Buy to Let with Equity from Home

mrsS_2

hi Sukey13- you may well be right

but did you buy all these in a market with rising interest rates, possible crash looming, minimal savings and new baby on the way?

it all depends on your attitiude to risk-I am (from past experience) probably more risk averse than your average btler though.

just edited to add with hind sight I would have bought next shares when they were 8p each and everyone said the company was going bust!

PoorDave

sukey13 wrote:

If you haven't read it already read "Rich Dad Poor Dad".

Property is an asset which will go up in value. Rich people own assets, their money makes them more money.

One of the least valuable books i have ever read.

Marketing your "get rich scheme" (i.e sensible people will pay for a book that suggests it'll make them money) as a "real life story" in a series of books will make you more cash than property investments, i reckon, assuming people fall for it.

PoorDave

mrsS wrote:

It is easy to think that buy to let is the thing at the moment- but prices are not going to rise once the interest rates start climbing- well not for a few years anyway.

People shouldn't think UK BTL is the thing of the moment - it's already a thing of a few years ago in most areas!

mystic_trev

The problem with the recent BTL's is that they are much too highly geared.If there is a correction they will be the hardest hit. When I've mentioned this before they come back with the "if prices drop I'll buy more as it'll be a good buying opportunity" arguement. What they fail to realise is they'll have no equity left to borrow from and most will be having seroius negitive equity problems! Many will end up going from Landlord to DSS tenant in one easy move.

dunstonh

sukey, are those mortgaged buy to lets or owned outright?

There is a big difference between a mortgaged buy to let and owned outright as you dont have as severe consequences if interest rates increase or property values drop. Owned outright is all about rental yield and a drop in values or an increase in interest rates wouldnt be a bad thing as you can go out and buy more cheapear. If that happens with a mortgaged buy to let the consequences could result in repossession of not only the let property but the main residence.

Property is an asset which will go up in value.

If ever a compliance warning is needed.... The value of your investments can go down as well as up.... and invariably does from time to time.

Have you forgotten the price crash of the 1990s?

When my mum and dad bought their house it cost them £44,500 (a lot of money back then) in 1981. Now its worth about £300K, 25 years later. Imagine if they had bought 10 or more properties back then, rented them out then sold them around about now.

Good if its owned outright from day one but if mortgaged its not been a good investment. Interest only mortgage on that over 25 years would have cost around £155000. Lender is now asking for the £44,500 back so that takes their costs to £200,000 and they now have an asset of £300,000. So, over the space of 25 years, they have turned £200k into £300k.

Inflation effect on that, along with maintenance, council tax would leave not much of a gain at all.

If you invested £200k in a medium risk sector allocated portfolio in 2001 before the stockmarket crash (so worst point) and only got sector average returns, you would have over £300k now. Thats in 5 years and with the worst stockmarket crash in recent history.

This isnt a stockmarket vs property issue as both have good times and bad times and every portfolio should have some property. Its a case of not sticking all your eggs in one basket and not being blinkered by recent performance on UK property prices and think its the norm.

Its not. We had a similar boom in the 1980s and it crashed in the 90s. Things are different now. We may not get a crash, we may get one. We may see no more growth, we may see a lot more growth.

I still believe that there is some growth left in prices but a levelling out or a drop is likely. Look at the US right now. It doesnt mean we are going to follow now as their position was further ahead than us with interest only mortgages being quite normal a number of years ago. We are only getting to that position now.

To answer question put earlier... No I would not be putting my money into UK residential property as an investment. The property action is further east into Europe.

bloaty

Hi all who have contributed to this thread.

I have found this really helpful. My son is trying to purchase a house (first time buyer) with a couple of friends and wondering if the prices will continue to rise or will they fall a little? My husband and I were also thinking of investing in a modest BTL property towards our pension too.

This discussion has given us food for thought but my son is worried if he doesn't jump in soon he'll miss the boat again!

Any suggestions for him? He and 2 friends, all graduates in low paid jobs are only earning £37k between them.

Any suggestions?

Thanks

Bloaty

Sapphire

TepidWater wrote:

Bottom line guys. Buy or don't buy?

I would agree with dunstoh - and if I were you, I wouldn't buy if meant remortgaging the place I live in. It's too risky because you risk losing your home. I'd say you should only go the course you are suggesting if you have spare cash that you can afford to lose in order to BTL.

Alan_M_2

TepidWater wrote:

Advice would be welcomed on a conumdrum I'm debating.

I earn circa £50k pa (Net income of £2400 pcm - i.e. after everything is taken out (including CSA). My job is relatively secure (education).

Partner earns approx £27k pa (Net income of £1600 pcm). Partner's job is fairly secure (successful and growing service business).

We're getting married shortly and she is in the early stages of pregnancy. If everything goes to plan, she will be cutting her working week down to 4 days after the baby is born. This will mean a drop in real income of about £350 pcm.

Fortunately, we have no credit cards, overdrafts or loans. Unfortunately, we don't have a great deal of savings either (approx £8k). Both of us are lucky enough to benefit from very good (at least at the moment anyway!) pension schemes.

We "own" two houses. Residential in both our names and the rental property in just her name.

The one we live in is worth a minimum of £220k and we have a mortgage for £167k (£760 pcm) on it.

We rent out the other house worth approx £110k with a £78k (£360 pcm) mortgage on it.

Both mortgages are interest only at the moment (get-out penalty clauses expire in November 2006).

We're currently thinking about buying a house selling at £119k (purchase price about £112k) as a buy-to-let pension-type project. To do this, we intend remortgaging our residential house to release approx £30k and then taking out a buy-to-let mortgage for the remaining amount. We'd aim to put about £25k down as a deposit/stamp duy/sols fees and use the remaining £5k to tidy the place up (very little to do).

After November, we aim to create three fixed interest mortgage payment schedules.

The house we are thnking about buying would rent fairly easily for approx £500 pcm. It is our intention to rent this house out (and the one we are currently renting) for about 10 years then hope to sell. With any luck, we'd be hoping to pay off a substantial amount of our residential mortgage with the proceeds.

Now, I have a very basic understanding of capital gains tax although I'd welcome further guidance. The income tax liability would be very small as the rental income would just about cover the mortgage repayments.

Any help would be much appreciated. Thanks in advance.

Right now if I were in your position, I'd sell the second property, reduce the mortgage on your existing property by as much as possible and convert it to a reypayment at the best rate you can get, reducing your outgoings and consilidating you main residence at a time when your joint income is about to drop and you won't have enough hours in the day to to go about your normal daily life when the kiddy arrives.

TepidWater

Many thanks to everyone who has contributed to this thread. I've honestly taken on board everyone's comments and attempted to digest the issues raised.

This is going to be a tricky call. I "feel" that the property I'm considering buying is going to rise in value. But. I cannot guarantee that I'm going to get a positive return on my investment.

Is this enough to generate an additional £112k - £119K loan? Hmmmm. Don't know.

The best option appears to be the sell our current rental property and plough the equity into our residential mortgage. Trouble is, we can't do that at the moment as we have excellent tenants in the rental house and don't particularly want to lose them.

Still not totally convinced which way to go though.

ginger_nuts

If you decide to sell your second property ,could you market it as "with or without sitting tennant " .that way you get your rental at least until you have a buyer .