Leap of faith or road to disaster?

by Readers Question

11:46 AM, 11th November 2013
About 5 years ago

Leap of faith or road to disaster?

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Leap of faith or road to disaster?

I’m teetering on the edge.

I have played it safe all my life and now want to do something for my son’s future. I have properties with no mortgage that I use for retirement income. Do I wait to save up the deposit for my next property which could take 3 years+ and houses will probably cost more by then, or do I take the leap, mortgage one of my existing ones now, and end up with up to 4 mortgaged properties instead while the market is slow and reduced income in the short term. Leap of faith, or road to disaster

What is the sequence of events if you need to refurbish one before letting? This is what I have in mind:-

  • Mortgage original house to 75%.
  • Put 25% deposit on new house
  • Get 75% mortgage on unrefurbished house
  • Dip into the remaining money raised on the first house to refurbish it.
  • Then pay to get bigger mortgage once it is refurbished.
  • Then go onto next property?

Is that how it is done?

How do you all do it?

Thanks

Paula – AKA “Felix Cited” (screen name on forums)



Comments

Mark Alexander

11:54 AM, 11th November 2013
About 5 years ago

Hi Paula

Given that you have already decided that property values are set to rise over the next few years I suspect you have already made the decision to act now as opposed to wait whilst you save up to do another deal.

Property refurbishment isn't easy. If you watched the programmes on the TV before the credit crunch you may have noticed that most people went over budget and only made any money as a result of the property market improving.

Do you have the necessary experience to know what really will add value to properties your could buy to refurbish? Do you really have all the trade contacts and experience in pricing out a refurbishment? If you do that's great, if you don't then it's obviously a lot riskier. Only you really know your attitude to risk.

If you are at all unsure about refurbishment then I'd suggest that you do more of what you are confident with, unless of course you can afford to take a few risks and write off any losses as a learning experience if things don't go to plan.

That's about as detailed a response I can offer at this stage, please also see >>> http://www.property118.com/professional-adviser-introduction-request/
.

12:06 PM, 11th November 2013
About 5 years ago

Hi Paula,

One of the beautiful things about property investment is the ability to leverage.

I think that you should take a few moments to fully understand how powerful leverage is and then you will be in no doubt as to the way forwards.

Have a read of this "must read" discussion on Property Tribes:

http://www.propertytribes.com/get-gearing-get-rich-c-jonathan-clarke-t-6955.html

I appreciate that it might be a bit nerve wracking to take out a BTL mortgage on your next property, but it will accelerate your portfolio dramatically.

Use the power of "other people's money" ... the banks to fund the majority of the purchase, and the tenant's to pay the rent. 🙂

Simone Gilks (Mortgage Adviser)

12:26 PM, 11th November 2013
About 5 years ago

Hi Paula

You clearly understand that according to logic, House Prices should increase over the next 3 years which means that as a potential investor you too could benefit from these rises.

BUT.....having tried this myself, it’s not all paper, chintz and paint work......refurbishing is a skill set that is learnt over time and not just from the TV which is why I agree with Mark. Finding properties that require refurbishment is like heading to the January Sales, you will have to fight off every builder known to man first, then you need the trade’s people, the money and the patience of a saint.

I would personally consider remortgaging your current portfolio and using the funds to purchase in a more prominent area where there is likely to be a higher increase in house prices.

Over the years and after four children I have refurbished properties and sold them, brought sold, brought sold.......what I found out was that in some areas like here I could have just brought anything.

We only have to look at Cambridge, prices are going through the roof which means you may not need a refurb, just buy anything that can stand still long enough and you may still make a decent return.

So maybe have a chat with a local agent first and find out more about the reality of actually finding such a property. Then speak with a qualified Mortgage Broker who can give you clear advice on borrowing.

GOOD LUCK

Simone

Mark Alexander

12:31 PM, 11th November 2013
About 5 years ago

I agree with Vanessa, however, with or without leverage there are risks.

The risk associated with no borrowing is loss of opportunity in a rising market.

The risks associated with borrowing are cashflow and a need to sell up in a poor market.

I suggest you read my strategy here >>> http://www.property118.com/landlords-buy-to-let-property-investment-strategy/

I consider myself to be a very cautious invester despite my high leverage strategy. If you read my entire strategy you will understanding the things which can be done to reduce risks in all market conditions. I've been in this business for nearly 25 years and I still love it, most of the time LOL 🙂
.

Yvonne B.

12:41 PM, 11th November 2013
About 5 years ago

Hi Paula,

I don't think there is a straight answer to this one as strategy varies depending on the location that you are buying into.
If you can tell us the town you want to buy into or where your other properties are I am sure an experienced landlord from that area can give you some good pointers.

As we all know the London market is far different than markets in the North and this can affect strategy.
I am north of Manchester and it is an ideal time to buy in this area as the property prices have just turned and are starting to rise but their is lots of property available to choose from.
I personally would buy cash, refurb and then mortgage to release cash, this way it is possible to recoup ALL the costs and end up with a FREE house. ie, you still have all the cash you started off with and you have a tenant paying the mortgage plus some income for yourself. Mortgages are difficult and fees are costly so I would only mortgage once.
You can effectively do this hundreds of times with the same pot of cash in a rising market.
DO YOUR HOMEWORK! is the best advice.
Ask your letting agent questions about tenant requirements - are people after 2 beds. 3 beds, etc? What the rental income is in the area you are looking to buy. Wherever is the most demand will gain the best rents.
Work out your mortgage payments against potential rental income, always work on worst scenario, account for a few months missing rent and a large hike in interest rates and some repair bills, if you still break even then you can overcome the hardest of times and should not worry at all.
Work out the potential growth over 10 years (properties supposed to double in value over 10 years) if you bought 4 more houses - then work out the potential growth if you bought 100 more houses. You will then see what a HUGE difference the numbers make - the more the merrier!
If you are refurbishing properties, make it easy for yourself, get everyone else to do the work, don't spend months sat in some cold shell with no central heating! It's not the most productive of your time, be out there looking for your next purchase, you need to turn them around quickly while the market is low and STOP buying as soon as the figures don't add up - the prices are then too HIGH!
Don't fall in love with properties! It's a numbers game - do your figures - buy the one that makes the most money!
Good Luck!

Jonathan Clarke

13:24 PM, 11th November 2013
About 5 years ago

Hi Paula

Yes take the leap.
Feel the fear and do it anyway
I did it - so can you
Time will look after you
If you wait 3 years you have missed out on growth.
The more you borrow the more you will make
Its positive debt
Aim for 20% on every £1 you invest for cash flow
Another 20% on every £1 for capital growth
Even if you get it horribly wrong and make 10% instead of 40% you still beat the building society rates by 5 times!
Grasp fear and just run with it
Speak to those who have travelled that path already
They will ease that fear for you
It will set you free and the fear subsides.
Secure your sons future
That`s the goal
He will be glad you did and thank you in years to come
Take that leap of faith
A journey of 1000 miles begins with a single step
Take that step today
Good Luck 🙂
.

Felix Cited

13:36 PM, 11th November 2013
About 5 years ago

Reply to the comment left by "Mark Alexander" at "11/11/2013 - 11:54":

Thank you, much appreciated

Felix Cited

13:43 PM, 11th November 2013
About 5 years ago

Reply to the comment left by "Vanessa Warwick" at "11/11/2013 - 12:06":

Thank you

Felix Cited

15:59 PM, 11th November 2013
About 5 years ago

Reply to the comment left by "Jonathan Clarke" at "11/11/2013 - 13:24":

Are you saying I need to have £20k in my bank account for every £100k invested, what do you mean about the £20k on capital growth please?

Mark Alexander

16:13 PM, 11th November 2013
About 5 years ago

£20k cash for every £100k borrowed which is not quite what you said. It's not a "must have" more of a "better to have" rule of thumb. Sorry but I don't understand your other question, can you be more specific please?
.

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