Property Investment - Best split of investment and Raising Capital?

Bigun28

I've just sold a 4 bed house that I was renting out because it wasn't making much money. Probably walking away with about £80 to £100K profit. Talking ideas over with various rental agents etc, I'm now proposing to buy 2 smaller properties (possibly two 2 bed properties) to rent out and hence start building up a property portfolio.

Currently, because of my job, I live in accomadation supplied by my employers, and hence do not need either property to live in. However, some mortgage companies will allow me to class one of the properties as my main residence and thus give me a standard residential mortgage rate on it. The other property will be bought purely as a 'buy to let' investment and obviously be on a commercial mortgage rate. However, both properties will be let out.

What is the best way to split the profit I made with my recent house sale between the 2 properties? Do I take the max mortgage possible (with a 15% deposit) on the second BTL property and put all the remaining profit on my main residence? What is the best situation for tax?

Also, I'm trying to understand how people raise capital to build porfolios. I hear people saying that they mortgage 'to the hilt' to raise capital for another property. But I also understand that mortagage companies like a return of about 1.2 to 1.5 on rental income. So if you buy a BTL property with an 85% LTV, leave it for a year or so to increase in value, then boost to 85% LTV again to release the capital, does that mean people are simply raising rental rates each year to match house price growth? Surely in growth areas, a rental increase of 8 to 10% each year would not be sustainable?

Appreciate any help/info.

Bigun28

Anyone any thoughts?

Appreciate any inputs.

BobProperty

Randal wrote:

...Surely in growth areas, a rental increase of 8 to 10% each year would not be sustainable?...

So why is house price inflation of 8 to 10% sustainable? (OFF TOPIC BOB)
Anyway - BTL mortgage up to 85% LTV, interest usually has to be covered by a factor of 125% - 130% by the rent. e.g. £100k house, £15k deposit £85k mortgage. IO on £85k is about (er help me out here) £420 a month, say. Therefore the rent must be at least £525 a month. I think this is often the limiting factor these days, not the LTV.
Can't work out if your £80-100k is more than 2 x 15% deposits. If it is, and you are wanting to go ahead with this investment, then check what rates you can get by putting up a larger deposit on one or both properties.
Have you any other debts? Using the money to pay them off is probably better than investing it in property.
Tax wise, you can claim the interest against the rent. You can also claim one of the properties as your PPR(Principle Private Residence) but I think you would have to live in it at some point for at least several months. Taxman will know you have been renting it out and catching avoiders of CGT is usually very profitable for HMRC.

Tassotti

With regards to the tax situation, any interest paid from both residential and BTL mortgages can be offset against the tax. Reposting this in the tax cutting section will probably give you more replies to the tax situation.

Many people would advise you that BTL is not all that worthwhile at the moment.

A few years ago, when property was less expensive and rental yields were good, you could do as you mention..ie release the capital for a deposit by remortaging (assuming the rent covered 1.3 times the repayments).

In the current situation, it is much more difficult. Rents usually only just about cover the required amount at the moment and house prices are stagnant.

If you are determined to build a portfolio, and are looking on this as a long term investment, you could use the 100k for several deposits using several BTL mortgages. Fix the rates for 5 years so you are unaffected by any IR rises for the next 5 years.

However, it may be worth looking at other investments completely. Maybe invest this money elsewhere, and look at property in the future when things get rosy again.

Your choice really. Good luck

Tass