Buy-to-Let

Interesting,

Too many people are focussed on a minimum 25% discount which is almost always set against a subjective valuation and therefore subject to verification by a lenders surveyor and as such, far from definiate,

A property that can have value added for minimal cost is a much better prospect.

Equally, NMLI over a period of say 1-5 years is a sensible strategy rather than expecting to get 100% of initial cost out after say, six months whilst utilising standard High Street BTL funding.

RobProperty Consultant, Wakefield, West YorkshireE: rob@walkerfox.co.uk M: 07960 753550 T: @walkerfox S: Walkerfox

I skimmed over you're BTS article which was great BTW Rob: I need to read it in detail when I get a chance.

I would like to get your thoughts on why the above re-val was 100k but value was 110k, surely the reval should have been at the 'value' of 110k?

Also yes I agree: too many investors are fixated on the BMV purchase: in your opnion why would you utilise to not coming out clean with none of your own money in 6 months but wait a longer period of 1-5 years, surely you are increasing your risk if the market was to fall?

Fernando,

I guess its valuers caution. And to a certain extent their word is final.

The thing to remember is that the valuation is to provide a mortgage offer, its up to the lender to assess the various criteria. Its not a right to be lent 100% of the value or otherwise, this is why its always a good idea to have alternatives and an exit route pre-planned.

RobProperty Consultant, Wakefield, West YorkshireE: rob@walkerfox.co.uk M: 07960 753550 T: @walkerfox S: Walkerfox

1- Take out £11,250 within 6 months assuming values stay the same

2-I would imagine interest at 6% would be fixed for x no of years..

3- Mortgage payments on 1st mortgage using average rule of £100 in interest paymnet for every 20k @ 6% would be about £318: Remortgage property @ 75k-new payments would be £375 pcm

4- Cashflow after all costs including council tax, gas,water and mortgage = £1167 pcm. x 24 = 28k

Does that help

Maybe it's not 'best ever' but that's a bit negative Jacob!

There'll always be 'what if's' and I don't think it comes across as focussing on getting the money back out.

Sounds like great cash flow to me!

Thoughts?

I agree with all the responses so far.

I would add purchase costs to 'monies spent'; (say, for argument's and simplicity's sake: £1,750 for this, thus rounding up 'monies spent' (i.e. invested) to £40,000 over two years, in an asset which could depreciate in value, even after refurbishment, by that amount in that period of time).

£1,167 per month 'cash-flow' looks to me, based on a property of maximum value now of circa £100,000, to be more likely to be a gross monthly rental income than a net one, even if the renovation results in the property being turned into a multi-let one (I could be wrong if there are say four individual rooms, each let to a professional).Questions to ask would be:

What are the monthly mortgage payments?

What would the budgeted reserve be for management, maintenance and repairs?

What margin would be built in to cover void periods?

What is the real cost of the approximately £40,000 put in by the investor?

What net annual return (whether capital value increase, net rental income, or a combination of the two) on that £40,000 would the investor consider makes this deal their best one, and how long a period would she consider appropriate to evidence that return?

So....is this about right (assuming no cost attributed to finding the deal):

borrowed on mortgage:                                                      £63,750 + £11,250 = £75,000

personal or unsecured loan capital employed (inc all purchase costs) approx  £40,000    

mortgage interest payments over 2 years (6 x £318 + 18 x £375)                     £  8,658

assuming (if we can, that is):

there are no costs (arrangement fees, etc) for obtaining the mortgage

there are no tenants (and therefore no rent) until renovation is complete

all the renovation work is completed before the property purchase process is completed

rent is paid in full, therefore, for the whole house, from the time the purchase is completed

landlord pays own mortgage, insurance, & tenants' council tax, gas & water bills

no void periods in first 2 years of tenant occupancy

no repairs & maintenance needed in first 2 years of tenant occupancy

no interest is required for over 2 years on £40,000 employed before completion

about half the real capital employed is returned from net rental within 2 years of purchase

Without wanting to steal Rob's thunder, Fernando, and after you have considered these questions of mine, would you care to address one of the early observations Rob made:Equally, NMLI over a period of say 1-5 years is a sensible strategy rather than expecting to get 100% of initial cost out after say, six months whilst utilising standard High Street BTL funding.

Brian

Brian- this is not my deal, its a deal in the YPN december edition. I simply put it up to show that you do not initially need a big BMV discount, and 'thinking outside the box' to maximise your ROI is possible.

The article does not go into specifics that answer your questions: your guess would be as good as mine.

I asked Rob to clarify what he meant by his observation that "NMLI over a period of say 1-5 years is a sensible strategy rather than expecting to get 100% of initial cost out after say, six months whilst utilising standard High Street BTL funding." but as you can see it has not been answered.

Personally I would aim to get all of my initial capital and refurb costs out as quickly as possible in the quickest timeframe i.e. 6 months and not over 1-5 years, for the simple reason we could experience a fall in the market which could make that impossible.

Where is the 'thinking outside the box', Fernando?

It seems to me that quite a lot has been left outside the box - including the thinking.

I really am struggling to see how this could be an example of any sensible investor's 'best deal', nor what is really 'creative' about it.  Please could you clarify this for me; specifically, simply and clearly?

Thanks,

Brian