Recommendations for next BTL investment?

by Readers Question

10:14 AM, 9th November 2014
About 4 years ago

Recommendations for next BTL investment?

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Recommendations for next BTL investment?

I have up to £300K to invest in BTL, and would welcome all suggestions for where the best location and what type of property would be for me to invest. Recommendations for next BTL investment?

Given problems I’ve had (continue to have) with purpose built new blocks, rip-off freeholders and agents, service charges, etc… I would prefer to avoid leasehold and high service charge commitments.

Also, should I use all cash or look to mortgage and buy more.

Regards

Lou Valdini



Comments

Mark Alexander

10:21 AM, 9th November 2014
About 4 years ago

Hi Lou

It depend on a lot of factors, one of which is where you live, another is your age etc.

However, if you have a 10 year plus plan and are looking to buy for income as opposed to capital growth I'd suggest three bed houses near to your local hospital or university, preferably in established areas. That will give you maximum flexibility are re-saleability and you will also be able to consider letting to families, sharers or by the room, possibly even converting dining and living rooms into bedrooms if you have the appetite for HMO style management.

With regards to financing, again this very much depends on your age and strategy. For example, you will think very differently if you are in your 80's to the way you will think if you are in your 40's.

I'm 46, and if I was investing today I would do the above and take a 65% LTV mortgage and 20% Equity Finance to buy as many as possible, also leaving myself a healthy cash reserve to buy myself our of trouble in the event of unforeseen circumstances - see >>> http://www.property118.com/new-btl-mortgage-finance-product/66267/

Also see my strategy here >>> http://www.property118.com/how-to-become-a-respected-profitable-landlord/60765/

If you would like one to one consultancy please see >>> http://www.property118.com/consultancy-mark-alexander/61522/
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LVW4

18:50 PM, 10th November 2014
About 4 years ago

Thanks Mark.

I'm 60, with a 10+ year plan. Rental income saw me through a tough time, so I will stick with property income to supplement my pension and earnings, for as long as I am earning, and let capital appreciation do whatever it does. Then I sell up and hopefully live a comfortable, healthy, and less demanding life.

Gary Baldy

10:30 AM, 11th November 2014
About 4 years ago

Hi Mark, out of interest (no pun intended), why the 20% equity finance?

Mark Alexander

10:46 AM, 11th November 2014
About 4 years ago

Reply to the comment left by "Gary Baldy" at "11/11/2014 - 10:30":

High gearing enables you to buy more properties and keeping interest bearing loans down to 65% improves cashflow.

Big discussion here >>> http://www.property118.com/equity-finance-for-buy-to-let-landlords/44713/
.

Jonathan Clarke

17:59 PM, 13th November 2014
About 4 years ago

Lots of ifs and buts......

But if I had 300K .....
I would do along the lines of what I have done in Milton Keynes Bucks

In brief.......

Leverage up as much as possible to say 80%
Buy low market areas with high yields.
3 bed freeholds
Forgetting fees for the moment

Buy 12 x 125K properties @ 80% LTV renting at £750 pcm
Thats 12 x 25K deposits = 300K
100K mortgage @ say 5% is £416 pcm so £334 gross cashflow pcm

Thats 48K pa gross cash flow
You have a portfolio worth 1.5 million
Houses prices go up say 5% pa
End of year 1 they are worth 75K more

So 75K + 48K = 123K pa gross profit ( part in the hand, part on paper)

Thats a 41% gross return on your 300K investment.

Then refurb, enhance value, release equity over time and buy some more till you reach the level of wealth you require . Then stop. Instruct a letting agency to handle the management of it all and just live of the passive income you have created for the rest of your life.
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Mark Alexander

18:12 PM, 13th November 2014
About 4 years ago

Reply to the comment left by "Jonathan Clarke" at "13/11/2014 - 17:59":

Similar numbers but using 65% LTV mortgages (£81,250) and 20% equity finance creates an even better picture.

First off you would be left with £75,000 cash in the bank (useful for a rainy day fund)

Second each mortgage of £81,250 would only cost £338.51 pcm so X 12 X 12 months that = £48,750.

The interest saved by having Equity Finance and a smaller mortgage on each property would equate to increased cashflow of £11,250 per annum.

If you are buying at the low end of the market capital growth becomes less likely.

Of course there are pro's and cons to both strategies and the figures presented by myself and Jonathan are very crude in that they do not factor in all costs and risks.
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raj beri

9:20 AM, 15th November 2014
About 4 years ago

There are quite a few options but in the BTL sector, over the last few years I have decided to diversify to spread my risk.

There is possibility of good cashflow in different tenant sectors but when you speak to different people you get always get "letting to students is risky", "letting HMOs to working people is risk"; "letting to the housing benefit sector is full of problems".

I decided to embrace (and learn about) all sectors and apply very high cash-flow models & strategies (exceeding 15% yields) to replace my working income over a 6 year period and to ensure I have a good sized portfolio producing income and capital growth for years to come. I cover some of these on my linked-in profile (uk.linkedin.com/in/beriraj)

Smiles On Sea

0:15 AM, 16th November 2014
About 4 years ago

Mark, to apply your model one has find:
1. providers of who Equity Finance
2. BTL lenders who accept a second charge
Who are these? Can you provide some examples of both 1 and 2?

Also, I would suspect that lenders who offer this type of arrangement have less competitive rates, hence one ends up borrowing less but paying higher interest.

Mark Alexander

10:47 AM, 16th November 2014
About 4 years ago

Smiles On Sea

15:45 PM, 16th November 2014
About 4 years ago

Hi Mark,
Reading your scripts I understand that there is only one provider of equity finance, castle trust. Is this correct?
I also undrstand that the lenders you list "might" consider equity finance but won't necessarily accept it.
I also couldn't find anything mentioning the rate those lenders would apply for the joint finance.
I sense this kind of arrangement is still in its infancy and any such proposal to a lender will have a high probability of rejection.

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