Buy to let with mortgage with asset security

Skag

Hi all,

I already owe a property (house) and I am thinking the possibility of purchasing additional properties with the following scheme:

Get a mortgage, buy te house, rent it, and pay off the interest annually from the rent earned (let's assume here that it will always have tenants that generate rent which is greater than the annual interest, for instance, mortgage int = 10.000, house let for 12.000 pa).

I understand that to get a mortgage you must have a certain % of it in either asset or cash, say 10% of the mortgage. Also, you must have a security back up so as to if you fail to pay off the mortgage the bank will get its money back (that will be the already owned house).

I would like to ask you, what are the possibilities of applying the above mentioned scheme in more than one properties whilst I am owner of only one house? Can I also purchase with mortgage (as mentioned) more than one houses? 4 maybe?

The obvious point here is to sell it and get the price difference (in a theoretical world that prices only go up) after 5-10 years.

Excuse my lack of knowledge I am fairly new to all this stuff!
Thank you for sharing your ideas with me,

Skag

boomerangs

Where have you been the last few years? The Buy-to-let get-rich quick scam is well and truly finished. Try getting a job if you want to make a few quid.

Skag

Well, I'm not asking this so much as an intention of get-rich quick as an intention of making some long term - secured money.

marcg

I believe your example is correct and that future purchases can be made using the equity gained by capital growth in the existing portfolio to buy more. ie In a rising market the "new" equity in houses 1 & 2 can be used to secure a loan for house 3. Of course, in a falling market you are pretty screwed since after the bank repossesses house 3 and fire-sales it for 65% of it's market value it then does the same to house 2 and so on until you have nothing left.

However, the bottom of the market (possibly) is a good place to start this scheme rather than the top of the boom so, if you're serious about it, the devil will be in the details - what loan-to-value ratio will they offer you? what income do you need to demonstate to be eligible? etc etc. You'll only find this out by talking to a mortgage broker or the bank.

Mini_Bear

Also im pretty sure you will need a buy-to-let mortgage on these properties. at present these come with hefty set up fees and higher interest rates than residential ones. Many also require 40%+ deposits!!
Are you relying on increasing house prices to pay for off the capital over the mortage period - thats risky in my book? if you are looking to only cover the interest part of the mortgage with rent it is not desirable.
most landlords look for a yield of 8%+ on a repayment mortgage.
Please bare in mind property is only one type of asset and a diversified portfolio is important for security.