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Hi there PropertyTribes,
I currently own a terraced house in the north west of England which I rent out for £435 a month, I have owned it for around 3 years now and own it out right, it is worth around £70,000. I also have my own house which is mortgaged but there is not much equity within this.
I want to grow it in to a portfolio to be proud of but I am unsure of the best way to do it. I have scoured the topics but haven't found any situations the same as this, unless I have just missed them :/
How would I go about releasing equity from the property, is it still easy to do if it was never mortgaged in the first place? Someone mentioned to me that it might be easier to sell it and use the money as 3 lots of deposits and refurb money on more similar properties which makes sense in a way but they would be of the same property type I have got now, and this current tenant is ideal so I would rather keep it.
If I do manage to release some money, ideally around 45k, am I right in thinking I would be able to buy three properties valued at 60k for 15k deposits and then essentially have four mortgages paying around £250 a month on each for repayment basis?
What does everyone think of this, very rough, plan to expand? would anyone do anything differently? Am I missing something completely obvious?
Any tips would be greatly appreciated by this newbie!
Hi Oliver,I would never chop down a tree (property) unless it was under-performing!Take clippings (equity release) to grow additional assets. Look to build an orchard seeded from the founding tree, which you already have.Equity can be released via a BTL mortgage - typically up to 75% of the LTV or the property - or by securing bridging finance against the unencumbered property.A rent of £435.00 pcm would support a borrowing of up to £64,500 although that would be down-graded due to the value of your property.A conversation with the team at Property Tribes Financial Services would assist you in understanding the best way to utilise your current property and grow a portfolio from it. They can be contacted on 01206 654444.We also have this resource:Growing a property portfolio - resourcesThis thread should be of particular interest:The power of owning a property with no mortgage on it If you sell the property you will incur sales expenses and capital gains tax, and there is no need to sell it when you can release equity.Use your cash buying position to leverage how much discount you can achieve on your next purchase and that will help you scale up more quickly.Hope that helps for starters?
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
At one time in the Past advice on this would be so straight forward
in 2018 its a very different matter
My advise before any one borrows today needs to look at the structure of the investment and the Taxation of the structure
a great deal of thought needs to go into this question short term medium term and Long term
what are the objectives
is the investor working if so what rate of tax are they paying and more important what will they pay in future
The BTL is still a good investment but it has to fit with the investors goals
The days of just borrowing and renting has changed a lot for the worse
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
Hello O William
i'm north west based.
Without knowing other variables in can be hard to give tips.
Basic rate tax payer or higher rate tax payer ?
Family or Single ?
Comfortably affordable or juggling finances.?Personally I believe we have reached a deleveraging moment in the economy and will continue for the future. A clear signal was provided by the section 24 finance restrictions.You are in a fortunate position and my advice would be to grow but more slowly. Collect the rent ( keeping aside enough or voids/taxes/repairs) use surplus to
Patience vs FOMO
Easy to look at the low rate environment and think it will continue for another 10-15 years. As well as house prices rises and rent rises. I would take some time and understand how leveraging can go wrong first. When everything is rosy it is hard to see the downsides.I give you some food for thought.
At some point in time.
Instead of one boiler/ roof/ repair to replace you will have have three to replace.If you made equity growth and of the opinion that things will be the same as the last 10 years. Ignore the above advice and leverage away. Don't let my negativity affect your decisions.
Just realise the consequences and make sure your calculations and assumptions are not too optimistic. And how in tune are your money management and cashflow skills?
Depending on your age and personal circumstances, leveraging can be good but it can equally sink you.I have curiosity about 2 things.
Out of interest did you release equity from residential in first place to fund until purchase?
Considering you bought cash first place why has strategy changed?Wishing you great success.
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.
very wise words well said
I am basic rate tax payer as I take around 27k drawings from my business and have the one property renting for 5220 a year.
I'm single and have an affordable lifestyle and I am 26 years old. I got the house because I basically inherited just under the purchase price at 22 and didn't want to blow it so bought that for 50k and painted it etc so It has had some equity growth, it wasn't really a strategy but more away to stop myself from spending all of the money at the time.
Really appreciate the tips, I have thought about the negative sides before but it's hard to cement it until hearing it from elsewhere.
I may release a smaller amount and start smaller rather than rushing in an trying to buy as many as possible and try to keep the growth more self funded so not to over gear all the debt etc and try to get one with potential to expand? This has all given me a lot more info to digest and think over which is great. so thanks everyone!
if re- read your post, the answer lies within.
the line "stop myself from spending all of the money at the time"
if you have grown and very disciplined and use spreadsheets and money management. then success may follow.
as a single person, now can be the time to take more risks. (You have different phases of life and different priorities as you age)
numbers don't lie and look carefully at each assumption.
spend some time - know thy self.
take care and wishing you success for the future -
(Don't believe the passive income BS. This requires activity, sweat and just a few wrong turns can land you in trouble)
Also forgot to mention.
Really factored in minium true buying costs. Used to be 2-3% percent. ( Conveyancing/ lender fees. This is without repairs and decoration costs.
But now stamp duty 3% ( unless under 40k) and the above.
So somewhere between 5-6% for each property, before you even start.
There are a number of recent changes that directly impact your plan to expand
1 - Recent BoE dictat mandates that Rent must be 145% of loan sevicing cost (formerly 125%)
That impacts not only on how much equity you can release from current BTL - but also the max price you can pay for any new ones
2 - Cl 24 means that Mort Int will no longer be fully deductible from Rent as a tax offset - hence if total GROSS rents plus other income gets anywhere near the c.£45k threshold for 40% income tax it could mean that a Rental needs a subsidy rather than providing an income.
Talk to HMRC if you do not fully understand how that will work.
Even basic rate taxpayers can be adversely affected though...as GROSS RENT is charged to MARGINAL TAX RATE as Stage 1 - and Stage 2 means rebating 20% of loan cost against total tax bill - full effect over next 3/4 yrs
3 - Any new purchase will attract 3% SDLT surcharge - eg £2100 on a 70k property
4 - Will there be significant capital growth in NW???
5 - How long could you sustain extra BTLs in any void periods - from other income - Council Tax is charged on voids from DAY1 - plus loan interest.
Indeed no real mention of tenant quality for these cheap oropropert.
It tends to be that most tenants for these cheap properties are dependent on welfare
These are very risky tenants.
So projected yield is all very well but without RGI there is no guarantee of rent being paid.
I don't know if any UC tenants that would qualify for RGI.
Just because a property is cheap doesn't make it a good investment.
It is tenant quality that gives guaranteed yield
As you will see from the responses above, letting property is not the business it once was due to huge meddling by the government designed to slow the market down and to dissuade new entrants from entering the market.
The latest change is the introduction by the PRA (Prudential Regulation Authority) of measures which will make it more difficult to get a mortgage, by decreasing the size of a loan compared to the level of rent received for a property - calculation is the rent must be at least 145% of the monthly mortgage payments calculated at 5.5%.
You are really lucky to have the unencumbered property you have and with a good tenant too, that's a great start but proceed with caution from here on in. You could certainly release some equity by mortgaging the one you have, lower interest rates if you keep the LTV to 60%, and if you do then buy another btl property, shop around and make sure it's in a decent area and ideally one you can improve to increase its value over time, maybe put on an extension or a loft conversion to increase the value to eventually enable you to remortgage.
Crucial though to be careful and take your time.