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groak

3,254 posts

63 months

[news] 
Saturday 6th October 2012 quote quote all
Manks said:
How long have you been using CARL, Groak?
10 years?

jonny70

1,062 posts

42 months

[news] 
Saturday 6th October 2012 quote quote all
groak said:
Johnny there are so many possibilities with the scenario you outlined that a genuinely informative answer would be next to impossible.

BUT

My missus has owned a 40k property that makes 350pcm for about 15 years. It was decently set up and is well managed and maintained. After all costs and without financing she netts about £3kpa.

I notice you're in east ren. If you're really interested you can drop into my office at our agency in Dennistoun and rake through the computerised records of my own properties on the CARL system. That'll show you exactly pretty well to the penny what the realtime figures on btl are.
Thanks for the info.

Im finishing my last year of uni and have a house deposit set aside. As well as maybe one for a BTl so woulnt be interested for 12 months, want to do as much research as possible in the mean time.

Of that £50 a month what is the breakdown i would imagine agent fees? I thought most flats have a common charge that is quite a lot.

Doin some research it costs just over £1200 a year to fiance interest only mortgage of 40 k with 25% deposit. so one can make income straight away on a 10% yield.

groak

3,254 posts

63 months

[news] 
Saturday 6th October 2012 quote quote all
jonny70 said:
Thanks for the info.

Im finishing my last year of uni and have a house deposit set aside. As well as maybe one for a BTl so woulnt be interested for 12 months, want to do as much research as possible in the mean time.

Of that £50 a month what is the breakdown i would imagine agent fees? I thought most flats have a common charge that is quite a lot.

Doin some research it costs just over £1200 a year to fiance interest only mortgage of 40 k with 25% deposit. so one can make income straight away on a 10% yield.
Jonny m8: £350pcm = £4.2kpa. Netting £3kpa means £100pcm (not £50pcm) is being 'lost to cost'. I don't know if you're merely careless or basically just innumerate (and borderline illiterate) but either way I'd be careful.

Interest only in a flat/dropping market is better termed 'idiot only'. Useful for flipping, it's as useful as a toffee teapot for btl. And in a flat/dropping value scenario cap-and-int is about the only way you'll gain any equity. And gaining equity (especially without putting your hand in your pocket) is very important for expansion.

Remember, this is a 'personal pension' thread. And it's one of many. Within them you'll read about how marvellous pension tax advantages are, and/or how incredible it is that employers/the public purse make chunky contributions to the pension pot etc etc.

But imagine you could persuade a lender to give you 70%LTV and you could source btls at 30% BMV??? Then you'd be borrowing 100% of pp. And on a cap and int plan serviced by rent, you'd end up with the mv of the dwelling at whatever v it was in 5/10/20/25 years with the mortgage paid off without you contributing a single penny to it! Imagine you could refinance it, or sell it, or leave it in your will, or just continue drawing burden-free income from it!! And all this for the cost of a legal fee and a survey!!!!

Can't do that IO. IO for keeper btls is for dumbos.

Unfortunately you can't get institutional money at 100% pp any more, even on portfolio loans based on 70%LTportfolioV. Mind you, there's no reason why you can't start a moneylending company and lend money to your property company at any rate you choose........

You DEFINITELY have to be able to count, though. I've met a few well padded business guys who can barely read and write. But I've yet to meet one who couldn't count. Numeracy, as the erudite say, is an essential prerequisite of accumulation. teacher

Manks

7,546 posts

106 months

[news] 
Sunday 7th October 2012 quote quote all
groak said:
IO for keeper btls is for dumbos.
Is that the line RBS used to get you off the IO loans you had on all your BTLs?

Like most any other decisions, it depends upon the circumstances doesn't it.

groak

3,254 posts

63 months

[news] 
Sunday 7th October 2012 quote quote all
Manks said:
Is that the line RBS used to get you off the IO loans you had on all your BTLs?

Like most any other decisions, it depends upon the circumstances doesn't it.
No, RBS 'line' was more..."we agreed to this IO portfolio because the business plan was to use it to build up sales stock. Since we (and all our chums) have entirely stopped lending to property dealers and portfolio expanders the 'selling' part of the business plan appears to have become invisible, not least because we won't be lending to your customers either. You DID say that in the event of any sales stock becoming unsellable it could be reversed into the letting portfolio. You appear to have done that. So, if you don't mind, let's get its debt into line with the longterm keep-to-lets. Cap-and-int from next month please".

Especially if the plan is to use managed lets as retirement income you want them burden free to maximise it. The problem becomes to find property which allows a repayment loan to be serviced from rent. Of course, if you do, then you end up with a burden free portfolio paid for by tenancies. (which, I'd contend, is rather better than a tax concession or a company/state contribution into a pension of ANY kind).

But anyway, whenever the industry is price-stagnating or lowering, anyone expanding with leverage needs the debt reducing in order to extend borrowing within the LTV covenant.

I'm also seeing (esp in London) yields being obtained on burdened property whose lender is making at least as much interest income as the landlord is from rent. In that scenario I'd rather be in moneylending.

Personally I'd say that the only reason to hold a btl keeper on IO is because its income can't stand cap and int. And that's not really a good place to be when the market stagnates or drops as it does periodically.



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Manks

7,546 posts

106 months

[news] 
Sunday 7th October 2012 quote quote all
groak said:
Personally I'd say that the only reason to hold a btl keeper on IO is because its income can't stand cap and int. And that's not really a good place to be when the market stagnates or drops as it does periodically.
What about in areas or sectors where prices are likely to be robust and where the income from those properties is being used to finance something else? Where value is directly determined by rents and rents have been trending upwards for a period of time?

I am not entirely disagreeing with you, by the way, but I think to say "IO for BTL keepers" is oversimplifying matters.

jonny70

1,062 posts

42 months

[news] 
Sunday 7th October 2012 quote quote all
groak said:
Jonny m8: £350pcm = £4.2kpa. Netting £3kpa means £100pcm (not £50pcm) is being 'lost to cost'. I don't know if you're merely careless or basically just innumerate (and borderline illiterate) but either way I'd be careful.

Interest only in a flat/dropping market is better termed 'idiot only'. Useful for flipping, it's as useful as a toffee teapot for btl. And in a flat/dropping value scenario cap-and-int is about the only way you'll gain any equity. And gaining equity (especially without putting your hand in your pocket) is very important for expansion.

Remember, this is a 'personal pension' thread. And it's one of many. Within them you'll read about how marvellous pension tax advantages are, and/or how incredible it is that employers/the public purse make chunky contributions to the pension pot etc etc.

But imagine you could persuade a lender to give you 70%LTV and you could source btls at 30% BMV??? Then you'd be borrowing 100% of pp. And on a cap and int plan serviced by rent, you'd end up with the mv of the dwelling at whatever v it was in 5/10/20/25 years with the mortgage paid off without you contributing a single penny to it! Imagine you could refinance it, or sell it, or leave it in your will, or just continue drawing burden-free income from it!! And all this for the cost of a legal fee and a survey!!!!

Can't do that IO. IO for keeper btls is for dumbos.

Unfortunately you can't get institutional money at 100% pp any more, even on portfolio loans based on 70%LTportfolioV. Mind you, there's no reason why you can't start a moneylending company and lend money to your property company at any rate you choose........

You DEFINITELY have to be able to count, though. I've met a few well padded business guys who can barely read and write. But I've yet to meet one who couldn't count. Numeracy, as the erudite say, is an essential prerequisite of accumulation. teacher
My apologies, posted in a bit of rush, had to go out and thats why my maths was off , generally speaking my figures are good , lol

I understand what you are saying that interest only is bad in a falling market . So are you saying that ideally to build long term wealth ,the interest only mortgages should be paid off on the rental property with the profits generated from the rent?


groak

3,254 posts

63 months

[news] 
Sunday 7th October 2012 quote quote all
jonny70 said:
So are you saying that ideally to build long term wealth ,the interest only mortgages should be paid off on the rental property with the profits generated from the rent?
Well that's the long way round. A simpler way is take a repayment loan serviceable by rent.

groak

3,254 posts

63 months

[news] 
Sunday 7th October 2012 quote quote all
Manks said:
groak said:
Personally I'd say that the only reason to hold a btl keeper on IO is because its income can't stand cap and int. And that's not really a good place to be when the market stagnates or drops as it does periodically.
What about in areas or sectors where prices are likely to be robust and where the income from those properties is being used to finance something else? Where value is directly determined by rents and rents have been trending upwards for a period of time?

I am not entirely disagreeing with you, by the way, but I think to say "IO for BTL keepers" is oversimplifying matters.
Well IO is just great for flipping OR letting in strong/robust/rising markets. But periodic refinancing (for expansion) is always easier when some extra equity's been created by lowering burden (and therefore LTV). Most valuations are on a B&M basis rather than based on commercial value in the sense of the value of income from a letting concern. I always asked why 'income value' wasn't a part of the survey valuation calculation? Never really got a meaningful reply. Has my property no extra value from being an income producer as well as a lump of b&m? Apparently not.

IO can be equated to asset hire. The resultant profit from a project dependant on the use of an asset can certainly justify hiring the asset to achieve it. But why not let the project buy the asset and save the hire charge?



jonny70

1,062 posts

42 months

[news] 
Sunday 7th October 2012 quote quote all
groak said:
Well that's the long way round. A simpler way is take a repayment loan serviceable by rent.
I never knew buy to let mortgages with repayment existed.
I understand your logic of repayment of the loan as it means you eventfully have a asset that you fully own with no liability(mortgage on it) and a good income.

For example , buy a 1 bed flat ;40k , deposit 25% is 10k which is 30k mortgage. Assume £350 rent a month is £4200 p/a lets say you profit £1500 a year after expenses and mortgage according to http://www.moneysavingexpert.com/mortgages/mortgag... if you repay that £1500 into the Interest only mortgage you will be mortgage free in 15 years. So from that inital 10k investment , 15 years later you have a income of £4200 minus expenses(obviously more than £4,200 cause of inflation but trying to keep it simple , and that income is perpetual where as pension you dont get till 65 and lose when you die.

appolgies for hijacking the thread .

Manks

7,546 posts

106 months

[news] 
Sunday 7th October 2012 quote quote all
groak said:
Well IO is just great for flipping OR letting in strong/robust/rising markets. But periodic refinancing (for expansion) is always easier when some extra equity's been created by lowering burden (and therefore LTV). Most valuations are on a B&M basis rather than based on commercial value in the sense of the value of income from a letting concern. I always asked why 'income value' wasn't a part of the survey valuation calculation? Never really got a meaningful reply. Has my property no extra value from being an income producer as well as a lump of b&m? Apparently not.
You'll tend to get an investment, or income based, valuation when there is something about the property that differentiates it from mundane bricks and mortar. For example if the property is (properly) configured as an HMO.


groak

3,254 posts

63 months

[news] 
Sunday 7th October 2012 quote quote all
Manks said:
You'll tend to get an investment, or income based, valuation when there is something about the property that differentiates it from mundane bricks and mortar. For example if the property is (properly) configured as an HMO.
What does the surveyor assess? The full occupancy potential by projection or realtime accountancy evidence ? I assume it's a commercial rather than resi survey.

Manks

7,546 posts

106 months

[news] 
Sunday 7th October 2012 quote quote all
groak said:
Manks said:
You'll tend to get an investment, or income based, valuation when there is something about the property that differentiates it from mundane bricks and mortar. For example if the property is (properly) configured as an HMO.
What does the surveyor assess? The full occupancy potential by projection or realtime accountancy evidence ? I assume it's a commercial rather than resi survey.
He'll assess the full potential gross rent and net it down for voids and management, and yes it's a commercial val.

Welshbeef

17,676 posts

82 months

[news] 
Sunday 7th October 2012 quote quote all
jonny70 said:
I never knew buy to let mortgages with repayment existed.
I understand your logic of repayment of the loan as it means you eventfully have a asset that you fully own with no liability(mortgage on it) and a good income.

For example , buy a 1 bed flat ;40k , deposit 25% is 10k which is 30k mortgage. Assume £350 rent a month is £4200 p/a lets say you profit £1500 a year after expenses and mortgage according to http://www.moneysavingexpert.com/mortgages/mortgag... if you repay that £1500 into the Interest only mortgage you will be mortgage free in 15 years. So from that inital 10k investment , 15 years later you have a income of £4200 minus expenses(obviously more than £4,200 cause of inflation but trying to keep it simple , and that income is perpetual where as pension you dont get till 65 and lose when you die.

appolgies for hijacking the thread .
But trust me be a landlord isn't as easy as most say its a lot of work time effort hassle and if you get a tenant who trashes the place and sits in the house not paying rent take ten to court etc.
Also not many at all have the funds to put down 25% of the value plus if the trips doesn't stack up you will have to put in more than 25%.

Also if there is long periods of unlet can you afford to cover that mortgage? If you can then clearly your lifestyle will be drastically impacted.

That said I've been in the game for over 15 years and have a portfolio my first I bought during Uni so I had free rent for three years and made a killing then bought some more then more again then more. None are flats all are three bed houses or three bed terraces. I have significant equity in all and all are IO and I will not change that. I will sell none but I know in what 30 years time the mortgage I have on them will be a small value relative to the houses value.

But I have many pensions too including a number of final salary so I've not put all eggs in one basket. I'm not sure ill buy any more

Oh one last point when you start to buy buy to let's you generally have them close ish to where you live ie same town city so if you want to up sticks it's a huge bind. Something to consider.

groak

3,254 posts

63 months

[news] 
Sunday 7th October 2012 quote quote all
Welshbeef said:
But trust me be a landlord isn't as easy as most say its a lot of work time effort hassle and if you get a tenant who trashes the place and sits in the house not paying rent take ten to court etc.
Also not many at all have the funds to put down 25% of the value plus if the trips doesn't stack up you will have to put in more than 25%.

Also if there is long periods of unlet can you afford to cover that mortgage? If you can then clearly your lifestyle will be drastically impacted.

That said I've been in the game for over 15 years and have a portfolio my first I bought during Uni so I had free rent for three years and made a killing then bought some more then more again then more. None are flats all are three bed houses or three bed terraces. I have significant equity in all and all are IO and I will not change that. I will sell none but I know in what 30 years time the mortgage I have on them will be a small value relative to the houses value.

But I have many pensions too including a number of final salary so I've not put all eggs in one basket. I'm not sure ill buy any more

Oh one last point when you start to buy buy to let's you generally have them close ish to where you live ie same town city so if you want to up sticks it's a huge bind. Something to consider.
There are more holes in the 'property theory' in that post than there are in a gorgonzola cheese.

I can't be bothered shredding it, but I'll give you just one hint. Do NOT buy anything to let bigger than 2 bedrooms. Just don't do it. Why? Phone your local council. Get the definition of 'an HMO'. Then find out what that is and what it entails. Seriously for specialists only.



Welshbeef

17,676 posts

82 months

[news] 
Monday 8th October 2012 quote quote all
groak said:
There are more holes in the 'property theory' in that post than there are in a gorgonzola cheese.

I can't be bothered shredding it, but I'll give you just one hint. Do NOT buy anything to let bigger than 2 bedrooms. Just don't do it. Why? Phone your local council. Get the definition of 'an HMO'. Then find out what that is and what it entails. Seriously for specialists only.

Thanks I'm fully aware of HMOs and as I said I've been in the game a very long time I know the game very well thank you.
Care to share how many years and how many properties you have been doing I'd wager it's less than me and I'm half your age. If its higher then stop crying over spilt milk ie your poor performing pension fund you've negated it by property.

You've been stung by not moving your pension to a better performing fund bad luck however that responsibility sits only with yourself - anyone can pass the buck on oh I was missold oh it's not done what it said it would um if your savy you'd know


Anyway this is all off topic lets move back to topic or we can start a new thread.

TFP

87 posts

99 months

[news] 
Monday 8th October 2012 quote quote all
Good analysis.

What our friend groak tends to be selective about is the fact that he sold the pensions to himself when he was ' financial advising ' ( I use the term very loosely in this context ).


I'm sure there will be a lecture about something or other coming along very shortly......

groak

3,254 posts

63 months

[news] 
Monday 8th October 2012 quote quote all
TFP said:
Good analysis.

What our friend groak tends to be selective about is the fact that he sold the pensions to himself when he was ' financial advising ' ( I use the term very loosely in this context ).


I'm sure there will be a lecture about something or other coming along very shortly......
As a seasoned and experienced life insurance salesman yourself, do explain how I wrote myself an Equitable Life contract? confused

The other one was written by a manager at Royal Life. Hadn't a clue about pensions. Mind you, nor did he!! Mortgages was my thing. He subsequently didn't get the jail sentence his boss got. Y'know, I don't think it was their fault. Two weeks 'training' didn't really seem sufficient qualification to be writing financial contracts. What is it you guys call it ? "Tucking up" the client? wink Or is that just when you KNOW you're skinning them?

Manks

7,546 posts

106 months

[news] 
Monday 8th October 2012 quote quote all
Welshbeef said:
Thanks I'm fully aware of HMOs and as I said I've been in the game a very long time I know the game very well thank you.
Care to share how many years and how many properties you have been doing I'd wager it's less than me and I'm half your age. If its higher then stop crying over spilt milk ie your poor performing pension fund you've negated it by property.

You've been stung by not moving your pension to a better performing fund bad luck however that responsibility sits only with yourself - anyone can pass the buck on oh I was missold oh it's not done what it said it would um if your savy you'd know

Anyway this is all off topic lets move back to topic or we can start a new thread.
Out of interest, how many properties do YOU have?

groak

3,254 posts

63 months

[news] 
Monday 8th October 2012 quote quote all
Welshbeef said:
Thanks I'm fully aware of HMOs and as I said I've been in the game a very long time I know the game very well thank you.
Care to share how many years and how many properties you have been doing I'd wager it's less than me and I'm half your age. If its higher then stop crying over spilt milk ie your poor performing pension fund you've negated it by property.

You've been stung by not moving your pension to a better performing fund bad luck however that responsibility sits only with yourself - anyone can pass the buck on oh I was missold oh it's not done what it said it would um if your savy you'd know


Anyway this is all off topic lets move back to topic or we can start a new thread.
Y'know I used to watch people like you being skinned like rabbits back in the heyday. But I was never really tempted to join in.

Anyway, I was wondering, and you're probably just the guy to ask.....

....as you know, once you're self-managing 50 units it gets difficult to do much else. Plus, of course, 50 bring in enough nett to live on, so you've now got a job. And when 50 becomes 100 (in my case 125) you really CAN'T handle it all solo, so you start an agency. And at 200, given the volume of tradeswork you're shipping, it's really not feasible (or economically viable) to continue to outsource the work so you've now got a tradesteam to run. Then, before you know it, your portfolio's crossed 500 and you're maintaining, repairing,renovating, reconstructing and maybe even building not only for yourself, but also for the mates, other landlords who've joined your agency, and even the general public. Of course, by then you realise the letting agency's a useful earner, but its REAL value is in the deals it brings to your door. Suddenly you're an 'estate agent' too!! And before very long between the 1000 or so properties you all own, including the keepers and the flipping stock, plus the other 1000 or so you're managing, the tradesbills are just UNREAL, aren't they? The letting boss is pressuring to get stock prepped for letting! The sales boss is pressuring to get stock prepped for market! The viewers want the voids between tenancies 'tuned up'.!! Trades mayhem, isn't it!!! Men! Plant and Machinery! Admin! Storage facilities!

Well goodness knows how YOU manage all this PLUS a dayjob...but what I was wanting to know is ...what do you do about the MASSIVE MASSIVE cashflow hiatus between the work (materials and labour) getting paid for and the money returning back from paid invoices? DO NOT say 'it should all be paid for upfront in advance', or anything else unrealistic. Tell me how YOU'RE carrying it? Overdraft? From cash resources? Because I'm really swithering with this one, especially when the volume of work (esp. for the gp) is increasing so rapidly.....

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