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  • Mortgages & Finance

    Building portfolio with no personal cost?



    HI!

    I'm new to the group and wondered if you guys could share your opinions and maybe similar experiences to help me strategise my buy to let venture.

    Im in the North West. id like to explain that my opinion and years of research suggests that a typical £70K Market Value House, (mainly terraced and ex council) wich is my target market to start with would rent out for £425-£450 so about 6% gross yield (for cash buyers).

    Likewise the buy to sell market is pretty strong as a lot of the local property is 100 years old or so terraced houses. if you have the right knowledge and team around you, you should achieve a 20% yield minimum but the work is very hard and time consuming. Often to get the best value and sale-ability you need to hack back to brick and give it the platinum renovation service.

    back to buy to let... I have spoken recently to an advisor at Nationwide who could do a 5 year fix at under 3% interest. and up to 80% LTV. We did a quote on a £50K purchase we used a 25% deposit this time so the loan value was £37,500. The repayments where £96 pcm. no fee's and £250 cash back.

    so i had an idea and asked; "if i buy a property, in cash, will they mortgage it and release equity?". They are happy to do so but the rules are that you have to own the property for 6 months and/or you have to have the property tenanted for 6 months if you are a first time landlord.

    SO.... with this all in mind....

    I came up with a strategy, i found a couple of small problems so far but nothing too concerning. Let me run over a scenario that should explain my theory..

    1: Cash buy a property under market value, possibly an auction property obviously it will be in need of a little TLC for £39,000 (below stamp duty threshold) + £1,000 solicitor fees etc.

    2: New kitchen, bathroom and a light renovation everywhere else. windows and doors. use the trade accounts and economy options and have a strict £10,000 budget with me doing a good portion of the work while my portfolio is small and i have the time.

    3: House is renovated, i am a total of £50,000 out of pocket, but the property values up at £65,000!

    4: Now remember Nationwide want me to own the property for 6 months and have a tenant in for me to mortgage a property that i already own so i need to get to all that sorted. and collect a bit of rent on the way.

    5: Now it's time to get in touch with Nationwide and apply for a 80% LTV mortgage which should stack up when they send out the valuation.

    6: Now.. 6 months on, Nationwide release 80% of the value which is £52,000 so i end up owning 20% of a nice property and have £2,000 more than i started with!

    Going forward in terms of income i believe the following wouldn't be too far off;

    Income:

    Rent £425

    Expense:

    Mortgage repayments on £52k - £135

    Insurance                                  - £20

    Maintenance                             - £40

    Profit = £230 pcm.

    There isn't a yield as its all income providing there is a Tenant in.

    I should mention now that i am a first time landlord just bought and sold a couple but always had a close eye on the B2L market. Im almost ready to commit i would love to see what you experienced landlords think of this.

    Thank you for your time!

    Michael.

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    You have not factored in income tax on the rent? Unless I missed it?

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    No for now i have just worked on the pre-tax profit. It may be more tax efficient to incorporate a Ltd company i think.

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    forgive me if I am being dim here, but rental income of £5100 per year and a carried forward refurb "loss" of say £8000 of his £10,000 refurb costs, means no tax to pay regardless of Section 24.

    I've been doing this for 16 years and am yet to pay a penny in property tax. 

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    Thats great! likewise im only 5 years into one Ltd Company and 1 year into another but so far we have been super tax efficient. so many expenses out there to use. pension funds etc. with a decent accountant/tax specialist you can really manage that aspect quite well.

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    Erm, are you suggesting offsetting improvement costs against income tax?

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    No.  I mean replacement, refurbishment, repair costs on a light refurb job  of items already in the house when purchased and of a similar standard or the best current equivalent of the original standard. 

    The house is habitable and is bought with a mortgage.  Any improvement such as adding a conservatory is capital cost.  I have a good accountant.

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    Define good. Perhaps you are not using the word in the Mother Theresa sense? Smile

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    Debbie Franklin from Peplows - she's angelic! 

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    20% yield minimum seem high.

    how sure are you it value Up when the time is needed?

    What is your target audience. Students? LHA ? Or small family.

    Buying at auction - recommend attend a few . Pugh auction - rarely goes at guide

    are you aware of 145% 5.5 percent interest rate and min income stress testing.

    3% stamp duty may not apply if you do not have interest in any other property.

    i also believe your ongoing maintenance costings are not reflective of reality.

    Landlord insurance, boiler , roof rainy day funds.


    Having said that yields in the northwest are great and strategy of creating valuable uplift by refurb.


    (

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    Coming soon Investorsk8.com

    Wisdom - an integration of knowledge, experience, and deep understanding that incorporates tolerance for the uncertainties of life as well as its ups and downs. 


    Thank you! i have just googled the minimum income stress testing. the plot thickens!!

    I haven't got enough stats to go off. I've only renovated 2 my first one was very amateur and was just less than 20% yield but i more than made up or that on the second one. i might have been lucky but i do have Trade Accounts and complete a lot of the work myself that seems to save a lot.

    i probably need to be a bit less ambitious on the value as the lenders might look on the property different than maybe a buyer would or an estate agent, they are more uncertified to value it lower.

    young professionals and small families i would be targeting.

    I believe the stamp duty is £0 for anything below £40,000 then 3% after that even for landlords.

    With Maintenance I've just gone in at £500 a year for a semi refurbished house. again i'm not sure I'm saying £200 for gas safety test and boiler service. and £300 for there bits I'm not sure of all the obligations as a landlord just yet.

    I still need to quote insurance etc. i might be way off at £20 per month per house?

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