Buy with cash or mortgage my first BTL property?

by Readers Question

11:08 AM, 25th January 2016
About 3 years ago

Buy with cash or mortgage my first BTL property?

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Buy with cash or mortgage my first BTL property?

I’m in the fortunate position to have enough cash to buy a rental property outright. The home I live in is also mortgage free. open

Should I buy one property as a rental with no mortgage or buy 3 or 4 on a 75% LTV ratio.

Advice would be welcome

Jen



Comments

Neil Patterson

11:16 AM, 25th January 2016
About 3 years ago

Hi Jen,

This is a very common question.

The main thing people need to understand is that there is no one size fits all answer to investing in property no matter what anyone says as we are all individuals with different circumstance and plans.

You need to consider what your personal finances are and your attitude to risk.

What is your tax position see >> http://www.property118.com/budget-2015-landlords-reactions/76164/

and our tax page >> http://www.property118.com/tax/

Why are you investing in property?

How much cash reserves do you have and how much will you hold back for rainy days.

What sort of purchase prices are you looking at and what yields would you get?

How much time do you have? etc etc

Please also see our advice page >> http://www.property118.com/how-to-become-a-respected-profitable-landlord/60765/

We really need to get started with some form of point of reference for you 🙂

JMc Lancashire

21:52 PM, 25th January 2016
About 3 years ago

Reply to the comment left by "Neil Patterson" at "25/01/2016 - 11:16":

Thanks Neil apologies I should have provided more information initially.
I'm in the 40% tax bracket and aware of the planned changes to mortgage interest relief down to 20% from April plus stamp duty changes.
I'm not in a rush to buy ahead of the stamp duty changes - rather than rush and make a mistake I'd prefer to consider all the pros and cons first. Also it could well pan out that house prices will drop post April so the difference after taking into account SD may well be minimal.
The reason I'm considering buy to let is to provide a boost to income both now but more so for retirement which is 17 years away - so not imminent.
Based on current research I'd be looking at a yield of around 5.5 to 6%.
I would still have the rainy day pot which I've kept separate so I'm not sinking all my cash into this.
I can see the attraction of spreading my risk across a number of properties however I can also see the plus side of not having a mortgage on a BTL - even if it's empty for a couple of months then I've no mortgage to pay.
I'd say that I'm fairly low to medium risk when it comes to investments.
I hope this helps in terms of a reference point
Thanks Jen

Jonathan Clarke

23:51 PM, 25th January 2016
About 3 years ago

I bought my first property cash. After a year i realised the return was ok but I could do a whole lot better if I leveraged. I did just that, re mortgaged it and bought 3 more . Then a while later I did the same again and again and again to build a substantial portfolio . I never looked back

The financial rewards to be gained by leveraging your money are phenomenal when you understand how compounding works over time. I aim to make at least 20% on each £1 I invest in property. Therefore if I can borrow 75% of the asset price from a lender @ 5% and i can make 15% each time invest in a property then logically i would want to borrow as much as i can . And that is what i do

Fear is the only obstacle in the majority of cases.
.

Paul Temple

9:51 AM, 26th January 2016
About 3 years ago

Reply to the comment left by "Jonathan Clarke" at "25/01/2016 - 23:51":

Jonathan,

That's an interesting breakdown of your activity, thanks.

On the one hand, reading it as a whole, you have done what all the gurus keep pushing - leverage, leverage, leverage.

However, when you break it down, what you actually did was take baby steps to start and then, as experience and skill and your understanding of the risks increased you started to leverage in a controlled fashion.

Your fear was overcome by knowledge and you have built a sustainable business built on that knowledge, as opposed to a "get rich quick, lose it all even quicker" overnight wonder.

Jonathan Clarke

10:54 AM, 26th January 2016
About 3 years ago

Reply to the comment left by "Paul Temple" at "26/01/2016 - 09:51":

Absolutely - Very well put.
.

Bilbo Baggins

13:05 PM, 27th January 2016
About 3 years ago

Given the clause 24 - would this leveraging and re-investing strategy now not work? That is much of your re-investment monies came from the ability to off set the finance costs? This no longer being allowed I am wondering how one might build a portfolio given the new parameters?

Neil Patterson

13:11 PM, 27th January 2016
About 3 years ago

I think Jonathan gives a very good example of starting cautiously, buildinging up experience and then finding the opportunities based on the current market conditions.

So yes as a high rate tax payer the withdrawal of mortgage interest tax relief is going to be a big part of the cost benefit equation going forward.

stuart edwards

14:08 PM, 27th January 2016
About 3 years ago

Reply to the comment left by "Bilbo Baggins" at "27/01/2016 - 13:05":

Isn't the bigger problem the new stamp duty? This will hit your cash flow up front. For newcomers Clause 24 can be circumvented by incorporating a Ltd company.

Matthew Basten

17:37 PM, 27th January 2016
About 3 years ago

With the future changes regarding the tax relief on interest payments on buy to let properties in the future there is definitely an increasing number of people who are looking to incorporate a Limited company and still have this tax relief.

There are lots of implications this can have and all depends on what the purposes of the buy to let properties are, it sounds like this route may be a good one for you to go down though Jen.

Matt

JMc Lancashire

18:40 PM, 27th January 2016
About 3 years ago

Thanks for all the comments Gents it's much appreciated.
Jonathan I think you hit the nail on the head - fear is my obstacle.
Having looked at the figures and potential scenarios again, buying one BTL with cash whilst safer, isn't really going to deliver what I need/ want over the next twenty plus years. My plan will be to buy 3 via 75% LTV ratio and review as times goes by - hopefully being in a position to leverage down the line, having learnt many lessons on the way I'm sure.
I'm putting my 15% interest rate fear firmly back in its box.
Matthew and Stuart I will look into the limited company option although I think my contract of employment may well be an issue here.
Thanks again for all the comments so far any other views and opinions are welcome
Jen

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