New investor - £35-£40k advice please!

aliharris

I’m an almost graduated Building Surveyor with lots of industry experience (including a placement year where I did the first year of my RICS APC). I’ve got a good knowledge of property, I’m good at building and diy, and am frugal and careful with my money.

I’ve saved my student loans and grants, sold my car, worked etc. and as a result have £31,000 in the bank. By September ’10 this will hopefully have grown to £37,000-£40,000.

So far I’ve though of the following options, and would like some opinions on them:

1. Buy a student let in my Uni city (250miles from home) for around £250,000 and rent 8 rooms for £320/month for 10 months p.a. = 25,600 p.a. (before deductions)

• Potential Issues... - cost of converting into a student let - tax - cost of furnishing - distance from home

2. Buy to let flat/small house near home - 2 bed, approx. £250,000 - £900/month rent

3. Buy a property to renovate (property ladder stylee!)

• Potential Issues… - capital to cover work

I am of course open to other suggestions.


One of the main issues is securing a mortgage - In the summer I’ll be 22, living at home with (possibly) no full time job. What kind of deal can I expect to get, and what security can I offer? I’ve heard of graduates getting 90% mortgages on student houses based on the fact that it’s almost guaranteed to get rent.

Another potential godsend, its that the parent I live with has a £300,000 flat which is owned outright. With a bit of persuasion and a good plan, they may offer to mortgage to release capital, or somehow use the flat as security.

Any advice, etc would be very much appreciated. I’ve got very limited knowledge on mortgages, tax and HMO regs, so any info on that would be great!

Fire_Fox

Everything to do with tax is to be found on the Inland Revenue website, HMO regs check Landlordzone or your local council website. Have you run a search on this board? Questions from people thinking about BTLs come up every week.

Running_Horse

Number one sounds crazy (with all due respect).

No financial return would induce me to buy a massive house and deal with all the hassles of letting to eight students, all in a city I no longer live in.

Dogz111

BTL will require a min 25% deposit - some lenders also require you to have a paid job over a certain level and possibly also some residential mortgage experience. Some won't lend on student lets.

First off you need to research the particular market segment you are after. My particular view on number 1) would be finding a group of 8 may be hard and getting people to share even harder still. You need to be close to the property as thing will always go wrong. You will also need to factor in money to buy and renovate the property you buy. Certainly in my neck of the woods students have become picky and want a decent house with decent decor and appliances. You also want to consider your exit strategy - how easy will it be to sell this property on once its converted etc ?

2) is a more simplistic option with a lower gross return but probably better for a first time landlord. You need to weigh up the pros and cons of a house v flat as well.

Hope this helps ?!?

missile

Do yourself (and your parents) a favour. Forget the get rich quick schemes and concentrate on finding employment.

aliharris

Firefox - I'll look up the situation with mortgages, hmo's etc on here once I've got an idea of what to do. My main concern is what route to take to take best advantage of my situation.

Running Horse - thanks... I've scrubbed idea 1, though I know my uni city very well, it's cheap, there's an ever growing population of students and I know what the standard and pricing of student digs is - I am living in a student house at the moment after all.

Dogz - Thanks v.useful! I met someone at Halifax a few months ago to discuss mortgages etc. She said that the specific 'buy to let' mortgage was more or less extinct. I'm thinking freehold house or flat, though a modern 2 bed flat might be a better bet.. something that needs a few 000£ work done would be ideal, buy to let and property ladder all in one..

Missile - I'm not looking to get rich quick, I'm looking to make the most out of what I've got. Of course I'll concentrate on getting a job, I've spent 4 years of uni getting myself prepared for one, but I feel like I've spent most of my life being educated, educating myself and gaining experience to enable me to do well in the property game.

Any other ideas on what I can do with this money?! If I bought a place, I'd ideally rent it out for a couple of years whilst living at home, then buy another place to live in/move into the BTL.

Another point.. how would it work if a parent applied for and got the mortgage using my money, would this mean I need less of a deposit/a parent will be a less risky mortgagee..?

Any thoughts much appreciated

missile

aliharris wrote: »

Missile - I'm not looking to get rich quick, I'm looking to make the most out of what I've got. Of course I'll concentrate on getting a job, I've spent 4 years of uni getting myself prepared for one, but I feel like I've spent most of my life being educated, educating myself and gaining experience to enable me to do well in the property game.;)

Perhaps your training will help you avoid some of the many pitfalls which can trap the new BTL investor. Sorry, cannot give you any advice other than that which I have offered to several people with similar ideas to your own. I really don't want to repeat myself, search the forum.

I do wish you well, but please do your homework.

Mr.Brown_4

2. Buy to let flat/small house near home - 2 bed, approx. £250,000 - £900/month rent

What sort of return is that? Sorry I don't understand. Why would you risk 250k to make 1k a month?

aliharris

Mr.Brown wrote: »

2. Buy to let flat/small house near home - 2 bed, approx. £250,000 - £900/month rent

What sort of return is that? Sorry I don't understand. Why would you risk 250k to make 1k a month?

When you put it like that, it does sound ludicrous actually.. Are you suggesting that elsewhere in the UK you can rent a £250k property for more than £1000/month?

Thanks for input so far people :-)

Doozergirl

aliharris wrote: »

When you put it like that, it does sound ludicrous actually.. Are you suggesting that elsewhere in the UK you can rent a £250k property for more than £1000/month?

Thanks for input so far people :-)

The smaller and therefore cheaper the property, the better the return. Small terraced houses make good rentals because they are desirable to a few types of tenant. Rents across the country I've found are broadly similar (I'm excluding London) as you go further North the prices get cheaper. It's not great if you aren't close by as it's harder to manage. If you have an HMO that is very far away then I think that would be near impossible to manage.

I have one BTL all of my own. I don't enjoy being a landlord at all and it's not a get rich quick scheme either. I have a long term fixed rate repayment mortgage on it and the rent covers it all with a bit left over for the tax man. When the mortgage is paid off it will provide me with a little income for my blue-rinse.

If you know buildings then renovating might be the way to start. I won't pretend it's easy - there are huge learning curves to go through. A rising market will help buffer those mistakes - you've watched property ladder, how many people who made a profit only made one because of the market? Any house that comes up as an opportunity is not going to be one that makes you money. Far from it.

I shalln't knock - you're evidently on your way somewhere. Stay prudent and really consider hard what your returns will be. It does take time to find something that is right.

missile

aliharris wrote: »

When you put it like that, it does sound ludicrous actually.. Are you suggesting that elsewhere in the UK you can rent a £250k property for more than £1000/month?

Thanks for input so far people :-)

Yes, I would expect a much higher return.

£1,000/month on £250K is only 4.8% return before deductions for buying costs, agents fees, maintenance, voids, etc, etc.