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  • New Members

    £60k to invest - whats better for a new investor old properties or new build properties?

    I am starting out in property & looking to buy properties BMV/cashflow positive. I am looking to put the least amount of money into the deals. So maybe NMD, what in your opinion is a better long term new properties or old properties? I get lots of emails from property finders that are very tempting, offering deals that need only £4k or £5k investment and they are cashflow positive. So they say, but most of the deals are for new build property.
    Is new build property just as good an investment as older build property? what should I look out for? if I do buy new build property via these property finders, that charge to find the deals?
    How would you best use £60k if your were starting out in property and looking to recycle your money so that you can keep growing your property portfolio?
    Your advice is most welcome.
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    Hi Stevie,
    Welcome to Property Tribes.
    If this is your first investment, I believe it is important that you make it as low risk as possible.
    First of all, I believe that there are no legitimate ways of doing NMD deals, so my advice is not to waste your time or money in getting involved with these. You can read "Top Ten reasons why you will never bring a NMD deal to completion" here.
    Sorry to be the bearer of bad news, so please do not shoot the messenger! I find it interesting that you have been offered NMD deals on new build, as the new CML regulations that dictate that all incentives and discounts must be declared to the valuer, would render a NMD completely impossible. The valuer would be required to value the property at the net price, not the gross price which would ruin any chance of a NMD deal.
    If I had £60K, I would purchase what I consider to be a "bread and butter" low risk house (NOT flat) with positive cash flow in the South East. I believe the S.E. of England is far more recession-proof than the North, and we will see a widening of the gap of how the North suffers in the recession, compared to the South, over the coming year. I would rent to professional tenants, not students or HA. I would go for a second hand property, as you can get higher LTV mortgages for these than new build.
    You would need to be sure to buy significantly below BMV and ensure positive cash flow. Look for a house where you can add value by maybe doing a cosmetic refurb or up-grade.
    You may only be able to buy one property with your £60K, but it would be a good, low risk one.
    Please do not get fixated on buying large numbers of properties as this is virtually impossible with the current mortgage products and high deposits. Even one well bought property with good positive cash flow will serve you well.
    Have a read of my Top Tips to Avoid becoming property shark bait. There are plenty of sharks out there who will gladly relieve you of your £60K and leave you with nothing to show for it, so please be very careful and do masses of research and due diligence before parting with a penny.
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    I think the first thing people should do before investing in property is to ask themselves what they are trying to achieve. Once you know where you are trying to go, you can then start planning your journey to get there. Your personal review should include your financial resources, time commitments, family commitments, existing knowledge, contacts (tradesmen, professional advisors etc.), attitude to risk, support network, timescales and where you would be if things went wrong (and how you would recover).
    I would then start educating myself in the various property markets, strategies and deal evaluation techniques. I would do this by participating in forums, reading property websites/news articles/books & magazines, attending property shows (and particularly the seminars offered by many of them), and networking. I may attend short courses on specific subjects that were of interest to me.
    With the knowledge of what’s available and what you want to achieve, you should be able to formulate a strategy, prepare a plan and set some goals. Then you can focus in on that part of the market you have identified as being best able to achieve your goals.
    Once you know what you want to achieve and how you think you’re going to do it, go and view a few properties. This is not with an intention to buy, but just to familiarise yourself with what is available and possibly to get some ideas of what you could do with properties (extensions, conservatories, loft conversions, parking etc. – just see what’s available and the standard of the finish). If you’re planning on letting property, go and view a few rental properties too. This should give you an idea of what your potential customer is expecting.
    I’d be very wary of sourcing a lead through a property finder. Most of my deals have been sourced via estate agents or auctions. I’ve also tried leafleting. If you’re looking at new build and want a good deal, many developers are open to low offers either in the run up to the company’s year end (as the sale will boost results – and possibly someones commission), or when there is only one unit in the development unsold (the cost of keeping the marketing office open can be substantial). You don’t need a property finder to source these, just the nerve to make a low offer!
    If you’re looking to grow your portfolio by recycling your deposit, you need to make sure you finance your original purchase with a product with no ERC’s. You also need to check with your lender how long you will have to wait before you can remortgage. Generally this is six months, but some lenders will do it before this and others will allow you to take a further advance, just check the rates.
    Don’t forget, each time you take out a new mortgage you’ll have a new set of fees to pay.
    You’ll only be allowed to release equity if a) it’s in the property and b) the rental income will support the new debt using whatever criteria your lender work with. Therefore you should be looking to purchase property BMV and/or which you can add value to. The latter is likely to be difficult if you purchase new build.
    If you do release equity, unless you have a long term (5 years+) fixed rate mortgage, you might be wise to stress test the new debt using interest rates higher than the current ones. It’s no good releasing equity to buy a second property only to lose the first property two years down the road because rates increased and the rent no longer covered the mortgage.
    In short, don’t rush in just because you have money available. You can best use your £60k by investing it, not simply spending it.
    Amanda
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    Brilliant post Amanda! Totally agree with everything you have said.
    One other thing, for Stevie - be sure to keep a contingency (say £5K) for a rainy day ...
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    Hear, hear, I wholeheartedly agree with the previous comments on Amanda's post, very concise and well expressed. Thanks for sharing.
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    Thanks for the great advice, I must admit sorry for my ignorance and bad spelling lol. Maybe these deals are not what some of you call NMD please see link below as an example of what I get emailed to me almost every day.
    I would love your advice on this type of deal. Also Amanda thanks so much for your amazing long post.
    https://archive.constantcontact.com/fs057...86188.html
    Vanessa said:
    Hi Stevie,
    Welcome to Property Tribes.
    If this is your first investment, I believe it is important that you make it as low risk as possible.
    First of all, I believe that there are no legitimate ways of doing NMD deals, so my advice is not to waste your time or money in getting involved with these. You can read "Top Ten reasons why you will never bring a NMD deal to completion" here.
    Sorry to be the bearer of bad news, so please do not shoot the messenger! I find it interesting that you have been offered NMD deals on new build, as the new CML regulations that dictate that all incentives and discounts must be declared to the valuer, would render a NMD completely impossible. The valuer would be required to value the property at the net price, not the gross price which would ruin any chance of a NMD deal.
    If I had £60K, I would purchase what I consider to be a "bread and butter" low risk house (NOT flat) with positive cash flow in the South East. I believe the S.E. of England is far more recession-proof than the North, and we will see a widening of the gap of how the North suffers in the recession, compared to the South, over the coming year. I would rent to professional tenants, not students or HA. I would go for a second hand property, as you can get higher LTV mortgages for these than new build.
    You would need to be sure to buy significantly below BMV and ensure positive cash flow. Look for a house where you can add value by maybe doing a cosmetic refurb or up-grade.
    You may only be able to buy one property with your £60K, but it would be a good, low risk one.
    Please do not get fixated on buying large numbers of properties as this is virtually impossible with the current mortgage products and high deposits. Even one well bought property with good positive cash flow will serve you well.
    Have a read of my Top Tips to Avoid becoming property shark bait. There are plenty of sharks out there who will gladly relieve you of your £60K and leave you with nothing to show for it, so please be very careful and do masses of research and due diligence before parting with a penny.
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    Hi Stevie,
    It's a flat, so I am immediately turned off. What are the service charges on it? How long is the lease? How many flats in the block? How many of them are rented out? (competition for tenants). I avoid flats outside of London like the plague now ... but you can still get it wrong in London.
    Secondly, the website is really cheap and nasty. That should tell you something.
    Thirdly, what they are quoting as sold comparables are asking prices advertised on a property portal. Those are not comparables as the actual sold price might be a lot less. Ditto the rent comparables. Have they deducted service charges and letting agents commission before calculating the cash flow? Doesn't look like it to me, so they have calculated the gross cashflow, not the net.
    The blurb mentions that the price includes stamp duty. There is no stamp duty on this property. They mention the price includes bridging fee. There are no lenders that allow bridging of the deposit or bridging of the net amount. So this deal is not legitimately possible.
    How do they know that you will have access to that particular mortgage rate? They don't! All very misleading.
    Many of these companies take your fees upfront, then the deal falls through, but they hold onto the fee and say they will move you onto another NMD deal, and then that falls through, and then suddenly they are hard to get hold of, and then they go bust and take your money with them. I've seen it endless times.
    Please do not fall for these "deals". Just because you purchased a property with only £5K does not make it a deal!
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    Hi Vanessa,
    I have not done any due diligence on any of these deals as yet, but of course would have before buying. So I don't know the answer to your questions about other charges like service charge and how longs the lease for.
    What I was trying to find out was are any of these deals advertised by these companies being done? it seems to me that maybe they are but they are illegal in terms of the mortgage company? would you agree with this?
    Also this is Maria Davies last message on Facebook today talking about NMD in Portugal. Maria Davies Leaving today for a week in Portugal - viewing what look like some cracking NMD, high yield deals for my subscribers at https://bit.ly/rdLyQ
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    Yes, it is my opinion that they are tantamount to mortgage fraud. Please read the two links I sent you in my original reply. They will answer a lot of your questions.
    Please do not be so fixated on NMD deals. They do not exist in a legitimate format. You have a wad of cash and are in a very strong position to do a legitimate deal and build a solid, long term foundation for your property portfolio. That should be your focus. Not chasing after every mention of NMD. Just my humble opinion .... sorry if it sounds harsh, but you could lose that money so easily by getting into bed with the wrong deal.
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    Thanks Roberta, all good input, as always.
    For the record, I was not giving advice, as I do not know Stevie's goals, etc, as you pointed out. He asked for input as to what we would each do if we had £60K to spend, so I told him my thoughts, bearing in mind that he is a new investor.
    As I have said before, property investment is not a case of "one size fits all". It is highly personal to the individual as Amanda pointed out. However, for novice investors, I believe that low risk strategies are best so that they can build their knowledge as they move forwards, and minimise risk of losing money as they go.
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    I just want throw in on thing, which I am working on very carefully at the moment: to buy an older property that cash-flows positively, but which clearly has good potential for added value in the future - for example, a corner plot property - or certainly one where planning permission would be needed to establish an equity gain.
    I am likely be greeted with howls of "Only think of cash flow right now" when I say this; but I'm going to be a bit Warren Buffettish here. My reasoning is this:
    Investors who follow the gurus have largely been taught in the last year or so (not wrongly) that cash-flow is all important when property values are in decline.
    This can result in potential 'added value' prospects simply being dismissed out of hand, instead of being looked at clearly and objectively in a professional way. The 'buyers market' at the moment also means that development potential in land is almost valueless - this is not so in times of great demand. Looked at another way, at the moment this potential value can be bought virtually for free - if you have an eye to spot where it lies.
    The market is apparently bottoming out. When it goes up, those who can potentially gain the most equity in their portfolios are going to be at a significant advantage when it comes to raising more money. Before this occurs is a golden opportunity to spend time getting necessary planning permissions, and making other thorough preparations. If you simply buy a sound cash-flow-positive property now without exceptional yield, but with development potential, then I would consider that, in the long run, one is likely to be much better off, on balance.
    In agreeing with Vanessa that low risk is important to begin with, and in agreeing with all else that has been said too, I see this strategy of looking for planning permission potential as being win-win.
    Builders (as potential buyers of smaller investment properties) are in general being squeezed harder than investors by the banks right now. As competitors for developable properties, therefore, they are weak competition - which is not normally the case. Herein lies opportunity. That's what I'm working on, anyway.
    Does anyone agree?
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