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  • Buy-to-Let

    Starting out - BTL's

    Hello All,

    I will (hopefully) be a first time buyer with 55k deposit, but i am not too sure what i should do in regards to starting a portfolio over time. I recently offered on a new build flat, but having read a lot around here i have seen that a flat is more hassle than good (leasehold issues, service charges eating into yield etc.) I was thinking of buying the flat, living there until my residential term is over then remortgaging into a buy to let. After the deposit on my first home i will be left with around £100k to use to fund my BTL's.

    1. Is it still a good time to start investing​? Which areas would you suggest?
    2. I am a first time buyer, should i get something more expensive first as a home (near work) then look to buy smaller buy to lets e.g. around 160k mark with a LTV around 75%? I realised that if i bought the flat, i would be forced to pay the additional stamp duty on the additional properties, therefore if i wanted to get a house 30 miles around near my area the stamp duty would be huge. If i was to buy something more expensive now, this would mean reducing the stamp duty if i was to go for cheaper homes?

    3. As far as i can see, they will only offer on a buy to let if you earn above 25k and are a home owner? Is this correct?

    4. Would it be better to take BTL mortgages out on interest only, or does it work better if i choose repayment? I am concerned about this as there has been some rumors of a house price crash.

    5. What is the happy price paid/ rent received on a property e.g. 160k paying £800pcm?

    6. With my budget, how many properties should i expect to have?

    Thanks.


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    I also wish to add that - if i took a resi mortgage on my home they will lend on 4.5x my earnings. However a buy to let is calculated differently, therefore as long as i have the 25% deposit and the rents are higher than their threshold it should be ok to lend on? 
    I am thinking if i can get the biggest house possible with my income & deposit i can live in and once i get to retirement age possible sell this off to pay off all outstanding mortgages on my buy to lets? Is this a feasible option? 

    Does anyone have thoughts on whether flats will ever be more expensive than a standard (freehold) house? I am seeing in some towns flats are almost the same prices (or coming up to) as some terraced houses? ​

    ​Thanks.

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    The questions you raise are all good

    You need to search hard for a good tax advisor and a good mortgage broker

    I would also attend any landlord events and network

    Read every thing you can on Property Tribes

    Don't Pay for education  seminars an alike

    avoid get rich quick schemes

    Once you have an understanding for your Goals and future plans then make your move

    this is a huge subject and you have to learn and make mistakes we all do

    Best of luck

    DL


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    Learn Change and Adapt ?????


    Having a large PPR always gives you the chance to take on lodgers.

    Probably no more than two to avoid what it seems may be unviable issues if you exceed two lodgers.

    Investing in a PPR future proofs your circumstances.

    BTL is all very well, but first things first

    PPR then BTL.

    Lodger possibility if you have a big enough property.

    Also a very useful way to build up some tax free income albeit at the sacrifice of your privacy.

    But in 4 years time if you only ever received no more than £7500 per year you would have a rather nice deposit in addition to any other savings you may have achieved.

    In 4 years S24 and EPC requirements will have wrought their true destruction.

    There will be lots desperate LL trying to offload their dud properties.

    There you will be with your large deposit.

    DON'T invest in flats.

    SC and GR militate against their viability compared to houses as you have seen.

    Far better to buy a house that you could extend.

    Forced appreciation by being able to improve the property is always worth doing.

    4 years worth of lodger income at £7500 per year should be more than enough for a decent loft extension.

    Use a large PPR as a cash generator.

    Of course you could generate a lot more lodger income if you were prepared to bend rules.

    So in a 4 bed house you can have 3 lodgers at £7500 each

    Don't declare to HMRC

    Don't tell lender you have more than 2 lodgers.

    Don't tell council that you have more than two lodgers

    It is highly unlikely that anyone would find out you have 3 lodgers in your PPR at £7500 each

    But ultimately it is up to you how you proceed.

    I couldn't possibly recommend which way you should proceed.

    But I know what I would do if I had a 4 bed house with only me as the occupier of my PPR!

    .

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    Hi Paul,

    Really appreciate your helpful advice. This is the kind of response i was after. I was considering sharing part of my home with lodgers (if my missus approves). The property i have found is a four bed on three storey's - townhouse style. As far as i'm aware if i was to take in more than 2 lodgers it would be classed as a hmo (or even large hmo). Each bedroom has its own bathroom/ensuite and they all have their own kitchen facilities (oddly enough).

    My initial concern with lodgers is that i will struggle to get them to rent. There's about four times more room let's than singles.

    Do you know the average asking prices for lodgers across the UK? Is it easy to find lodgers, i know there are sites such as spareroom. Spareroom looks like a useful tool, however there is not enough info on there like rightmove to see if there is enough demand. My concerns with this method is that i will most likely have to pay for bills etc and on top of the mortgage costs and large council tax bill it may negate any income. It will most likely pay my mortgage costs, but any other bills its probably going to break even. Again there will most likely be a lot of void periods here and i will have to be alot more "hands on". I suppose this is a good way to learn.....

    My main concern is that i will have 100k left over to invest, and it is currently sitting dormant in the banks making like 1.5% return PA at best.

    ​With the high rate of inflation, i am concerned that if house prices keep going up then eventually my savings will be worth nothing. What are your thoughts here?

    I would assume starting with a freehold house would outweigh the benefits of starting with a flat. I know the MAIN advantage of a flat is the initial purchase price and less maintenance costs, but that's probably about it. I would end up taking a larger mortgage on the house compared to the flat but i would assume a house would always sell quicker than a flat?

    Thanks.


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    Crikey!

    You have found the perfect house

    I'd buy it , like yesterday!!!

    Don't concern yourself with bills.

    There will be minimum utility usage.

    Your elect bill should be about £50pcm and gas about £40

    That is nothing with 3 lodgers and 2 live in LL.

    You will be able to determine achievable room rents from spareroom.

    You can see what lodgers are prepared to pay.

    You could easily accept couples who would live in the separate facilities.

    For a couple I would charge the single rent plus another half of it for the couple

    So 3 couples at £11250 each is a lot of money.

    I use spare room to source tenants as well as lodgers.

    It is a great free site.. I don't use RM etc

    There is another lodger site called idealflatmate though I think this is London biased.. Also easy roommate.

    I prefer spareroom as it is free if you are prepared to wait 7 days before aspirant lodgers can contact you..

    If I was you I would buy that town house.

    Then gradually start taking on lodgers.

    You might wish to ascertain before you take out a mortgage product as to that lenders view on acceptability of lodgers.

    Most seem to have a two lodger restriction but you could manage that if you wished to totally adhere to lender conditions

    The only way they would ever know was if 5 names were on the ER!!

    So just have no more than 2 lodgers recorded on the ER.

    Hopefully the house has good parking facilities and is near transport links.

    Remember if lodgers don't have cars you can even let out your drive as an effective car park.

    Especially if you are near a stn.

    Commuters would snap up any permanent space they could use if a short distance from a stn.

    Make it about £5pw cheaper than a season parking ticket.

    But that house, you won't find a more perfect layout for a PPR than you have found.

    I reckon previous owners have 'improved' the property in the past by installing kitchen type facilities and I reckon it has been used possibly by a LL as a HMO.

    With you as a live in LL you won't suffer S24 taxes etc

    I'd go for getting at least two lodgers

    You might wish to keep a room spare for visiting family etc..

    Or even Air B & B if in a touristy area.

    Of course you could do a full AirBnB service for all the spare rooms.

    Not sure how HMRC would know you are doing so.

    Also not sure what your lender would think, but how would they know!?

    To me this house seems to have so many possibilities all ready made for you.

    To exploit those opportunities you just need to buy it!!

    If you go for 3 lodgers it won't take long to build up substantial deposit funds providing you save the lodger income.

    I wish I was in your position, I'd get that house!!

    Ones like that don't come along too often if ever.

    Though I suspect that many LL will be offloading HMO as a result of S24 and the EPC regs

    They will have to sell as single dwellings.

    So providing this house is in a decent location it could be a cash generator par excellence!!

    What you could do with some of your funds is 'invest' temporarily  into Premium Bonds!

    Your capital is safe there and you can always withdraw the funds without too much trouble.

    You could 'invest' £30000 each

    Effectively the amount you would lose in interest on that in a savings account just regard as weekly lottery costs cos that is all PB are.

    Lenders would like to see a strong and stable, to coin a phrase!!; domestic set up further qualified if you state in a few years time that you have experience of letting with your own lodgers

    That experience combined with your no doubt by then vast deposit funds, presuming of course that you haven't won the PB big one!, will be there ready and waiting for all the desperate LL having to sell up as they realise what S24 and the EPC regs do to the viability of their properties.

    There are currently estimated to be about 640000 rental properties that don't meet even the minimum E Standard.

    The clock is ticking.

    Even if LL all started tomorrow there is no way that all these rental properties will be E standard by 2020.

    That only works for old tenancies.

    Any new tenancies after April 2018 have to be EPC compliant.

    There are many clueless mortgaged sole trader LL out there that don't appreciate anything about EPC or S24.

    You will be there waiting with your cashpile to alleviate them of their problem properties.

    You should consider all investments based on the soon to be introduced PRA regulations.

    Especially work on the basis that you are very successful and end up with more than 3 rental properties.

    Cos I'm sure you know that is a different underwriting regime.

    It certainly wouldn't be unwise to impose that regime on yourself before you reach the fourth property.

    Doing so will mean no radical change in your investment strategy as you would have been operating under the self imposed PRA regime for your first 3 properties.

    You will need to start a company to avoid S24.

    It is not possible without severe penalty to pull out vast income from a company.

    You will actually earn far more from lodger income which of course will never exceed £7500!!!!!!!!?

    So you won't be financially free, you will need to retain the day job.

    But by retirement you will have a massive pension when you realise the equity in your by then extensive property portfolio!!!

    Remember to achieve a gross pension of about £20000 you will need a £500000 pension pot

    So a £40000 pension which should be adequate you will need a clear million after tax equity.

    So you had better get cracking and buy that house as your PPR as it will be the foundation of a hoped for property empire!!!

     If you aren't married there is nothing to stop having 2 PPR.

    Your long term fiancee would just visit you a lot!!

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    I see you are considering lodgers, I suggest you read the following links to get an idea of what's involved.

    https://www.gov.uk/government/publicatio...cheme-2017

    https://www.gov.uk/government/publicatio...-landlords

    https://www.gov.uk/government/https://uploads.propertytribes.com/sy...138292.pdf

    Best of luck, it sounds like a great opportunity.

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    Hi FTB,

    Welcome to the Tribe.

    I much prefer freehold houses to leasehold flats and would always advise newbies to crunch the numbers on both to see how they stack up, along with ascertaining tenant demand for both property types.

    I will try and answer your questions as best I can:

    1. Is it still a good time to start investing​? Which areas would you suggest?

    The only time any of us have to invest is NOW.  Unless you have a time machine to go back in time or buy property in the future, then this is the only time you have.  So you have to commit to getting involved, and take sustained and intelligent action.  If you do, you will find a way to success.  This is true of anything, not just property.  

    You can only sit in the shade because someone planted a tree 40 years ago.

    Choose now to plant your seeds of financial freedom, but take professional advice to build solid foundations.

    The areas I would suggest are places close to where you live with high tenant demand.

    2. I am a first time buyer, should i get something more expensive first as a home (near work) then look to buy smaller buy to lets e.g. around 160k mark with a LTV around 75%? I realised that if i bought the flat, i would be forced to pay the additional stamp duty on the additional properties, therefore if i wanted to get a house 30 miles around near my area the stamp duty would be huge. If i was to buy something more expensive now, this would mean reducing the stamp duty if i was to go for cheaper homes?

    Don't let the stamp duty tail wag the property dog.  Stamp duty is a business expense and is deducted from your CGT.

    3. As far as i can see, they will only offer on a buy to let if you earn above 25k and are a home owner? Is this correct?

    Most BTL lenders like to see a clean credit rating, a minimum of £25K salary, and that you have been on the Electoral Role for at least 3 years.  A handful of lenders will lend to people who do not own their own property.  Property Tribes Financial Services can advise you on both resi and BTL mortgage options and you can call Howard and the team on 01206 654444.

    4. Would it be better to take BTL mortgages out on interest only, or does it work better if i choose repayment? I am concerned about this as there has been some rumors of a house price crash.

    Interest-only works best for BTL.  A house prices crash only affects those who are selling, as a buyer it's to your advantage that prices decline!

    5. What is the happy price paid/ rent received on a property e.g. 160k paying £800pcm?

    Rental yields vary across the country, so there is no generic equation.

    6. With my budget, how many properties should i expect to have?

    It's not about how many properties you have, it's about how much net cash flow per month you are making and how much capital growth you achieve over a sustained period.

    You could buy two properties in the South East, or four properties up North.  My advice would be to buy close to where you live, and buy 3 and 4 bed family homes, in good school catchment areas.

    You may find this thread helpful:

    Top 10 Property Tribes resources for novice landlords and BTL investors 

    This is also a low risk way to get started:

    Low risk strategy to get started in BTL 

    Good luck and hope that helps for starters?

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    The Biggest threat you will have will be Govt changing direction in regard to Taxation

    The changes in the past 2.5 years have been huge

    If you are investing in your own name Borrow as little as possible and pay down debt or make provision for money to be set aside encase  of Govt Bringing in Part B of Section 24

    Do you fully Understand S24  ???? If you do you will understand why I am advising you in regard to this matter

    If it your business plan not to move into Higher Rate Tax  Personal investing  is ok but you have to factor in higher interest rates for the future so its a bit of a moving target

    If you are investing via a Company Borrowing is not an issue  But the withdrawal of profits can be costly  be it via Dividends or Salary

    But If you are only buying property to build wealth and not taking an income a Company is the way to do it

    Once You have the right strategy you can then buy into the market that you favour

    I too prefer Houses to Leasehold flats  but is a matter of choice

    Get the right advice and understand Taxation rules

    There are a great number of Landlords today who are worried about the future of there Business Not because they made a bad decision But because of Govt Policy

    and it will bankrupt some ??? I ve met quite a few who within 4 years will make no profit but will pay a great deal of Tax for the privilege of being a a Landlord




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    Learn Change and Adapt ?????


    Vanessa/Dislexic_landlord/Gary/Paul,

    Thank you very much for you suggestions and ideas. I will definitely consider starting out letting my spare rooms with lodgers. This should give me some time to settle in and learn how to become a proper landlord i suppose.....

    Having checked the market, i think i will struggle to obtain two residential properties in the south east based on 100k capital. If an average home here is priced around £200k + then i would need to put at least 50k down to obtain finance, there is then the cost of conveyancing, stamp duty +3%, mortgage fees etc. ​

    I presume that on Interest only BTL i have the option to remortgage after the period has ended. Would they normally take age into consideration? I worry that by doing this type of deal i will be stuck with a buy to let home, unable to sell when i get older. Have any of you tried to do interest only but save up any profit until the mortgage term has expired. After the term has expired you pay a lump sum to lower the LTV and then remortgage again? Would this type of idea work?

    I have noticed that parts of the north appears to be slowly creeping up in price. I suppose they are catching back up to pre-level of the financial crash? Strangely enough i have seen a lot more "no chain" budget properties on the market, but not a lot of "home movers".

    Would there be a happy medium to the size of the house against the rental income. I understand that it can vary in different parts of the country, however i am sure that trying to let an 8 bed mansion away from london where the salary is below average might be an uphill struggle? Would you typically suggest something reasonable like a 2-3 bed terrace or semi? Which ones tend to be more easier to manage e.g. voids/maintenance upkeep. 

    Having read some sections of the forum, the ideal property should meet a varying range of criteria e.g. near station, hospital, public transport, areas of employment etc. I have noticed that  properties situated within 5-10 mins of these areas have already been taken up by existing landlords. It feels like there is a lack of properties being advertised on the market, how should i go about finding areas to invest in the future that can help me make a sustainable return?

    Thanks. ​

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