Keep it Simple – Take Your First Steps in Property by Recycling Your Deposit

by Your Property Network

8:18 AM, 9th September 2011
About 7 years ago

Keep it Simple – Take Your First Steps in Property by Recycling Your Deposit

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Keep it Simple – Take Your First Steps in Property by Recycling Your Deposit

At Your Property Network we are often approached by first time property investors who are confused about the best way to set about building a small to medium sized property portfolio. Many have a reasonable amount of capital behind them and can see the very real attractions of long-term investment for capital growth and pension replacement, or a mixed strategy for cash flow in the short to medium term.

Starting out, these potential investors have done whatever any sensible individual would do and have sought to educate themselves about all the available investment strategies. Spending a considerable sum on expensive property courses, and we’re talking thousands, can work out for the driven, financially creative, risk happy punter. However many a first time investor would like to take cautious first steps into what is, without question, the daunting world of property investment. Bombarded with talk of lease options, aggressively marketing for BMV property or hunting down those elusive “motivated sellers” many landlords forget how theoretically straightforward buy-to-let portfolio building can be.

Simply recycle your deposit

This simple, inarguably effective, time proven strategy has been employed by tens of thousands of investors to build cash flow positive portfolios with a view to long-term capital growth and positive short-term cash flow with modest initial capital investment.

At a recent networking event I was having a discussion with a first time attendee who was expressing his frustration at being unsure which guru’s model to follow or which complicated strategy to employ.

Even before I could answer myself one of the most experienced investors in the room lent over and said, “Just recycle your deposit!”

A deceptively simple process, buying, refurbishing, letting and refinancing after six months should be the bread and butter for every serious buy to let investor. Its sounds so simple, but as a strategy it is often ignored, or even worse implemented badly.

The moment you find a potential deal, a clear, defined and tested process should kick in.

  1. Research the area – LHA rates, local employment statistics and recent sold prices should be as high on your list of required information as purchase price
  2. Do your sums – With a target yield in mind work out what you are prepared to pay to get the required return, baring in mind that you need to allow for refurbishment. Check with a surveyor for a post work valuation estimate. If the property doesn’t stack up don’t waste time on trying to work round it, move on to the next deal.
  3. Don’t skimp on the refurb – better finish, better tenants, but make sure every pound you spend translates to built in equity. Aim for 20% built in.
  4. Let – are you prepared to manage your property yourself to maximise your return? Or put it in the hands of professionals for less hassle?
  5. Re-mortgage after six months, leave as little of your own money in the property as possible, get your deposit back and repeat!

Recycling your deposit is a simple process that is so often over looked in the world of property which has become increasingly filled with smoke and mirrors.

Simple does not, however, equate to easy, but implemented effectively, traditional buy to let methods can still realise a more than respectable return from a portfolio built over time with relatively modest initial capital.

At Your Property Network magazine we pride ourselves on sharing the experience of other investors devoid of the myth and mystery of the property game. We run the numbers on real investments to show how successful landlords are creating substantial cash flow positive portfolios to secure their long-term financial future.

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Comments

Mark Alexander

20:36 PM, 14th September 2011
About 7 years ago

Often the simplest strategies are the best!

16:01 PM, 16th September 2011
About 7 years ago

Let me give you the benefit of my experience:
Property on the market for 114,950
Estimated valuation 127,000
Reduced to 109,950 then to 104,950
I offered 97,000 and was rejected
We finally settled on 99,000
The valuer said "In my professional opinion, I value this property at 100,000"
Now, it needs thorough updating about 10,000 worth.
After 6 months and the completion of the refurbishment, the valuer may value it at 115,000 if I can prove how much I spent on it.

The figures:
75% mortgage = 74,250 + 2.5% arrangement fee = 76,106
25% deposit = 24,750 + 10,000 refurb = 34,750
valuation after 6 months 115,000
Remortgage = 86,250 less current mortgage of 76,106 = 10,144

So, in reality, it's 34,750 IN and 10,144 out.

"Simply recycle your deposit". What a load of tosh!

I know what you're thinking, use comparables.
Lender: this is how much we're prepared to advance on it, take it or leave it.
You: sold prices are around 120,000
Lender: how much did you pay for it including the refurb?
You: 80,000
Lender: We're giving you over 86,000. What more do you want?
You: I've increased it's value
Lender: if you can't keep up with the payments tomorrow, how much can you sell it for these days?
You: I don't know. How long is a piece of string?
Lender: precisely. We're taking on your liability. You should be grateful for that.

Take extreme care.

Richard Greenland Richard

10:56 AM, 17th September 2011
About 7 years ago

Great blog Ant/ Mike, spot on.

Kasim, you CAN buy properties 20 - 25% discounted, and get them refinanced at 6 months at market value. Probably you paid too much. Who did the Estimated valuation of 127,000? If it was really worth this, why was it on the market for 114,950, then reduced to 109,950 then to 104,950? You bought for 99. Seems to me whoever did the val got it wrong, as the market seems to be saying something different. Who better to determine Market Value than the Market?

15:50 PM, 17th September 2011
About 7 years ago

You're right, I paid too much. The valuation came from mouseprice.com who have revised their estimation to 103,000. Since it was a recent acquisition, I'll know in March how much the refurb will increase the value.

Richard Greenland Richard

9:42 AM, 18th September 2011
About 7 years ago

Kasim, the mouseprice automated valuations are hopelessly inaccurate and often over-value. The only way to use mouseprice is to collate a few comparable sold prices and compare them to price fluctuations for that property type and location over time. I use home.co.uk. Here is the link showing price variations for Bristol from Jan 2007 to the latest data available, june 2011

http://www.home.co.uk/guides/house_prices_report.htm?location=bristol&startmonth=01&startyear=2007&endmonth=06&endyear=2011

You can easily change the city or the dates in the address to see other data.


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