How to: BTL basics

[sam.r]

Ok heres a situation someone needs some advice on.

Say you own 3 properties, all small houses 200k each in the SE. How would you go about expanding the portfolio?

I was thinking: take out a mortgage on all three (or one to start with) then, using the money that has been taken out as a deposit on another place and get a tenant in.

Is that how it works? (sorry but want to get to the basics and my knowledge on BTL etc is ste!)

What is the quickest and best way in your opinion to expand?

[Ordinary Bloke]

sam.r said:

Ok heres a situation someone needs some advice on.

Say you own 3 properties, all small houses 200k each in the SE. How would you go about expanding the portfolio?

I was thinking: take out a mortgage on all three (or one to start with) then, using the money that has been taken out as a deposit on another place and get a tenant in.

Is that how it works? (sorry but want to get to the basics and my knowledge on BTL etc is ste!)

What is the quickest and best way in your opinion to expand?

[sam.r]

Sorry I know its been done to death but I also know there are many people on here that are very successful with BTL's and could offer their experiences. ?

[pjac67]

That's about it in a nutshell - ie could potentially remortgage each property say upto 85% LTV on each £200k property (PROVIDED rent covers mortgage or better 125% of mortgage if you want best rates...), releasing £170k as your deposit on the next place - could purchase say 4 properties upto say £1m with 15% down and £20k left for stamp duty/costs (4 x £250k @ 1% )... or you could start slower/gear less aggressively....

Oh and if you have a 20 year+ timescale for returns I think you'll be OK...

[Simon813]

The only problem is when the 3 you own (originally valued at £200k each) are only worth £120k each but you owe £170k because you decided to expand!

The crash is here!

Si

[sam.r]

pjac67 said:

That's about it in a nutshell - ie could potentially remortgage each property say upto 85% LTV on each £200k property (PROVIDED rent covers mortgage or better 125% of mortgage if you want best rates...), releasing £170k as your deposit on the next place - could purchase say 4 properties upto say £1m with 15% down and £20k left for stamp duty/costs (4 x £250k @ 1% )... or you could start slower/gear less aggressively....

Oh and if you have a 20 year+ timescale for returns I think you'll be OK...

Sorry, lets go over that.

You get a mortgage on property A that is worth 200k, 170k to buy property B outright. Get someone in the new place to cover the mortgage on property A

Repeat x 4...

Simple right?

[stimmers]

Simon813 said:

The crash is here!

Si

You must work for a newspaper.

[sam.r]

Simon813 said:

The only problem is when the 3 you own (originally valued at £200k each) are only worth £120k each but you owe £170k because you decided to expand!

The crash is here!

Si

Its not that bad shirly?


Would that climate not be a buyers market too? It would only go really pete tong if you wanted/needed to sell up?

[stimmers]

sam.r said:

pjac67 said:

That's about it in a nutshell - ie could potentially remortgage each property say upto 85% LTV on each £200k property (PROVIDED rent covers mortgage or better 125% of mortgage if you want best rates...), releasing £170k as your deposit on the next place - could purchase say 4 properties upto say £1m with 15% down and £20k left for stamp duty/costs (4 x £250k @ 1% )... or you could start slower/gear less aggressively....

Oh and if you have a 20 year+ timescale for returns I think you'll be OK...

Sorry, lets go over that.

You get a mortgage on property A that is worth 200k, 170k to buy property B outright. Get someone in the new place to cover the mortgage on property A

Repeat x 4...

Simple right?

Pretty much, but if your simply looking to make money on appreciation alone, then the purchase price is critical. Also you need to make sure you have something in the right place that will be in demand no matter what market conditions are. Its going to be tough in the current climate to run and expand a property portfolio this way, especially when relying on Mortgages - which is tough business at the moment.

The better way of doing it is to add value to the property by developing it, but this requires cash to be able to do the developing. But it can add profit into the property quickly if you get it right.

Also look at seriously undervalued property going at Auctions. I bought a property in Plymouth recently at auction and sold it 2 weeks later for £27.5k more than i paid for it. Plus i advertised it £15k under market value. Quick flip. Im going to another Auction tmrw in Birmingham to bid on 3 properties

Ignore those outside the industry who talk of crash's etc - i run two property companies and its a load of bks. But im sure you can do your own research and come up with your own conclusions

[sam.r]

Havent really got time for redevelopments etc just looking at long term security / pension.

Buy at a good price? I was thinking about just listing a load of rentable properties (2 beds near stations etc) and offering silly money - someone might be desperate...

Whats the void period per year on average? 3 months?

Thanks for the advice.

[pjac67]

sam.r said:

pjac67 said:

That's about it in a nutshell - ie could potentially remortgage each property say upto 85% LTV on each £200k property (PROVIDED rent covers mortgage or better 125% of mortgage if you want best rates...), releasing £170k as your deposit on the next place - could purchase say 4 properties upto say £1m with 15% down and £20k left for stamp duty/costs (4 x £250k @ 1% )... or you could start slower/gear less aggressively....

Oh and if you have a 20 year+ timescale for returns I think you'll be OK...

Sorry, lets go over that.

You get a mortgage on property A that is worth 200k, 170k to buy property B outright. Get someone in the new place to cover the mortgage on property A

Repeat x 4...

Simple right?

No - use the £170k as deposit on next property (min. say 15% if you want max. gearing) ie don't buy property outright.
The lender does not need a tenant in the property YOU do - lender just wants mortgage paid, so as has already been said budget for voids/repairs/maintenance/remortgage costs etc...

The gearing effect will magnify your gains and losses on your £ deposit by
c.600% Caveat emptor...

[Simon813]

stimmers said:

Simon813 said:

The crash is here!

Si

You must work for a newspaper.

Nope, just well informed!

On a serious note, looking at your profile you are obviously a succesful guy so I won't try to convince you otherwise, however I firmly believe that the market will crash to the tune of 30% in the next 24 months.

I might be wrong, it's just my opinion, I wouldn't want others to make financial decisions based on my opinion!

Si

[Simon813]

sam.r said:

Simon813 said:

The only problem is when the 3 you own (originally valued at £200k each) are only worth £120k each but you owe £170k because you decided to expand!

The crash is here!

Si

Its not that bad shirly?


Would that climate not be a buyers market too? It would only go really pete tong if you wanted/needed to sell up?

I was mainly referring to the plummeting value of the three you already own. It will definately be a buyers market in 24 months time.

Si

[Deva Link]

pjac67 said:

sam.r said:

pjac67 said:

That's about it in a nutshell - ie could potentially remortgage each property say upto 85% LTV on each £200k property (PROVIDED rent covers mortgage or better 125% of mortgage if you want best rates...), releasing £170k as your deposit on the next place - could purchase say 4 properties upto say £1m with 15% down and £20k left for stamp duty/costs (4 x £250k @ 1% )... or you could start slower/gear less aggressively....

Oh and if you have a 20 year+ timescale for returns I think you'll be OK...

Sorry, lets go over that.

You get a mortgage on property A that is worth 200k, 170k to buy property B outright. Get someone in the new place to cover the mortgage on property A

Repeat x 4...

Simple right?

No - use the £170k as deposit on next property (min. say 15% if you want max. gearing) ie don't buy property outright.
The lender does not need a tenant in the property YOU do - lender just wants mortgage paid, so as has already been said budget for voids/repairs/maintenance/remortgage costs etc...

The gearing effect will magnify your gains and losses on your £ deposit by
c.600% Caveat emptor...

I appreciate that the numbers used my be only examples, but, if what kind of property can you buy for £170K in the SE? A BTL mortgage would be, what £1200+/mth? In the foreseeable future, is it possible to get enough rent from a £170K property to cover the mortgage and other costs and make some money?

[sam.r]

Yes they are examples however doing my sums here I am looking to cover my costs if possible. (inc void months) nothing more really.

Its a long term investment. The SE is very high so would be looking to earn as I bought too by offering silly money.