Getting started in renovating BTL properties

by Readers Question

8:43 AM, 29th October 2015
About 3 years ago

Getting started in renovating BTL properties

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Getting started in renovating BTL properties

I have been a member for a few months and just read the articles, but now I’d like to ask peoples opinions on how I should start my property career please.cash

I have about £20k ready to invest in BTL property and I want to get started ASAP. Ideally I’d like to buy below market value and then be able to renovate and then remortgage to get my funds out to reinvest into the next project. My father-in-law is a builder so the renovation should be fairly cheap. I want to keep the properties and rent them to generate cash flow.

I live in Essex where property isn’t cheap, for example a 1 bed flat in Westcliff near to where I live will set you back around £100k+ and could rent for between 500-650 pcm, depending on location and condition. However I have been told by a mortgage advisor that as a first time landlord I would need 25% deposit minimum and that the 20% deals are only for professional landlords. This means I really need £25k+ to even consider this (plus all he legal fees and building work). So I would need to save for longer.

The alternative would be to purchase further north where I would have ample deposit. I have been looking in Sheffield as this seems to be the closest place to me that’s reasonably priced. It is roughly a 3 to 3.5 hour drive away. To the east of Sheffield city centre it looks like you can pick up a 3 bed terraced property for around £60k with a rental income of around £450 to £500 pcm. Does anyone have any experience of Sheffield to be able to tell me if my logic is correct and if my research stacks up? Is there enough rental demand?

My preference would be to buy closer to home so I can keep a close eye on things but it’s just too expensive.

Does any one have any experience of managing BTL’s from a long distance? Does Sheffield have the rental demand I need? Would I be able to easily get my money out by remortgaging for the next project or would I need to leave it in for 2 years as mortgages with no initial period are hard to get for first timers?

Apologies for all the questions but I’d really appreciate some wisdom from those that have done this before.

Thanks very much in advance

Regards
Ian



Comments

Neil Patterson

9:21 AM, 29th October 2015
About 3 years ago

Hi Ian,

Can I ask do you have other savings for purchase costs, rainy day money, void periods and refurb costs. If you do not have this on top of the 20k you are at risk of coming unstuck. Cashflow is key in any business and you need savings for when it is negative. Put at least 25% aside for unforeseen costs to protect your cashflow. If you can't pay your mortgage one month that is game over.

Assuming you do then having your Father-in-law who is a builder at your side is a fantastic head start and if you are doing refurbs you may want to take advantage of lower costs and his expertise to make more profit by doing it together.

Our partner lettings company are great and only charge 4% for full management so don't worry about the distance so much. Please see >> http://www.property118.com/letting-supermarket-full-management/68829/

Please also feel free to use our property research tool to help with your due diligence >> http://www.property118.com/property-reseach-tool/

S.E. Landlord

9:40 AM, 29th October 2015
About 3 years ago

My own view is that Sheffield is too far from Westcliffe and I would be surprised if your father in law was willing to make the journey to complete works for you.

There are many advantages to knowing the area that you are buying in and I would be inclined to stay in a circa 20 mile radius from where you live.

You do need to ensure you have plenty of reserves for the unexpected and works taking longer than planned. I would also suggest you consider buying a bigger property to live in that needs work and increase funds by adding value to that.

With changes in the tax treatment on buy to let mortgages there will be properties coming on the market and I would not rush into buying.

Alison King

11:24 AM, 29th October 2015
About 3 years ago

My properties are in the North West and I live in the South East. I bought there because prices are lower and more stable. I don't usually find that a problem as I enjoy visiting the North and my day-job is flexible enough to allow me to work from there if I need to. Travel expenses are claimable against tax within reason and I always make sure I have receipts to prove I was there.
I prefer to use local tradesmen for maintenance and have built up a reliable team who I trust. In general repair and maintenance costs are cheaper in the North than in the South and I like to think I am supporting local small businesses.
I can be at the properties in a few hours, but usually I don't need to. I just put the tradesman in touch with the tenant and I trust the tenant to confirm that the work is satisfactory. Then I check it next time I am there.
I spent a lot of time studying the area and working out exactly what and where to buy, and which type of tenant to focus on. All my properties are within half a mile of each other and I would not buy elsewhere without a lot more research. By contract the South East seems like a mad place to me, although I expect those who know the market will take a different view.

Alison King

12:10 PM, 29th October 2015
About 3 years ago

Re your question about remortgaging, if it were me I would be adopting a corporate structure and I would take out an initial fixed-rate mortgage of 2-3 years. Then I would plough as much as possible of the rental income back into reducing the mortgage over that first two year period because I dislike paying interest as much as I dislike paying tax. At the end of that I'd reassess the whole thing with a view to remortgaging to release equity. By then the government's intentions and those of the Bank of England, and the impact of Basel II, interest rate trends etc will hopefully be clearer. Another option may be to start off as a personal investor and move to a corporate model in two or so years' time. However, whatever you do will be influenced by your own personal circumstances, such as what other income you have and your total tax liability in different models. It's a good time to study spreadsheets.

caroline walton

13:09 PM, 29th October 2015
About 3 years ago

Hi Ian

I live in London and began investing in the North West where I could comfortably afford properties. If you go down that road be sure to put some footwork in to find an area of high rental demand from the sort of tenant you want. My strategy was buying BMV plus adding value to the propeties by turning 2 beds into 3. This works well. I also looked around to find an excellent agent to manage the properties for me. 10% is well worth the peace of mind. Buying these cheaper properties gave me expereince and confidence and I am now turning my attention to the south east. Be sure to educate yourself on Landlord and tenant law too, which changes all the time. Best of Luck.

Richard Roberts

16:21 PM, 29th October 2015
About 3 years ago

I am just a couple of years ahead of you regarding property, looking at internet materials, with all the confusing traffic about how to approach setting up a portfolio.

My recommendation; do another year of educating yourself on property and all the methods around acquiring property .... don't do what I did and jump in and buy 2 / 3 houses. another tip; try to build a powerteam of people you trust! you can go wrong talking, networking and getting to know all the options available and most importantly where to buy.

I bought in Milton Keynes, Manchester and Barnsley (1st house bought bmv) with ROI 12% and yield of 6% and then realised I should have been buying in my home city, Liverpool where the property is on my doorstep, its very cheap and easy to get a fantastic returns. Found a Victorian 9 bed Victorian house for £100k, done up with £85k (too much really but look nice) into a HMO, re-valued around £300k, got mortgage on it and received a cheque for £200k. 9 beds £100 pw - gross income between £40k to £45k ... all in a year. yield is 15% but I've got no money in, so everything after the mortgage and bills is mine. ROI infinite!!!. Exit strategy convert house into 6 x 1 bed flats and sell them for £70k to £80k each.

I thought I had done well with this deal but...... now on the verge of doing a Rent 2 Rent with the owner of a house. Paying him £800pm for a house over 5 years (he is upgrading it himself!) and I am chipping in £6k to £10k to convert it to 10 bed licensed student house with rooms renting out at £75pw. 1st year gross income is around £37k, then I take of £9k for owner and £6k for bills ... the rest is mine and I don't even own the house! (we make £100k net over 5 years) Good solicitor involved in this one and both parties ARE happy.

There are lots of ways of getting a property where you don't have to use your money, and have all the worry of losing it all. I have been very lucky and privileged to know some wonderful people, and we work together in total trust and create win:win deals for everyone.

All I would say is don't rush in too quickly, because it is so easy to make a mistake and then have work yourself out of the problem. be positive and create win:win deals and properties do appear.

Hope this helps. Rich
Always happy to help out if you want to talk.

Ian Taylor

18:21 PM, 29th October 2015
About 3 years ago

Reply to the comment left by "Neil Patterson" at "29/10/2015 - 09:21":

Thanks for your feedback Neil. I do have a bit more than £20k and I have a job that pays me a bonus annually, but that's why I can't afford more than £20k on the deposit, as I need the other money for the purchase and refurb costs.

I would also be able to cover void periods with my salary if need be but completely agree this is not an ideal situation long term.

The thing that worries me about the distance would be trusting a letting agent and builder for general maintenance, hoping that they don't bill me continually for fictious jobs.

Thanks for the research tool, I will take a detailed look later but on the face of it, it seems very useful.

Ian Taylor

18:31 PM, 29th October 2015
About 3 years ago

Thanks SE Landlord and Alison.

My first instinct is that I would be more comfortable buying closer to home but the prices make it a much higher barrier to entry.

Alison you mention that you did extensive research before buying in your chosen area. Please can I ask what you did to narrow down your search?

I started by reading articles online about areas with high rental demand and low prices and then narrowed my search down using rightmove. This is how I got to Sheffield.

Once you had some potential areas did you then go and visit these?

Thanks
Ian

Ian Taylor

18:35 PM, 29th October 2015
About 3 years ago

Reply to the comment left by "Alison King" at "29/10/2015 - 12:10":

Alison your suggestion about the mortgage makes complete sense.

I was only hoping not to lock myself in so that could recycle my money quicker and get onto the next project in less than 2 years, but I guess this is a marathon and not a sprint.

Ian Taylor

18:40 PM, 29th October 2015
About 3 years ago

Caroline, thanks for your feedback. It sounds like you have a good strategy working for you and the adding of a bedroom sounds good in terms of rental returns.

Please can I ask you how you decided on your chosen area and also how you vetted your agent? I agree, 10% is a small price to pay for piece of mind.

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