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  • Buy-to-Let

    £80K cash - best way forward?



    Afternoon people, first post, and Im a complete novice, so I fully expect (and have braced myself), for a raft of sarcastic replies.

    Just after some advice, and Ive read a lot of very similar posts, on the best way forward with 80k cash to begin with.

    I have read loads about recycling cash, buying with cash, refurbishing/upgrading, then get a mortgage and use the cash to move onto the next property. Ive got a few questions to ask about this strategy, if anyone can help out with some answers, so that I can get my head around things a bit more, I would be very grateful.

    I am based in the north west, so would be looking at investing in this area.

    So, hypothetically, I purchase a property for 65k cash, spend 15k cash on a refurb, potentially rent it out, and then hopefully get it valued around 100k by a lender (a nice round figure for the hypothetical situation, i realise that it is seldm as easy and smooth as this). Then I can get a mortgage on the property, and use the cash from the mortgage to move onto the next property.

    1) would the lender be more likely value it at the higher figure, or just the purchase price ?

    2) what sort of ltv would be achievable from the lender ? 70% ? 75% ? 80% ? Or is it better to go lower ie 60% for peace of mind.

    3) what type of mortgage ? would it have to be buy to let or can it be a repayment if the figures stack up ?

    So lets say the lender values the property at the 100k, and I then borrow at 75%, so I then have 75k to invest in my second property.

    And do the same thing again, but this time it would have to be slightly cheaper, because I only have 75k as a pot as opposed to 80k.

    By doing this, unless you add a huge amount of value to the properties, and the lenders value them at the high end, every purchase you would have less and less cash to recycle.

    Unless of course, you add more cash to your pot from another source.

    Or if over time your properties increase in value and you could potentially cream more off each one.

    Is there some sort of magic trick i am missing here where you can keep your recycled pot as it was at the beginning, or even make it bigger, without topping it up yourself (or from a private investor), or is this the long and short of it ??

    Apologies for what are probably boring, mundane questions to the majority of you experienced guys, or if im not totally clear, im just trying to get some things straight in my head before I can even think about my first purchase.

    Cheers

    Paul

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    hallelujah

    someone else has identified the problem with the 'rinse and repeat' strategy. When I first started investing (three years ago) I was informed of this strategy and how you could buy more properties etc etc by using it over and over.

    you have identified exactly what the problem is... unless you have massive capital growth in a very short time there isn't enough money to be had in the cycle and eventually you run out - unless you top up with your own funds as you've already stated.

    I too thought I must be missing something and I'm still waiting for more experienced investors to solve the conundrum.

    Paul.

    ps when I applied the rinse and repeat formula to the pot of cash I started with, I could buy a certain amount of property and then have to stop. No matter what twist and turns you apply it just doesn't work unless you're prepared to wait for capital growth...

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    Paul BTW, I got around the problem by finding property that needed renovation and adding value that way, it wasn't easy though (just my experience I'm sure others will have differing opinions)

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    Properties that need renovation are often,only slighter cheaper to buy, than properties that do not need renovating.

    So renovation is a often a fruitless excercise.

    Especially if you use builders, rather than doing the works yourself.

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    Mr Hyde was pointing out, you potentially have a better chance of adding value if you buy a property in need of renovation. No matter what asset you purchase you have to perform DD. And as an investor your DD includes renovation costs, including sourcing. If you have to pay 60 spend 20 and it's still only worth 70 guess what the high level decision is going to be.

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    Totally agree (particularly the thing about builders) but the point I was trying to make was that the 'rinse and repeat' strategy so beloved of those that run property courses doesn't work - eventually you run out of money.

    Unless...

    a) you're prepared to wait a long time for capital growth or b) you find renovation projects and add value that way, should you be lucky enough to find a cheap enough property to renovate... as I was at the start...

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    Hi Paul, a few questions here, I will do my best to answer all.

    No 1: To make it more value would be a high spec finish, bearing in mind that over spending can jeopardise what you get out of it than what you have put into it.  Making Comparables with other type of Properties in that area to see what they achieved would be a sign of what you can get.

    No 2: Ltv would be 25% with buy to let which could be harder to get if you don't own a Property already.

    3: if your buying to flip then you would have to check the Apr on each one to see what suits you

    Just a bit more advise, when buying properties, I always buy them through my Ltd Company, due to tax benefits.

    What people do on a rental basis, if you where thinking of that strategy, is to Deposit, Refurb which will higher the Value, refinance to get all the money out, go to your next project.


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    Hi Paul.

    Before I answer, can I ask you a question. Why do you want to invest into property?

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    I think it's a brilliant Question John, makes people take a step back and think why they want this, but my post was meant "Depends on the intention of the Question" So many different answers to this Question.

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