace a boiler £1100)
let them unfurnished, people who own furniture tend to be less transient and stay longer, if their own stuff is in the house they also look after it better.
If its local just use an agent for tenant find, usually 50% of first months rent, they will do the viewings, credit check and do the AST.
good luck, its better than a pension
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