Discussion
So you Buy, Refurb, Rent, Refinance, Repeat.
Let's say I buy a house for 100k on an interest only mortgage with 25% deposit. After renovations the house will be worth 140k. Do I need to be charging the tenant as though the mortgage was already for 140k/115k with deposit to not increase their repayments after a 2yr fixed is up or do I just up it after the 2 years?
Let's say I buy a house for 100k on an interest only mortgage with 25% deposit. After renovations the house will be worth 140k. Do I need to be charging the tenant as though the mortgage was already for 140k/115k with deposit to not increase their repayments after a 2yr fixed is up or do I just up it after the 2 years?
I am lost.
What has the tenants rental payments got to do with the 2 yr fixed rate?
The tenant pays a market rent based on what the property commands in the condition that they rent it in.
Worth noting that buy to let mortgages are based on the rental value the valuer puts on it the day they see it so if you buy a run down property that rental value may be way too low for the rental stress test on a 75% mortgage or come back as not habitable for renting.
The model may dry up quickly when you factor in the 3% stamp duty on each purchase and trying to release the equity each time as the rental stress test often holds back the mortgage granted.
Property clubs and seminars often sell the concept of what you plan but it often falls flat. Many mortgage brokers are not allowed to do mortgages on property club properties as there is often an element of BS and overselling.
What has the tenants rental payments got to do with the 2 yr fixed rate?
The tenant pays a market rent based on what the property commands in the condition that they rent it in.
Worth noting that buy to let mortgages are based on the rental value the valuer puts on it the day they see it so if you buy a run down property that rental value may be way too low for the rental stress test on a 75% mortgage or come back as not habitable for renting.
The model may dry up quickly when you factor in the 3% stamp duty on each purchase and trying to release the equity each time as the rental stress test often holds back the mortgage granted.
Property clubs and seminars often sell the concept of what you plan but it often falls flat. Many mortgage brokers are not allowed to do mortgages on property club properties as there is often an element of BS and overselling.
Caddyshack said:
I am lost.
What has the tenants rental payments got to do with the 2 yr fixed rate?
The tenant pays a market rent based on what the property commands in the condition that they rent it in.
Worth noting that buy to let mortgages are based on the rental value the valuer puts on it the day they see it so if you buy a run down property that rental value may be way too low for the rental stress test on a 75% mortgage or come back as not habitable for renting.
The model may dry up quickly when you factor in the 3% stamp duty on each purchase and trying to release the equity each time as the rental stress test often holds back the mortgage granted.
Property clubs and seminars often sell the concept of what you plan but it often falls flat. Many mortgage brokers are not allowed to do mortgages on property club properties as there is often an element of BS and overselling.
Because if I was to refinance when the fix term is up the repayments would increase? If interest only mortgage repayments where £200 when purchased id obviously have to increase tenants repayments when I refinance because the IO repayments will go up?What has the tenants rental payments got to do with the 2 yr fixed rate?
The tenant pays a market rent based on what the property commands in the condition that they rent it in.
Worth noting that buy to let mortgages are based on the rental value the valuer puts on it the day they see it so if you buy a run down property that rental value may be way too low for the rental stress test on a 75% mortgage or come back as not habitable for renting.
The model may dry up quickly when you factor in the 3% stamp duty on each purchase and trying to release the equity each time as the rental stress test often holds back the mortgage granted.
Property clubs and seminars often sell the concept of what you plan but it often falls flat. Many mortgage brokers are not allowed to do mortgages on property club properties as there is often an element of BS and overselling.
They'd be renting a refurbished house worth 140k not the run down 100k house I bought so how do I charge repayments for the projected refinance?
I know what you mean about selling the concept, youtubers and the likes make it look so easy but I really want to be in property and it can be done I just need to work out how or at least how to get the ball rolling
Ryyy said:
Because if I was to refinance when the fix term is up the repayments would increase? If interest only mortgage repayments where £200 when purchased id obviously have to increase tenants repayments when I refinance because the IO repayments will go up?
They'd be renting a refurbished house worth 140k not the run down 100k house I bought so how do I charge repayments for the projected refinance?
I know what you mean about selling the concept, youtubers and the likes make it look so easy but I really want to be in property and it can be done I just need to work out how or at least how to get the ball rolling
To get the ball rolling I think you need to understand what determines the rent you can charge. It’s not your costs + X but whatever market rates are at the time.They'd be renting a refurbished house worth 140k not the run down 100k house I bought so how do I charge repayments for the projected refinance?
I know what you mean about selling the concept, youtubers and the likes make it look so easy but I really want to be in property and it can be done I just need to work out how or at least how to get the ball rolling
Ryyy said:
Let's say I buy a house for 100k on an interest only mortgage with 25% deposit. After renovations the house will be worth 140k.
What kind of renovations you do to increase the value by 40%? Let's say, you achieved that, how much you spending to achieve that increase? and more importantly how long does it take to achieve that 40% extra valuation? Ryyy said:
Because if I was to refinance when the fix term is up the repayments would increase? If interest only mortgage repayments where £200 when purchased id obviously have to increase tenants repayments when I refinance because the IO repayments will go up?
They'd be renting a refurbished house worth 140k not the run down 100k house I bought so how do I charge repayments for the projected refinance?
I know what you mean about selling the concept, youtubers and the likes make it look so easy but I really want to be in property and it can be done I just need to work out how or at least how to get the ball rolling
This all makes no sense.They'd be renting a refurbished house worth 140k not the run down 100k house I bought so how do I charge repayments for the projected refinance?
I know what you mean about selling the concept, youtubers and the likes make it look so easy but I really want to be in property and it can be done I just need to work out how or at least how to get the ball rolling
You’ve refurbished before renting to the tenants. There is no improvement (for them) during their tenancy. Why would you think they’d accept the idea of paying more because you want to extract an increase in property value?
How you finance your business isn’t really your tenants concern.
A few things to think about:
Expect that any property will probably need the first year’s rental income (income, not profit) to cover its acquisition costs.
You need to figure out how to structure your business effectively taking into account a range of factors including tax and your expected sources of funding.
Until you hit some scale, don’t expect decent rates for, or services from, trades.
If you’re planning on getting someone else to do the refurb work see the point above and factor in their lead times into your calls.
Finding good tenants is not always straightforward.
Managing property is not always straightforward. Some properties/tenants will sap your time and a pipe bursting doesn’t care if you’re at work/in the pub/on holiday.. Of course you can get agents involved if you can bear the costs, but still don’t expect it to be completely passive.
You always have to live with the prose of a property or tenant throwing a big bill. Think about how you’d cope with a 6-12 month default plus a full refurb.
Property market isn’t looking great right now…
If YouTubers are making it look easy/appealing, either they’re not actually doing it or are only telling part of the story.
Yeah, your costs to set up pre rental are yours, your tenants will pay the market rate, or if you've got a bloody good one like we have, a bit below because you're quite happy for the property to wipe it's nose and know how good tenants can be hard to find.
Have a good look at what similar properties are renting for in the area you're interested in buying and see if you can make the figures work from that. And expect the unexpected bill that wipes out a month or two's rent now and again.
Have a good look at what similar properties are renting for in the area you're interested in buying and see if you can make the figures work from that. And expect the unexpected bill that wipes out a month or two's rent now and again.
So the prices are averages, there is a house listed at 112k that would be good if I could get 12k of, looking at neighbouring and similar properties I'd average around the 140k mark well presented. For rent your looking at 595-725pcm for similar and neighbouring properties though i think the higher end is very optimistic.
With the numbers and charging tenants, if IO repayments were say £150pcm for the 75k borrowed and I was making 500pcm renting it out at 650pcm, what to stop that 500pcm reducing to 50pcm after refinancing because of rates and borrowing more which is whats blagging my head?
As for refurb costs I'm not too put off for the level needed, I'm a joiner and know enough people for the stuff I can't do.
Yes they all make it look very easy which is why I'm asking questions, if I was starry eyed at the concept I'd be off for a bridging loan faster than you can say don't do it, but I don't want a bridging loan and I know there's more factors to consider regarding tax and fees but I need to get a basic plan understood first and then make numbers work
With the numbers and charging tenants, if IO repayments were say £150pcm for the 75k borrowed and I was making 500pcm renting it out at 650pcm, what to stop that 500pcm reducing to 50pcm after refinancing because of rates and borrowing more which is whats blagging my head?
As for refurb costs I'm not too put off for the level needed, I'm a joiner and know enough people for the stuff I can't do.
Yes they all make it look very easy which is why I'm asking questions, if I was starry eyed at the concept I'd be off for a bridging loan faster than you can say don't do it, but I don't want a bridging loan
and I know there's more factors to consider regarding tax and fees but I need to get a basic plan understood first and then make numbers work Ryyy said:
So the prices are averages, there is a house listed at 112k that would be good if I could get 12k of, looking at neighbouring and similar properties I'd average around the 140k mark well presented. For rent your looking at 595-725pcm for similar and neighbouring properties though i think the higher end is very optimistic.
With the numbers and charging tenants, if IO repayments were say £150pcm for the 75k borrowed and I was making 500pcm renting it out at 650pcm, what to stop that 500pcm reducing to 50pcm after refinancing because of rates and borrowing more which is whats blagging my head?
The simple answer is: absolutely nothing (aside probably from interest coverage figures from your lender). But that’s your problem not your tenants!With the numbers and charging tenants, if IO repayments were say £150pcm for the 75k borrowed and I was making 500pcm renting it out at 650pcm, what to stop that 500pcm reducing to 50pcm after refinancing because of rates and borrowing more which is whats blagging my head?
If you build your business on debt then you need to make the figures work for you. If what you can charge tenants means the figures don’t add up then the business doesn’t work.
Regarding buying a £112k place and getting a £12k discount, why would the vendor take such a hit? There might be an argument if you were a genuine cash buyer and could get it done quickly but from what you’ve said that isn’t the case.
Ryyy said:
Caddyshack said:
I am lost.
What has the tenants rental payments got to do with the 2 yr fixed rate?
The tenant pays a market rent based on what the property commands in the condition that they rent it in.
Worth noting that buy to let mortgages are based on the rental value the valuer puts on it the day they see it so if you buy a run down property that rental value may be way too low for the rental stress test on a 75% mortgage or come back as not habitable for renting.
The model may dry up quickly when you factor in the 3% stamp duty on each purchase and trying to release the equity each time as the rental stress test often holds back the mortgage granted.
Property clubs and seminars often sell the concept of what you plan but it often falls flat. Many mortgage brokers are not allowed to do mortgages on property club properties as there is often an element of BS and overselling.
Because if I was to refinance when the fix term is up the repayments would increase? If interest only mortgage repayments where £200 when purchased id obviously have to increase tenants repayments when I refinance because the IO repayments will go up?What has the tenants rental payments got to do with the 2 yr fixed rate?
The tenant pays a market rent based on what the property commands in the condition that they rent it in.
Worth noting that buy to let mortgages are based on the rental value the valuer puts on it the day they see it so if you buy a run down property that rental value may be way too low for the rental stress test on a 75% mortgage or come back as not habitable for renting.
The model may dry up quickly when you factor in the 3% stamp duty on each purchase and trying to release the equity each time as the rental stress test often holds back the mortgage granted.
Property clubs and seminars often sell the concept of what you plan but it often falls flat. Many mortgage brokers are not allowed to do mortgages on property club properties as there is often an element of BS and overselling.
They'd be renting a refurbished house worth 140k not the run down 100k house I bought so how do I charge repayments for the projected refinance?
I know what you mean about selling the concept, youtubers and the likes make it look so easy but I really want to be in property and it can be done I just need to work out how or at least how to get the ball rolling
Do you expect the tenants to move in before the refurb and live with the mess of you doing the work on it? It would take quite an understanding tenant to put up with that.
I did do one like this, it was a 3 bed semi with big garden and a garage, the going rent for a nice one was about £1000pm so I allowed a young lady that we knew to rent it for £400 pm on the basis that we would be doing a full refurb, she then moved out when finished as she could not afford the market rent, that suited her and she had a big dog so it was tough for her to rent elsewhere and our £400 rent was way under even a rubbish 1 bed flat.
As I mentioned before, the buy to let lenders want to value the properties in their "ready to let" state so if the properties are really run down they will decline the mortgage. You then need to buy cash and stick the mortgage on once refurbished, note that often the lender will only advance 75% of the original cash value in the first yr of ownership and not 75% of the refurb value if bought for cash.
It is also to remember that tenants ruin properties over time.
I have done up properties and let them and have been really sad with the state of the properties after just 3 to 5 years. Often it would have been better to just let them out as I bought them and accept a lower rent with zero refurb costs and then do a cheap tart up if you ever want to sell them.
I have had black mould throughout a house as the lady was taking in washing for people and running it like a laundry without opening windows.
One lady was a cleaner but left it in a terrible state, she had ironed on the carpet and also ironed on the work surfaces in the kitchen....the deposit company were not interested as felt it was fair wear and tear after 5 years of her living there.
One tenant put up a TV in their bedroom, they drilled right through the wall and popped tiles off the bathroom wall on the other side....they also broke down the bathroom door as their wife said the lock stuck (even though the lock worked) so god knows what went on and they felt that some gaffer tape over the door would be fine.
I am talking about quality properties worth £350k near Guildford in Surrey that had new kitchens, bathrooms and carpet plus a full decoration before they moved in.
I have done up properties and let them and have been really sad with the state of the properties after just 3 to 5 years. Often it would have been better to just let them out as I bought them and accept a lower rent with zero refurb costs and then do a cheap tart up if you ever want to sell them.
I have had black mould throughout a house as the lady was taking in washing for people and running it like a laundry without opening windows.
One lady was a cleaner but left it in a terrible state, she had ironed on the carpet and also ironed on the work surfaces in the kitchen....the deposit company were not interested as felt it was fair wear and tear after 5 years of her living there.
One tenant put up a TV in their bedroom, they drilled right through the wall and popped tiles off the bathroom wall on the other side....they also broke down the bathroom door as their wife said the lock stuck (even though the lock worked) so god knows what went on and they felt that some gaffer tape over the door would be fine.
I am talking about quality properties worth £350k near Guildford in Surrey that had new kitchens, bathrooms and carpet plus a full decoration before they moved in.
LooneyTunes said:
The simple answer is: absolutely nothing (aside probably from interest coverage figures from your lender). But that’s your problem not your tenants!
If you build your business on debt then you need to make the figures work for you. If what you can charge tenants means the figures don’t add up then the business doesn’t work.
Regarding buying a £112k place and getting a £12k discount, why would the vendor take such a hit? There might be an argument if you were a genuine cash buyer and could get it done quickly but from what you’ve said that isn’t the case.
The vendor may not take the hit which is why its loosely hypothetical and using rough numbers, houses in that area start from around 90k but just used 10k as a middle ground as that's the sort of price I'd want to be paying. I could by a house cash pulling money out of my/our house but I think its too much of a big gamble If you build your business on debt then you need to make the figures work for you. If what you can charge tenants means the figures don’t add up then the business doesn’t work.
Regarding buying a £112k place and getting a £12k discount, why would the vendor take such a hit? There might be an argument if you were a genuine cash buyer and could get it done quickly but from what you’ve said that isn’t the case.
Caddyshack said:
Your mortgage costs have nothing at all to do with what the tenants pay.
Do you expect the tenants to move in before the refurb and live with the mess of you doing the work on it? It would take quite an understanding tenant to put up with that.
I did do one like this, it was a 3 bed semi with big garden and a garage, the going rent for a nice one was about £1000pm so I allowed a young lady that we knew to rent it for £400 pm on the basis that we would be doing a full refurb, she then moved out when finished as she could not afford the market rent, that suited her and she had a big dog so it was tough for her to rent elsewhere and our £400 rent was way under even a rubbish 1 bed flat.
As I mentioned before, the buy to let lenders want to value the properties in their "ready to let" state so if the properties are really run down they will decline the mortgage. You then need to buy cash and stick the mortgage on once refurbished, note that often the lender will only advance 75% of the original cash value in the first yr of ownership and not 75% of the refurb value if bought for cash.
No they'd be in after the refurb, and we'll thats something I've not heard before about the 75% of cash, bit of a stinger.Do you expect the tenants to move in before the refurb and live with the mess of you doing the work on it? It would take quite an understanding tenant to put up with that.
I did do one like this, it was a 3 bed semi with big garden and a garage, the going rent for a nice one was about £1000pm so I allowed a young lady that we knew to rent it for £400 pm on the basis that we would be doing a full refurb, she then moved out when finished as she could not afford the market rent, that suited her and she had a big dog so it was tough for her to rent elsewhere and our £400 rent was way under even a rubbish 1 bed flat.
As I mentioned before, the buy to let lenders want to value the properties in their "ready to let" state so if the properties are really run down they will decline the mortgage. You then need to buy cash and stick the mortgage on once refurbished, note that often the lender will only advance 75% of the original cash value in the first yr of ownership and not 75% of the refurb value if bought for cash.
Ryyy said:
LooneyTunes said:
The simple answer is: absolutely nothing (aside probably from interest coverage figures from your lender). But that’s your problem not your tenants!
If you build your business on debt then you need to make the figures work for you. If what you can charge tenants means the figures don’t add up then the business doesn’t work.
Regarding buying a £112k place and getting a £12k discount, why would the vendor take such a hit? There might be an argument if you were a genuine cash buyer and could get it done quickly but from what you’ve said that isn’t the case.
The vendor may not take the hit which is why its loosely hypothetical and using rough numbers, houses in that area start from around 90k but just used 10k as a middle ground as that's the sort of price I'd want to be paying. I could by a house cash pulling money out of my/our house but I think its too much of a big gamble If you build your business on debt then you need to make the figures work for you. If what you can charge tenants means the figures don’t add up then the business doesn’t work.
Regarding buying a £112k place and getting a £12k discount, why would the vendor take such a hit? There might be an argument if you were a genuine cash buyer and could get it done quickly but from what you’ve said that isn’t the case.
BUT buying cash can have the benefit of buying stuff for refurb that does not pass the mortgage habitable test...this is where the capital can be made in my opinion. Buy the places nobody else can as they cannot get a mortgage - ie. no working kitchen and bathroom or where a little old lady has died and not done any repairs since the 1950's...make them liveable and then stick a buy to let mortgage on them.
Caddyshack said:
It is also to remember that tenants ruin properties over time.
I have done up properties and let them and have been really sad with the state of the properties after just 3 to 5 years. Often it would have been better to just let them out as I bought them and accept a lower rent with zero refurb costs and then do a cheap tart up if you ever want to sell them.
I have had black mould throughout a house as the lady was taking in washing for people and running it like a laundry without opening windows.
One lady was a cleaner but left it in a terrible state, she had ironed on the carpet and also ironed on the work surfaces in the kitchen....the deposit company were not interested as felt it was fair wear and tear after 5 years of her living there.
One tenant put up a TV in their bedroom, they drilled right through the wall and popped tiles off the bathroom wall on the other side....they also broke down the bathroom door as their wife said the lock stuck (even though the lock worked) so god knows what went on and they felt that some gaffer tape over the door would be fine.
I am talking about quality properties worth £350k near Guildford in Surrey that had new kitchens, bathrooms and carpet plus a full decoration before they moved in.
This is the exact reason we decided against refinancing our house to a btl and buying elsewhere, its our home we've ripped to bits and renovated, it would kill us to see it ruined and have to redo again.I have done up properties and let them and have been really sad with the state of the properties after just 3 to 5 years. Often it would have been better to just let them out as I bought them and accept a lower rent with zero refurb costs and then do a cheap tart up if you ever want to sell them.
I have had black mould throughout a house as the lady was taking in washing for people and running it like a laundry without opening windows.
One lady was a cleaner but left it in a terrible state, she had ironed on the carpet and also ironed on the work surfaces in the kitchen....the deposit company were not interested as felt it was fair wear and tear after 5 years of her living there.
One tenant put up a TV in their bedroom, they drilled right through the wall and popped tiles off the bathroom wall on the other side....they also broke down the bathroom door as their wife said the lock stuck (even though the lock worked) so god knows what went on and they felt that some gaffer tape over the door would be fine.
I am talking about quality properties worth £350k near Guildford in Surrey that had new kitchens, bathrooms and carpet plus a full decoration before they moved in.
Ryyy said:
Caddyshack said:
It is also to remember that tenants ruin properties over time.
I have done up properties and let them and have been really sad with the state of the properties after just 3 to 5 years. Often it would have been better to just let them out as I bought them and accept a lower rent with zero refurb costs and then do a cheap tart up if you ever want to sell them.
I have had black mould throughout a house as the lady was taking in washing for people and running it like a laundry without opening windows.
One lady was a cleaner but left it in a terrible state, she had ironed on the carpet and also ironed on the work surfaces in the kitchen....the deposit company were not interested as felt it was fair wear and tear after 5 years of her living there.
One tenant put up a TV in their bedroom, they drilled right through the wall and popped tiles off the bathroom wall on the other side....they also broke down the bathroom door as their wife said the lock stuck (even though the lock worked) so god knows what went on and they felt that some gaffer tape over the door would be fine.
I am talking about quality properties worth £350k near Guildford in Surrey that had new kitchens, bathrooms and carpet plus a full decoration before they moved in.
This is the exact reason we decided against refinancing our house to a btl and buying elsewhere, its our home we've ripped to bits and renovated, it would kill us to see it ruined and have to redo again.I have done up properties and let them and have been really sad with the state of the properties after just 3 to 5 years. Often it would have been better to just let them out as I bought them and accept a lower rent with zero refurb costs and then do a cheap tart up if you ever want to sell them.
I have had black mould throughout a house as the lady was taking in washing for people and running it like a laundry without opening windows.
One lady was a cleaner but left it in a terrible state, she had ironed on the carpet and also ironed on the work surfaces in the kitchen....the deposit company were not interested as felt it was fair wear and tear after 5 years of her living there.
One tenant put up a TV in their bedroom, they drilled right through the wall and popped tiles off the bathroom wall on the other side....they also broke down the bathroom door as their wife said the lock stuck (even though the lock worked) so god knows what went on and they felt that some gaffer tape over the door would be fine.
I am talking about quality properties worth £350k near Guildford in Surrey that had new kitchens, bathrooms and carpet plus a full decoration before they moved in.
Think of it from a renter's perspective.
You're looking to rent a flat and you find you have a choice between two identical vacant flats with identical rental terms except flat 1 wants £500pm whereas flat 2 wants £600pm.
You're going to go for flat 1 aren't you? Flat 2 will remain vacant.
You really don't care which of those are mortgaged or not.
You're looking to rent a flat and you find you have a choice between two identical vacant flats with identical rental terms except flat 1 wants £500pm whereas flat 2 wants £600pm.
You're going to go for flat 1 aren't you? Flat 2 will remain vacant.
You really don't care which of those are mortgaged or not.
Ryyy said:
So you Buy, Refurb, Rent, Refinance, Repeat.
When I asked you about time, what is the period between you buying and refinancing? You are aware, if you bought it as BTL mortgage, you might want to wait at least for two years to re-finance (or re-mortgage it). Or you have to pay it off, and get another valuation. Another option, you have some very interesting private lenders, might give you a bridge loan to complete the property, but I do not think their rates would be as friendly as high street banks. (Unless they are in the business of American Candy Shops at Oxford St.
)I do not actually know any residential property would achieve 40% capital appreciation in such short time (whatever the short period you were implying). I've seen a few extreme examples in Commercial Property, central London prime assets but even them had private equity and private lenders attached, no banks involved.
ooid said:
When I asked you about time, what is the period between you buying and refinancing? You are aware, if you bought it as BTL mortgage, you might want to wait at least for two years to re-finance (or re-mortgage it). Or you have to pay it off, and get another valuation. Another option, you have some very interesting private lenders, might give you a bridge loan to complete the property, but I do not think their rates would be as friendly as high street banks. (Unless they are in the business of American Candy Shops at Oxford St.)
I do not actually know any residential property would achieve 40% capital appreciation in such short time (whatever the short period you were implying). I've seen a few extreme examples in Commercial Property, central London prime assets but even them had private equity and private lenders attached, no banks involved.
I would get a 2 year fixed which is when I would refinance to avoid any ERPC'S. 40% appreciation comes from the renovation not the housing market going up, sorry if that's me telling you how to suck eggs )I do not actually know any residential property would achieve 40% capital appreciation in such short time (whatever the short period you were implying). I've seen a few extreme examples in Commercial Property, central London prime assets but even them had private equity and private lenders attached, no banks involved.
Have you considered the state of the market at the moment? I have plenty of clients who do this day in, day out. They stopped buying before the Summer and most definitely aren't buying at the moment unless they get wind of a specific project. Next year you will be fighting against people who will be buying in cash, have solicitors who will complete in 4 weeks and have a team ready to renovate.
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