Save up for deposit or release equity?

Save up for deposit or release equity?

11:28 AM, 5th August 2013, About 8 years ago 16

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I currently own 2 buy to let properties in South Wales, I have had one for coming up to 4 years now, and the other for just about a year. Save up for deposit or release equity?

I want to buy a 3rd property as the renting market down here is brilliant and house prices are cheap compared to the rest of the country.

Both my properties easily cover the mortgages.

My question is; do I save up until I have another 25% deposit so have less risk or take out equity on one of my others and use that as my next deposit?

Even if I do take out equity I would still cover my mortgages but have a bit less profit, I would just be upping my risk slightly with 3 rentals and a higher total mortgage cost.

If all 3 are rented I would be in good profit, just wanted to ask others to see if I should up my risk. More risk more reward as they say!

Thanks

Jonathan



Comments

by Mark Alexander

11:40 AM, 5th August 2013, About 8 years ago

Hi Jonathan

It's impossible to answer this question without knowing a lot more information.

I suggest you consult with a qualified financial adviser / mortgage broker and I have invited our resident IFA/broker to comment on this thread for the benefit of you and anybody else in this position. His name is Howard Reuben.

As you may be aware, I was qualified to give advice but retired in 2009.

If you would like to engage via the forum the following is the absolute minimum of information that is necessary to begin to provide you with guidance.

First we need to establish whether it may indeed be possible for you to release equity. Therefore, we need to know:-

1) the purchase prices of the properties and when you acquired each of them.
2) The current values
3) The current rent levels
4) The types of properties and the types of tenants

It would also be useful to know the ownership of the properties and more about your personal circumstances, i.e.

a) your income, and that of your partner if you have one
b) whether you own your own home and if so the value
c) your outstanding mortgage amount if applicable

If you are able to release equity is doesn't necessarily follow that you should. There are many factors to take into consideration which you may or may not have considered. rather than trying to identify all of those factors for every possible scenario it makes sense to narrow this down to advice specifically based on your circumstances, hence the above questions.

Please not that you shouldn't rely on advice from forums though, regardless of who offers it. You should always obtain professional advice in writing which is insured. Discussions on forums are for guidance only, look upon it as a chat with your friends in the pub to gauge their opinions.

I hope that helps and I look forward to reading your responses.
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by Howard Reuben CeMap CeRER

12:02 PM, 5th August 2013, About 8 years ago

Hi Jonathan

Own money vs ‘other peoples money’ (or OPM as it has also been called)?

Which route to take is far more specifically based on your own personal circumstances and personal ‘attitude to risk’, than what other people think you should do.

And on that basis, I absolutely advocate a ‘face to face’ discussion between you and a professional financial adviser, because the answer to this question is peculiar to you and not what others would do in their own similar circumstances.

But, as you say, risk can bring reward and many of our Clients who have built (in some cases substantial) portfolios by releasing equity, leveraging BTL mortgage monies and recycling property funds – rather than using own money – now have massive surplus ‘passive’ income spread over many properties.

You also say “the renting market down here is brilliant and house prices are cheap compared to the rest of the country” so with a great demand, low initial asset cost and therefore potentially a great yield per property, (and before interest rates and house prices start to rise again) buying another, using low cost funds, seems a great opportunity for you at this time.

If your ‘attitude to risk’ (with regards to your property investment strategy) on a hypothetical 1 -10 scale (1 being cautious) is leaning towards 8-10, then you would probably fit the ‘high mortgage’ / OPM route and use any ‘own monies’ to buy as deposits towards as many others as possible too!

In summary, I still strongly suggest that you start off with a face to face scrutiny with a professional financial adviser as only a ‘personal and direct’ review will really only give you the answer you seek.

Howard

by Jonathan Lewis

15:19 PM, 5th August 2013, About 8 years ago

Thank you very much for both your responses. Both of you suggested that I use a financial advisor, this is something that I will do as I have used the same one for both my purchases so far.

I would say my attitude to risk on a scale of 1-10 would be an 8, I like to think that I take calculated risk by making sure that I only buy houses within a certain price range, area, with the aim of attracting certain types of tenants, and by not getting in over my head.

Here are the responses to Mark's questions:

1) Both cost £66,000. Property 1 was purchased in August 2009 second in September 2012
2) Property 1 has been valued at £81,000 second hasnt been valued as of yet, but is very similar to property .
Only property 1 would I want to release the equity from
3) Property 1 rents for £450 and Property 2 for £475. Total Mortgage costs are £480, so they are easily covered.
4) Both properties are 3 bedroom terraced houses which I rent to 2 family's

It would also be useful to know the ownership of the properties and more about your personal circumstances, i.e.

a) My income from just my job is £31,000 per year with no partner
b) I currently do not own my own home
c) Outstanding mortgage amount on property 1 is £47,000 and property 2 is the same.

My first property has a slightly lower rent than I could achieve, but the tenants there are long term, cause no hassle and do maintenance for me free of charge, look after the house really well as if it was their own. So i keep the rent level as it is as it isn't often tenants like these come along.

Thanks for your responses.

by Mark Alexander

17:14 PM, 5th August 2013, About 8 years ago

Reply to the comment left by "Jonathan Lewis" at "05/08/2013 - 15:19":

Hi Jonathan

What advice did your existing IFA offer?

If I were you, I would run the numbers through the Landlords Calculator - see >>> http://www.property118.com/landlords-calculator-v2/40091/40091/

I will leave it to Howard to decide whether to post further guidance based upon your responses.
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by Mick Roberts

16:09 PM, 6th August 2013, About 8 years ago

Reply to the comment left by "Mark Alexander" at "05/08/2013 - 17:14":

Equity-Get earning now.

by Mark Alexander

16:23 PM, 6th August 2013, About 8 years ago

Reply to the comment left by "Mick Roberts" at "06/08/2013 - 16:09":

That's the basis upon which I built my portfolio too Mick, I suspect most do. It pays to take advice though, I've seen some people come a real cropper by over-stretching their finances.
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by Mick Roberts

17:22 PM, 6th August 2013, About 8 years ago

Reply to the comment left by "Mark Alexander" at "06/08/2013 - 16:23":

Yeah, I should have really put more thought into that-I do forget about people stretching their finances.

by Mike Sosner

7:50 AM, 7th August 2013, About 8 years ago

Do get in touch with me Jonathan? I may be able to help on the low-money-down route. With good regards, from Mike

by Jonathan Lewis

9:44 AM, 7th August 2013, About 8 years ago

Thanks for all the help guys.

Ok Mike, what's your email?

by Mark Alexander

9:59 AM, 7th August 2013, About 8 years ago

Reply to the comment left by "Mike Sosner" at "07/08/2013 - 07:50":

Mike

The vast majority of offers I've seen of this nature have lead to newbie property investors being sold expensive training courses promoting unethical and often illegal financing strategies, often combined with dubious property deals.

You are new to this forum and we know nothing about you, what makes you different?

The purpose of this forum is to facilitate the sharing of best practice amongst UK landlords and letting agents. It does not exist merely for people to solicit business, although that is often a positive spin off for those members who actively contribute in a completely open and honest way.

Welcome to the Property118 forum and please respect our mission.

As you will see, there is an option to upgrade and activate a business member profile where you can add details about your business, experience, contact information etc. Whenever you post a comment a link is posted to your member profile. Therefore, the more positive, informative and authoritative posts you make, the more likely it is that members and other readers will visit you member profile page in order to obtain your contact details and connect offline.
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