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  • FIRST POST
    • adrian66
    • By adrian66 16th Jun 17, 2:07 PM
    • 16Posts
    • 2Thanks
    adrian66
    Thinking about Buy to Let
    • #1
    • 16th Jun 17, 2:07 PM
    Thinking about Buy to Let 16th Jun 17 at 2:07 PM
    Hi All,

    Sorry if this is a really basic question, I am really not sure how this works (I am trying to learn though!) or what the terminology is for what we are trying to do. Also, we don’t have anyone to ‘talk’ it through with to make sure we are not missing something major.

    We bought a house 3 years ago for 172K.
    We put down a 40k deposit.

    Now the house has been valued at 205k and there is 125k left to pay on the mortgage.

    With the equity we have, we would like to do a buy to let on a second house.

    Assuming we have 80k equity, we would like to use 40k of the equity in our first home and put that towards a 90k house.(putting down 36k as the deposit and using 4k to fix it up). We are planning that the rental from the buy to let is at least 10% over the additional mortgage repayment in case of non-occupancy/repair work ect. The release of equity should increase our mortgage by about £240 per month which is within our limit as we have some loan repayments finishing soon

    So far, I think I am making the correct assumptions!
    What I’m thinking is 2 years after that, could we do another buy to let?

    Would we use the remaining equity in our first home or could we use the equity in the second ‘buy to let’ property?

    Is it the same case at that point as the first buy to let that we have to demonstrate that the mortgage repayments on the second buy to let would be more than covered by rental income and that at the same time, we could cover the extra cost on re-mortgaging the second property?

    At that point, I anticipate that we have another large load that would be finishing so we would have the extra income to cover the second buy to let equity release.

    Am I missing anything?!!
    Thanks for any replies
Page 1
    • Pixie5740
    • By Pixie5740 16th Jun 17, 2:15 PM
    • 11,102 Posts
    • 15,385 Thanks
    Pixie5740
    • #2
    • 16th Jun 17, 2:15 PM
    • #2
    • 16th Jun 17, 2:15 PM
    BTL mortgages generally require the rent to be 125% of the mortgage payment and in some cases as high as 145%. Then there's the possibility that your current mortgage lender won't allow you to release equity for the purpose of purchasing a BTL.

    How much research have you actually done about becoming a landlord or the costs and taxes involved in letting property? The government has taken steps to make BTL less attractive particularly to those who are highly geared and/or higher and additional rate tax payers. What other investment vehicles have you considered?
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
    • DCFC79
    • By DCFC79 16th Jun 17, 2:18 PM
    • 30,285 Posts
    • 19,158 Thanks
    DCFC79
    • #3
    • 16th Jun 17, 2:18 PM
    • #3
    • 16th Jun 17, 2:18 PM
    Be careful with this, don't go in with your eyes closed, many people go into it with not much or zero idea of what being a landlord entails.

    I wish you luck in what you do.
    Can people stop loaning money/being a guarator to family/friends, it rarely ends well and you lose out as your money is gone or you get shafted with being a guarantor.
    • adrian66
    • By adrian66 16th Jun 17, 2:28 PM
    • 16 Posts
    • 2 Thanks
    adrian66
    • #4
    • 16th Jun 17, 2:28 PM
    • #4
    • 16th Jun 17, 2:28 PM
    BTL mortgages generally require the rent to be 125% of the mortgage payment and in some cases as high as 145%. Then there's the possibility that your current mortgage lender won't allow you to release equity for the purpose of purchasing a BTL.

    Yea, it's definitely a possibility - we are definitely at the theoretical stage here! I will definitely have to look at the figures and I would always be conservative in estimating what things could cost - I didn't know it could be as high as 145% though so that's good to know. Thanks for that. Definitely something to consider
    How much research have you actually done about becoming a landlord or the costs and taxes involved in letting property? The government has taken steps to make BTL less attractive particularly to those who are highly geared and/or higher and additional rate tax payers. What other investment vehicles have you considered?
    Originally posted by Pixie5740
    In terms of other investments vehicles, none really as i'm a bricks and mortar kind of person! What would you recommend?! I've heard that commercial property investment gives better value than residential...
    • ellectrastar
    • By ellectrastar 16th Jun 17, 2:33 PM
    • 36 Posts
    • 6 Thanks
    ellectrastar
    • #5
    • 16th Jun 17, 2:33 PM
    • #5
    • 16th Jun 17, 2:33 PM
    An accountant is usually a good person to speak to about this sort of thing, if you have one/know one, and obviously your mortgage provider as well to see exactly what they would be able to offer you.
    • adrian66
    • By adrian66 16th Jun 17, 2:33 PM
    • 16 Posts
    • 2 Thanks
    adrian66
    • #6
    • 16th Jun 17, 2:33 PM
    Thanks DCFC79
    • #6
    • 16th Jun 17, 2:33 PM
    Be careful with this, don't go in with your eyes closed, many people go into it with not much or zero idea of what being a landlord entails.

    I wish you luck in what you do.
    Originally posted by DCFC79
    Thanks, I know it can be stressful and backfire and there's lots to consider. No one I know has done it (or would even think of doing it!) but I'd like to improve our future situation when we're older...and avoid making huge mistakes at the same time
    • Cakeguts
    • By Cakeguts 16th Jun 17, 2:35 PM
    • 3,085 Posts
    • 4,278 Thanks
    Cakeguts
    • #7
    • 16th Jun 17, 2:35 PM
    • #7
    • 16th Jun 17, 2:35 PM
    So what sort of house can you buy for 90k? Where I am a landlord it will buy you a 2 bed terraced house.
    http://www.rightmove.co.uk/property-for-sale/find.html?locationIdentifier=REGION%5E1134&maxPric e=90000&includeSSTC=true

    Which would add to all of these waiting for tenants

    http://www.rightmove.co.uk/property-to-rent/find.html?searchType=RENT&locationIdentifier=REGIO N%5E1134&insId=3&radius=0.0&minPrice=&maxPrice=&mi nBedrooms=&maxBedrooms=2&displayPropertyType=&maxD aysSinceAdded=&sortByPriceDescending=&_includeLetA greed=on&primaryDisplayPropertyType=&secondaryDisp layPropertyType=&oldDisplayPropertyType=&oldPrimar yDisplayPropertyType=&letType=&letFurnishType=&hou seFlatShare=false

    We don't let ordinary 2 bed houses there are already too many of them.

    Try looking in your area for 3 bed semidetached houses with driveways to let. Letting property is like any other business you are looking for a gap in the market.

    You also need to make sure that you can pay both mortgages if you haven't got any rent coming in. It can take 6 months to evict a non rent paying tenant so you have to be prepared for that.
    • Pixie5740
    • By Pixie5740 16th Jun 17, 2:47 PM
    • 11,102 Posts
    • 15,385 Thanks
    Pixie5740
    • #8
    • 16th Jun 17, 2:47 PM
    • #8
    • 16th Jun 17, 2:47 PM
    In terms of other investments vehicles, none really as i'm a bricks and mortar kind of person! What would you recommend?! I've heard that commercial property investment gives better value than residential...
    Originally posted by adrian66
    It's not for me to recommend investments to you. The point I was trying to make is that on a daily basis we see threads started by people who want to let property but haven't even done a modicum of research.....not even using the search function on the forum. If your serious about becoming a landlord you've got to crunch the numbers and do a lot more research.
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
    • adrian66
    • By adrian66 16th Jun 17, 2:48 PM
    • 16 Posts
    • 2 Thanks
    adrian66
    • #9
    • 16th Jun 17, 2:48 PM
    • #9
    • 16th Jun 17, 2:48 PM
    Hi All,

    Ok, I get that there almost certainly are more hidden costs etc but...

    Are my original assumptions still valid?
    • adrian66
    • By adrian66 16th Jun 17, 2:53 PM
    • 16 Posts
    • 2 Thanks
    adrian66
    hmm!
    So what sort of house can you buy for 90k? Where I am a landlord it will buy you a 2 bed terraced house.

    Yes I was thinking that as a possibility so I see your point below

    http://www.rightmove.co.uk/property-for-sale/find.html?locationIdentifier=REGION%5E1134&maxPric e=90000&includeSSTC=true

    Which would add to all of these waiting for tenants

    http://www.rightmove.co.uk/property-to-rent/find.html?searchType=RENT&locationIdentifier=REGIO N%5E1134&insId=3&radius=0.0&minPrice=&maxPrice=&mi nBedrooms=&maxBedrooms=2&displayPropertyType=&maxD aysSinceAdded=&sortByPriceDescending=&_includeLetA greed=on&primaryDisplayPropertyType=&secondaryDisp layPropertyType=&oldDisplayPropertyType=&oldPrimar yDisplayPropertyType=&letType=&letFurnishType=&hou seFlatShare=false

    We don't let ordinary 2 bed houses there are already too many of them.

    Try looking in your area for 3 bed semidetached houses with driveways to let. Letting property is like any other business you are looking for a gap in the market.

    Agreed...but it could be a two bed as well, just in an area where there is high demand?

    You also need to make sure that you can pay both mortgages if you haven't got any rent coming in. It can take 6 months to evict a non rent paying tenant so you have to be prepared for that.
    Originally posted by Cakeguts
    Yes, OK, I do take that on board.
    • Cakeguts
    • By Cakeguts 16th Jun 17, 2:56 PM
    • 3,085 Posts
    • 4,278 Thanks
    Cakeguts
    Hi All,

    Ok, I get that there almost certainly are more hidden costs etc but...

    Are my original assumptions still valid?
    Originally posted by adrian66
    Can't telll because there is too much information missing. For example whether you could pay the buy to let mortgage and your home increased mortgage without any extra income.
    • adrian66
    • By adrian66 16th Jun 17, 2:57 PM
    • 16 Posts
    • 2 Thanks
    adrian66
    appreciated...
    It's not for me to recommend investments to you. The point I was trying to make is that on a daily basis we see threads started by people who want to let property but haven't even done a modicum of research.....not even using the search function on the forum. If your serious about becoming a landlord you've got to crunch the numbers and do a lot more research.
    Originally posted by Pixie5740
    Hi Pixiee 5740, I appreciate that I don't know all there is to know and I have a lot to learn and I have said I am willing to learn.

    Is it reasonable for me to ask if my original assumptions are correct or flawed (even given the many other hypothetical problems and scenarios that I haven't realised, researched or considered)?
    • lovinituk
    • By lovinituk 16th Jun 17, 3:03 PM
    • 5,371 Posts
    • 6,038 Thanks
    lovinituk
    Your biggest hurdle is going to be getting the equity out of your existing home to invest in property. It might be difficult for a BTL and nigh on impossible for a commercial property.
    • adrian66
    • By adrian66 16th Jun 17, 3:05 PM
    • 16 Posts
    • 2 Thanks
    adrian66
    Can't telll because there is too much information missing. For example whether you could pay the buy to let mortgage and your home increased mortgage without any extra income.
    Originally posted by Cakeguts
    Hi Cakeguts
    Do you know for what period of time that would need to be covered?
    For example, I know we could do it for 8 months with savings.

    would that be enough of a timespan?

    What other information would you need to know do you think to say if it's viable or not?


    thanks for your replies
    Last edited by adrian66; 16-06-2017 at 3:12 PM. Reason: edit colour
    • adrian66
    • By adrian66 16th Jun 17, 3:10 PM
    • 16 Posts
    • 2 Thanks
    adrian66
    Your biggest hurdle is going to be getting the equity out of your existing home to invest in property. It might be difficult for a BTL and nigh on impossible for a commercial property.
    Originally posted by lovinituk

    Fair enough. Why would it be difficult to get equity out of my existing home for a BTL - apart from maybe needing for the rental income to cover up to 145% of the additional mortgage repayment and the increase in my 1st mortgage? What are the other difficulties that I need to consider?

    thanks for your responses

    Last edited by adrian66; 16-06-2017 at 3:11 PM. Reason: edit colour
    • lovinituk
    • By lovinituk 16th Jun 17, 3:16 PM
    • 5,371 Posts
    • 6,038 Thanks
    lovinituk

    Fair enough. Why would it be difficult to get equity out of my existing home for a BTL - apart from maybe needing for the rental income to cover up to 145% of the additional mortgage repayment and the increase in my 1st mortgage? What are the other difficulties that I need to consider?

    thanks for your responses
    Originally posted by adrian66
    I don't think lenders like lending against your home for the purposes of BTL. Gone are the days of them freely lending you money for whatever you want. You may have to find a specialist lender. Hopefully one of the mortgage advisors on here can clarify if they see this thread.

    Borrowing against your home for a commercial purchase is even harder if not impossible. Commercial mortgages are usually limited to a maximum of 15 years, generally can't be interest only and can only borrow a max of 75% with higher interest rates than personal mortgages.
    • adrian66
    • By adrian66 16th Jun 17, 3:36 PM
    • 16 Posts
    • 2 Thanks
    adrian66
    I don't think lenders like lending against your home for the purposes of BTL. Gone are the days of them freely lending you money for whatever you want. You may have to find a specialist lender. Hopefully one of the mortgage advisors on here can clarify if they see this thread.

    OK. I'll set up an appointment with a broker and see what might be available further down the line, it's going to be a year before we take the plunge if and when we do.

    Assuming we can get the remortgage for the purposes of BTL, is my plan sound?


    Borrowing against your home for a commercial purchase is even harder if not impossible. Commercial mortgages are usually limited to a maximum of 15 years, generally can't be interest only and can only borrow a max of 75% with higher interest rates than personal mortgages.
    Originally posted by lovinituk
    Ok, that sounds more complicated and difficult. I appreciate that.
    • Thrugelmir
    • By Thrugelmir 16th Jun 17, 3:57 PM
    • 55,892 Posts
    • 49,263 Thanks
    Thrugelmir
    At that point, I anticipate that we have another large load that would be finishing so we would have the extra income to cover the second buy to let equity release.
    Originally posted by adrian66
    Your current financial position is a major factor in any lending decision. You mention multiple loans. This may well impact your ability to release £40k of equity. Let alone convince a lender that you can service another £40k of debt plus on costs should the rental property be empty.
    "Wide diversification is only required when investors do not understand what they are doing." - Warren Buffett
    • adrian66
    • By adrian66 16th Jun 17, 4:20 PM
    • 16 Posts
    • 2 Thanks
    adrian66
    Your current financial position is a major factor in any lending decision. You mention multiple loans. This may well impact your ability to release £40k of equity. Let alone convince a lender that you can service another £40k of debt plus on costs should the rental property be empty.
    Originally posted by Thrugelmir
    But assuming I can get the loans, are my original assumptions still valid?
    • Thrugelmir
    • By Thrugelmir 16th Jun 17, 4:28 PM
    • 55,892 Posts
    • 49,263 Thanks
    Thrugelmir
    But assuming I can get the loans, are my original assumptions still valid?
    Originally posted by adrian66
    In an obstacle race the challenges need to be cleared one at a time.

    To validate your assumptions you need to crunch the numbers and fully cost the project. Running different what if scenarios, interest rates, void periods etc. Consider the exit strategy as well. What may seem go in principle may not be so profitable in reality.
    "Wide diversification is only required when investors do not understand what they are doing." - Warren Buffett
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