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  • Buy-to-Let

    Guidance needed to grow a portfolio

    Hi All,

    It is great to find this website and read through a lot of the posts. I have watched a lot of youtube videos and tried to ask friends and family questions on property investment but they usually have 1 rental property so cannot give the advice I am looking for.

    I have always been into property and at a young age I always wanted to have a number of properties to help with the work life balance. When I was 24 years old, I did a lot of research and purchased a house for £100k and rented it out around £800 per month (for 10 months of the year). I have many ups and downs with this student house with tenants not paying for months, trashing the house but on the other side I have some years where it rented with no problems at all. Due to the students often being from a foreign country there was no real process that myself or the letting agent knew of to get the outstanding rent. I also want to stay away from student houses as I spend 2-3 weeks each summer re-painting the entire house while carrying out other maintenance.

    I started to look at other properties to buy over the years but I always thought prices would come down or I could never really find that bargain property I for some reason thought there would be. I also met the love of my life 4 years ago, got married 2 years ago and just concentrated on us and my work career.

    I am now at the stage where I have £100k saved up in the bank, I have around £15k mortgage left on the rental property and have recently been promoted and get paid £48,500.

    The houses I am looking at typically sell for around £170k and rent out between £700-800 per month.

    I have a number of questions,

    1. Is there a way I could avoid paying the large BTL stamp duty? Should I pay off my mortgage, then with the second house could I purchase it using a normal mortgage (not sure of correct term), live in it for few months and then switch the mortgage to a BTL?
    2. If you were in my shoes, what advice would you give me to purchase my next property and further properties? How would you go about it?
    3. How do you go from renting out one property, to having multiple properties? My original plan was buy one property, overpay the mortgage off as each month much as possible while also trying to save up for a deposit for another house….is this the right way?
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    Hi San,

    Welcome to the tribe and thank you for the introduction. Smile

    I will take a stab at answering your questions:

    1. Is there a way I could avoid paying the large BTL stamp duty? Should I pay off my mortgage, then with the second house could I purchase it using a normal mortgage (not sure of correct term), live in it for few months and then switch the mortgage to a BTL?

      No.
    2. If you were in my shoes, what advice would you give me to purchase my next property and further properties? How would you go about it?

      The first thing to do is speak to a reputable mortgage broker and understand the financial products you have access to.  I would refinance the existing BTL property, and add that money to your £100K cash pot.  I would then look to buy properties for cash, add value via refurbishment, and then take out a BTL mortgage to recycle the cash and do it all over again.  The team at Property Tribes Financial Services on 01206 654444 can help you work out a plan.
    3. How do you go from renting out one property, to having multiple properties? My original plan was buy one property, overpay the mortgage off as each month much as possible while also trying to save up for a deposit for another house….is this the right way?

      Not really!  Property is about have liquid cash for deposits and leveraging to make your money work as hard as possible.

      Use interest only mortgages.  Buy at below market value for cash, add value through refurbishment, and then take out a BTL mortgage to re-cycle your cash. However, if you are affected by S24, you won't want to be leveraging to high LTV's so you need a conversation with a tax advisor about how to proceed with structuring your portfolio.

      See - Growing a property portfolio - resources
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    Hello Landlord123

    To answer your questions in order;

    1. Is there a way I could avoid paying the large BTL stamp duty?   

      If you are buying a residential property to let out, then the answer is no.  However some of our Clients buy semi commercial properties and because there is a commercial element to it, so the 3% surcharge is not payable.  This strategy may be more than you would want to get involved with, but it is a 'stamp duty surcharge saver' for many experienced investors.  
    2. Should I pay off my mortgage, then with the second house could I purchase it using a normal mortgage (not sure of correct term), live in it for few months and then switch the mortgage to a BTL?

      No.  Why would you put your money in to bricks and mortar where it is tied up until you sell it (or arrange a capital raising remortgage against it)?  I'm not even sure why you would need to move in to it to then switch to a BTL subsequently. 
    3. If you were in my shoes, what advice would you give me to purchase my next property and further properties? How would you go about it? 

      Save up a deposit (or release equity from your existing BTL to then use as a cash deposit) and arrange a BTL mortgage for the top up.
    4. How do you go from renting out one property, to having multiple properties?

      See the answer to no.3, and then repeat when eligible equity (or new savings) is available. 
    5. My original plan was buy one property, overpay the mortgage off as each month much as possible while also trying to save up for a deposit for another house….is this the right way?

      No.
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    Good advice I think. Something to clarify... can you please advise how much is 'too high' in terms of leveraging. I ask because I keep reading about problems landlords face when they are too highly leveraged but I can't find anything that tells me what is too high - 70% LTV, 75%LTV, 80%LTV, 85%lTV, 90%LTV?

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    Hi Julie,

    I generally advise to keep below 60% LTV to mitigate impact of S24.  Any leverage over 80% LTV is very risky imho.

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    Hi Vanessa,


    Can you explain to a newbie how 60% & below LTV mitigates the impact of Section 24?


    Thanks!

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    In simplistic terms, Section 24 incrementally removes a landlord's ability to off-set mortgage interest against tax.

    So, if you have no mortgage, you are completely unaffected.

    Working back from that, the less mortgage interest you have, the less affect S24 will have on you.


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    Hi,

    Thanks for the reply Vanessa!! And thank you for the youtube videos which has really helped provide me with a lot of information!

    When you say buy properties for cash, do you mean properties which mortgage providers wouldn't provide a mortgage for and so you can only buy with cash? If so, I have had a look at 2 over the years and its worried me as it looks like a stressful and time consuming task.

    Interest mortgages - My thought has always been that you do not pay off the actual loan and only the interest. Could someone please explain the advantages of this especially as if I have understood right the changes in the buy to let tax relief. Sorry if this is a daft question but I really have no one to ask and can only spend hours on the internet researching.

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    Glad you are finding the videos useful. Smile

    I mean buy with your own cash - i.e. not mortgage finance, then later use mortgage finance to redeem/re-cycle your cash.

    Interest only mortgages do indeed only pay the interest, they do not repay the capital, although most lenders will allow you to make up to 10% capital re-payments per year.

    As property is a long-term game, most people prefer greater cash flow provided by IO mortgage and buying multiple properties means that you can potentially sell half of them in 20 years time and use the equity to unencumber the properties you decide to keep for income.

    See - Interest only vs. capital repayment BTL mortgage

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