Building a Buy to let portfolio - How for a newbie?
Discussion
sorry for asking the dumb question, but currently planning on dipping our toes into the buy to let ring.
We have a couple of endowments maturing that are already covered, so the plan is to use about half the value to purchase a 2 bed flat to rent out with the balance being covered by a buy to let mortgage.
We want to start off with the first one and get all the lessons learned before looking to add some more. But i'm not 100% on how you finance the next one, and the one after that etc - without a load of capital.
Would someone be able to give me a simple example as i'm not finding much useful information on google search?
As an example - we are looking to purchase a 2 bed flat for no more than £100k
Deposit = £20k already covered
Buy to let mortgage for £80k interest only = £176/mth
Rent approx £550/mth so looking to clear around £250/mth after all fees, insurance etc
How do you finance rental #2, then #3 etc without it all crashing around your ears?
Thanks for any info you can provide
We have a couple of endowments maturing that are already covered, so the plan is to use about half the value to purchase a 2 bed flat to rent out with the balance being covered by a buy to let mortgage.
We want to start off with the first one and get all the lessons learned before looking to add some more. But i'm not 100% on how you finance the next one, and the one after that etc - without a load of capital.
Would someone be able to give me a simple example as i'm not finding much useful information on google search?
As an example - we are looking to purchase a 2 bed flat for no more than £100k
Deposit = £20k already covered
Buy to let mortgage for £80k interest only = £176/mth
Rent approx £550/mth so looking to clear around £250/mth after all fees, insurance etc
How do you finance rental #2, then #3 etc without it all crashing around your ears?
Thanks for any info you can provide
xeny said:
My (admittedly very limited) understanding is the model relied on capital appreciation of the existing properties to generate equity rapidly, which you then turned into additional properties. If house price inflation is slowing, it may not be an attractive investment approach.
Exactly this. Property a’s Value increases by 20% you remortgage releasing that 20% to use as a deposit on property b and repeat every few years. However, the boat sailed quite a while back in this model and is currently moored off shore in the Cayman Islands. xeny said:
My (admittedly very limited) understanding is the model relied on capital appreciation of the existing properties to generate equity rapidly, which you then turned into additional properties. If house price inflation is slowing, it may not be an attractive investment approach.
That happens in periodic bursts but hasn't happened for a while and isn't showing any signs of happening in the foreseeable and certainly not until Brexit unfolds a bit. Buying cheap, improving, then refinancing after a period of cap and int paying is another way to use equity gain which works if prices aren't de-flating.
We refinanced our own home to provide the deposits (7 or 8 years ago)
I think now is the wrong time to be getting into BTL unless you can get around 6+% yeild.
Mortgage interest relief is limited if you are a high rate taxpayer. Interest rates are likely to be rising in the future.
If Labour get in to power they will add land value taxes, cap rents, and Landlords will be dragged into the street and beaten to a pulp.
I will be selling my BTL's before the next election. It's a shame because none of the tenants can afford to buy, and all have young families.
I think now is the wrong time to be getting into BTL unless you can get around 6+% yeild.
Mortgage interest relief is limited if you are a high rate taxpayer. Interest rates are likely to be rising in the future.
If Labour get in to power they will add land value taxes, cap rents, and Landlords will be dragged into the street and beaten to a pulp.
I will be selling my BTL's before the next election. It's a shame because none of the tenants can afford to buy, and all have young families.
98elise said:
I will be selling my BTL's before the next election. It's a shame because none of the tenants can afford to buy, and all have young families.
Who knows - if enough BTL landlords do what you do, the resulting downward pressure on prices might make properties affordable for people like your tenants. The one thing that is certain is that the properties won't stand empty.NickCQ said:
98elise said:
I will be selling my BTL's before the next election. It's a shame because none of the tenants can afford to buy, and all have young families.
Who knows - if enough BTL landlords do what you do, the resulting downward pressure on prices might make properties affordable for people like your tenants. The one thing that is certain is that the properties won't stand empty.My tenants couldn't afford to buy when prices were 60% of what they are now (ie when I bought). I know them all reasonably well, and none of their circumstances have changed much.
I think you have to be really picky now to actually make it work. 15 years ago when property was rocketing in value it was a no brainer but now its marginal at best. The future looks iffy too. If you can get something really cheap that rents out for a really good sum and get good tenants then go for it - but its a lot of risk for probably not a lot of return. Things could change of course and it would only take for prices to go up 10% and you would have made £10k off the back of a £20k investment.
Worth doing if you can buy cheap and add value, and/or the market is rising. If not, better value elsewhere.
I wouldn't buy a flat because of management fees - could knock quite a dent in the profits - and admittedly just in my head I don't think you can add value as easily. 2/3 bed family houses - more likely to get long term tenants perhaps?
We have financed ours off the back of our own house. I'd imagine a BTL 80% LTV mortgage will have a 2k arrangement fee or similar, and they are unregulated, meaning they can in theory charge what the hell they like. If they aren't already..
I agree renters cannot instantly become buyers at almost any sensible price. The main reasons tenants are tenants seems to be because they don't want to buy, or cannot get and are unlikely to ever get a mortgage due to past history - that won't change before houses are worth precisely tuppence, or regulation is relaxed again. No sane politician is going to try the 'give everybody a mortgage' thing again because last time it really didn't go that well. I suppose McDonnell might well have a go then...
Corbyn can attempt to do what he clearly has wet dreams over, and destroy anybody with the balls to try and make a bit of money from propertay, but it would result in LLs selling up en masse before the govt-approved pulping mentioned above commences.
That would completely knacker prices at FTB levels, screw owner occupiers all the way into neg equity, stall the market from top to bottom, and end up with banks going tits up again.
I'm also not convinced housing would be a zero numbers game if Labour really got their teeth into it - it'd just put further pressure on what little social housing there is, because if private LLs close their doors, these large corps that are mooted to be entering the market aren't going to be interested in taking up the slack on depreciating assets, particularly if some lunatic is in charge of policy. Ex tenants would be sleeping on the streets. The Magic McDonnell bonds Labour keep going on about could be invented to buy the houses back into public ownership but anyone with half a brain can see straight through the infinite bonds idea.
I 'think' I should refurb another house to rent - I do keep looking - but then stuff like the above just makes me think everything is against it. Brexit, Corbyn, even the tories are having a go. Landlords seem to be regarded by most people as being somewhere between traffic wardens and reincarnated Thatchers. Interesting times etc.
I wouldn't buy a flat because of management fees - could knock quite a dent in the profits - and admittedly just in my head I don't think you can add value as easily. 2/3 bed family houses - more likely to get long term tenants perhaps?
We have financed ours off the back of our own house. I'd imagine a BTL 80% LTV mortgage will have a 2k arrangement fee or similar, and they are unregulated, meaning they can in theory charge what the hell they like. If they aren't already..
I agree renters cannot instantly become buyers at almost any sensible price. The main reasons tenants are tenants seems to be because they don't want to buy, or cannot get and are unlikely to ever get a mortgage due to past history - that won't change before houses are worth precisely tuppence, or regulation is relaxed again. No sane politician is going to try the 'give everybody a mortgage' thing again because last time it really didn't go that well. I suppose McDonnell might well have a go then...
Corbyn can attempt to do what he clearly has wet dreams over, and destroy anybody with the balls to try and make a bit of money from propertay, but it would result in LLs selling up en masse before the govt-approved pulping mentioned above commences.
That would completely knacker prices at FTB levels, screw owner occupiers all the way into neg equity, stall the market from top to bottom, and end up with banks going tits up again.
I'm also not convinced housing would be a zero numbers game if Labour really got their teeth into it - it'd just put further pressure on what little social housing there is, because if private LLs close their doors, these large corps that are mooted to be entering the market aren't going to be interested in taking up the slack on depreciating assets, particularly if some lunatic is in charge of policy. Ex tenants would be sleeping on the streets. The Magic McDonnell bonds Labour keep going on about could be invented to buy the houses back into public ownership but anyone with half a brain can see straight through the infinite bonds idea.
I 'think' I should refurb another house to rent - I do keep looking - but then stuff like the above just makes me think everything is against it. Brexit, Corbyn, even the tories are having a go. Landlords seem to be regarded by most people as being somewhere between traffic wardens and reincarnated Thatchers. Interesting times etc.
Thanks for the comments everyone - certainly given me something to think about.
I may have some more I can put into the deposit so will look at houses rather than flats. This is a long term investment for my own future rather than a monthly income generator, but equally I want to ensure I cover my costs too.
I know there's lots of doom and gloom, but like people have said, there will always be a market for rentals - I guess it's like cars - you make your real money why you buy right in the first place.
Will take this one step at a time
I may have some more I can put into the deposit so will look at houses rather than flats. This is a long term investment for my own future rather than a monthly income generator, but equally I want to ensure I cover my costs too.
I know there's lots of doom and gloom, but like people have said, there will always be a market for rentals - I guess it's like cars - you make your real money why you buy right in the first place.
Will take this one step at a time
- don't buy a flat; usual 125 year lease is a PITA
- 1/2 max 3 bed house
- only buy where there are 'chimney pots'
- newer you can buy the less repairs to make
- individual vs company buy? can of worms atm. btl through a company has costs that really add up unless you have a decent portfolio. also they recently took away company inflation offset swerve.
- btl will always be an option for investing and at least the asset can be passed down generation to generation as opposed to a pension which, unless you are on a gilt edged final salary type, just don't deliver unless you live to 110 (ok i exaggerate!)
- 1/2 max 3 bed house
- only buy where there are 'chimney pots'
- newer you can buy the less repairs to make
- individual vs company buy? can of worms atm. btl through a company has costs that really add up unless you have a decent portfolio. also they recently took away company inflation offset swerve.
- btl will always be an option for investing and at least the asset can be passed down generation to generation as opposed to a pension which, unless you are on a gilt edged final salary type, just don't deliver unless you live to 110 (ok i exaggerate!)
Why don't you buy this (or similar):
http://www.futurepropertyauctions.co.uk/property_d...
Then spend another few grand (£5k?) turning into a 'palace'. Then give it to a local agent to rent. Then bank £350 a month till you're bored.
Then get some more money and do it again.
And again.
And again.
One day you'll have a hundred of them and will be very glad you never bothered f
king your own head (and finances) up by putting the money into a pension.
http://www.futurepropertyauctions.co.uk/property_d...
Then spend another few grand (£5k?) turning into a 'palace'. Then give it to a local agent to rent. Then bank £350 a month till you're bored.
Then get some more money and do it again.
And again.
And again.
One day you'll have a hundred of them and will be very glad you never bothered f
king your own head (and finances) up by putting the money into a pension. 
Jockman said:
.....to the end of a post without disparaging pensions.
Moi?? Disparage pensions?? I LOOOOVE pensions. In fact the idea of giving wads of money to a pension company with zero wages in return and then after decades giving it to an annuity company who dole me a pittance till I croak then steal it makes me feel.....makes me feel......ALIVE!!!!
https://image.shutterstock.com/z/stock-vector--bos...
Where do I sign up???
(psssst: you heard it here first.....it's only a wrapper! Did you know that? Amazing what you can learn on t'internet chatrooms!)
Edited by drainbrain on Sunday 26th November 22:37
Never a dull moment when you're on form.
Yup, it's only a wrapper. If Gordon Brown had followed through (steady) on his plan to allow residential property in pensions I think you would have been a convert.
I don't think you have an issue with pensions. I think your issue is with investment houses.
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