An Uphill Climb to the Bottom

aunat

Hello to all - My first post here !

A bit about myself - I'm young (early twenties), single, living at home, got a good long term permanent relatively well paid job, and I'm completely debt free. And that's only because I've been good with money since the first day I put that £1 coin into my piggybank in 1987. - We're from a poor part of the North, originally. So, I guess you could say I've learnt a good few lessons in life already.

I've always been interested in money, from day one. Even when it comes down to calculating the whole 6.1% interest that Alliance & Leicester give you on their Direct Premier Current Account - But it just doesn't cut it. Does it?

I always find with money, it's an uphill climb to the bottom, and no matter how much you've got, you always want more.
Investing seems pointless nowadays - I've played with stocks/shares (You need thousands and thousands really), I've looked into setting up a webdesign business (More hassle than it's worth), Buying and Selling cheap cars (You could end up having to pay for a trade policy, no thanks!) so the next big thing has to be housing!? Right?

I'm not looking for my own place. I've everything at home that I need (An Internet Connection and a Kettle).

I originally thought that a buy-2-let mortgage would be the answer, but you need an inital 10% + other fee's to set up.
Say a house is worth 100k and you need 10k for renovation. That's 10k for 10% deposit, 10k for renovation and 5k for other fee's?
That's 25k realistically, to start up. I'm sorry but I don't even have anywhere near even half that amount!

If I were a homeowner, I realise I could release equity on that side of things, thus contributing towards that 25k for that buy-2-let mortgage.

Am I doing the right thing by trying to get a buy-2-let first? Hopefully having more buy-2-let mortgages to follow.

Am I overlooking other aspects of a buy-2-let? Such as hidden fees? Charges?
Am I doing the right thing so early on in life?

I realise I'm asking non-specific questions here, although any input whatsoerver is greatly appreciated from the wealth of knowledge that seems to be around on this Forum. :grouphug:

Cheers.

benood

Would you consider borrowing money to invest it on the stock market in one hit? I'd liken BTL to doing that, except more work for you!

You might be surprised how regular monthy payments into a savings vehicle (I'd choose equities) can mount up over time. You have the benefit of not having to borrow all the money at once - and running the risk of buying at the top of the market.

Cannon_Fodder

You need to research the areas you are aiming to BTL in.

Different parts of the country are reporting different patterns of rental activity: i.e. there are still hotspots in some areas of most cities, but there are also some over-supplied areas that are seeing cheap rentals, cutting into the yield for the BTLer.

If your chosen areas are perhaps reaching a peak, or already overheated, like some people say about the overall housing market, then perhaps right now is not the best time to jump on the bandwagon. You would be buying at top dollar (for the type of property, not saying you're buying top-end housing stock) to maybe then suffer lower yield than you had budgeted for.

If you are aiming for a regeneration area, then it could be the right time to make the move into property - as long as you do it with your eyes open. Be prepared for vacant periods, tenants who cause damage/skip without paying the rent, calls at midnight to fix a leaking pipe....etc etc.

I'm not sure the Investment experts on here will agree with your comment about Stocks needing thousands and thousands. S&S ISAs - you can only put a MAX of £7K in per year, only £4k if you've done Cash ISAs. Doesn't mean you have to put the whole £4-£7k in.

Are you certain you won't EVER need/want a place of your own? Suppose you tie your money up, in either BTL or Stocks - imagine wanting/having to get a place for yourself, just when you've gone into negative equity on your BTL because of a price crash, or ditto re shares because the market has hit rock bottom.

You've done well to have savings in your early twenties, personally I would look at that as "a bird in the hand" - if you have a regeneration area thats "certain" to go up, then do it not for BTL but for yourself, if no regeneration area then maybe consolidate by maxing out Cash ISAs for another couple of years, perhaps with a bit in S&S, hopefully by then the long-awaited house price crash will have happened...

But that's just my opinion/preference.

aunat

Interesting input Cannon, Thanks.

The statement about stocks needing thousands and thousands - I meant to see a decent return on your money. I almost feel that stocks are not worth the risk involved, although BTL would be.

In answer to your ISA's - Yes, that's currently where my money is going. 3k/year in a mini ISA which is tax-free of course. Where did the 7k figure come from if you don't mind me asking? (Unsure, that's all)

I am 100% certain at sometime in the future I will want my own place. But surely if the money is tied up in a BTL, would I not be able to release at lease some of the equity for a deposit on my own place? - Assuming house prices are on the increase !

Indeed, I have done very well (if I must say so myself), coming from a not so well off family, and working and saving for my hard earned. To throw even that 4 years of working away, would be a real setback to lifes' dreams.

- What's S&S...?

Also - Regeneration areas, I'm not too well up on in terms of knowledge. Infact, I don't really 100% understand what you mean by that.
I assumed that property in a decent area, with local schools and good transport links close to big/towns cities would be an ideal area for any BTL property. Am I wrong by assuming that?

I guess I'm also assuming there will always be someone, somewhere waiting for that right house to BTL (either through an agency, or whatever)

Please, correct me if I'm wrong :-)

Thanks again.

Edit: Borrowing money to invest on the stock market isn't the way to do things IMO. It's like buying a car without having the means to do so. Save first, then invest. And always be prepared to lose it (more often than other ways on the stock market)

lynzpower

Hiya

Ive popped a few comments in here for some thoughts for you

aunat wrote:

Interesting input Cannon, Thanks.

The statement about stocks needing thousands and thousands - I meant to see a decent return on your money. I almost feel that stocks are not worth the risk involved, although BTL would be. ( lots of BTLs make losses. Basically what you need to look at is a) what the rents are in the area, b) what the mortgage would be per month, c) what youd need to put away to cover repairs, voids and the like. With property being the most expensive its ever been, the "profit" can be slim. However, many people put up with this as they hope/presume property values will rise and thus they get a "capital gain". Cautious me says, dont presume property will always rise)

In answer to your ISA's - Yes, that's currently where my money is going. 3k/year in a mini ISA which is tax-free of course. Where did the 7k figure come from if you don't mind me asking? (Unsure, that's all)
( theres a stocks & shares Isa you can put 7k in - theres details on the savingds & invewstment board)

I am 100% certain at sometime in the future I will want my own place. But surely if the money is tied up in a BTL, would I not be able to release at lease some of the equity for a deposit on my own place? - Assuming house prices are on the increase ! ( assuming makes an !!! out of you & me as they say! Also most BTL lls have the property on interest only mortgages, thus there would be no equity to release in your case)

Indeed, I have done very well (if I must say so myself), coming from a not so well off family, and working and saving for my hard earned. To throw even that 4 years of working away, would be a real setback to lifes' dreams.
( buying a property on BTL could be throwing money away. being a LL is full of risks, people not paying, the place burning to the ground, legal wranglings and general wear & tear, advertising and so forth)

- What's S&S...?

Also - Regeneration areas, I'm not too well up on in terms of knowledge. Infact, I don't really 100% understand what you mean by that.
I assumed that property in a decent area, with local schools and good transport links close to big/towns cities would be an ideal area for any BTL property. Am I wrong by assuming that?

A regeneration area is an area thats earmarked for great things- whether those things happen or not who knows! It might be a slum now as they say but theres money pouring in, new industry etc.to get a flavour of this sort of thing, I recommend reading some info on the https://www.societyguardian.co.uk website theres loads of info about regeneration there thats accessible and understandable. there is lots of research to do on areas. Like any business plan you need to know your customer and understand thier needs and understand the legal framework in which to operate.

Hope this helps there is stacks of info on here, and I sound a polite note of caution to you as a newbie here Lots of BTL properties are being reposessed and lots are vacant - costing landlords money they dont have.
Its a tough business to make much profit partly as the "stock" outlay is ridiculously high.

Hope this helps
Lynz
x

david29dpo

you have a rare quality, common sense. i think you will go far whatever you do!

Cannon_Fodder

Just to clarify a couple of points ;

£7K is the total amount you can put into both types of ISA in a year.
S&S ISA is Stocks and Shares ISA, an ISA wrapper for equity/gilts/bonds/funds etc which is able to have the full £7K, but as you've put £3K in a Cash ISA, the S&S ISA would be limited to the remaining £4K this tax year.

re a place of your own - as Lynzpower says, you have to have some positive equity to release - not guaranteed, by any means. If prices are flat, would you remortgage to a 100% basis to get your deposit back out? More expensive rates usually apply.

regeneration - Lynz has covered.

"a decent area, with local schools and good transport links close to big/towns cities would be an ideal area for any BTL"

- This is where research would be essential, as a nice area like you've described is so obvioulsy attractive that it could already be flooded with BTL...how many years has Sarah Beeny been on TV telling people how to be developers?? For that long there has been an army of amatuer/semi-professional/newly-professional developers jumping on an already moving bandwagon.

Things like Interest-Only BTLers would seem to be an indication that things are reaching a peak - after all, if it is possible to pay off a repayment mortgage from the rent, then Landlords would be doing this rather than risk IO, surely? The need to keep costs down is because rents are not as high, in some areas, as they once were - or at least they've not kept up with house-price inflation, so the mortgage costs outstrip the rental income...

You agree with benood about not borrowing to invest...but BTL is just that - borrowing using a mortgage to put money into (invest) a piece of property.

A bit of contradiction, if I may say so...! I'm guessing you had a rough time of 2000/2001 when the stock market nearly halved...I know how that feels, believe me. A wider spread of funds across more sectors is the way to go, but I'm not fully practising what I preach myself yet, so maybe if S&S ISAs intrigued you a post on the Investments board would get the attention of some IFAs who offer better "guidance" - they cannot provide advice due to FSA rules...

Hope this helps.

roswell

If your going into BTL you may as well know that at eny given time to expect holes in walls / damage to doors / completely missing kitchens / damaged bath room suits, costs fo new boilers / repairs.

it can quickly turn into a night mare for little more income than the interest you would get in a good savings account with the same volume of money in.

aunat

Lynzpower - Thank you for your input

David29dpo - Heh, I like to think so too. Thanks buddy

Cannon Fodder - I'll look into that extra 4k in S&S a bit further. Thanks for that input.

re a place of your own - as Lynzpower says, you have to have some positive equity to release - not guaranteed, by any means. If prices are flat, would you remortgage to a 100% basis to get your deposit back out? More expensive rates usually apply.

The intetion was to get a BTL, however I am now starting to feel the market is "iffy" at the moment, and quite possibly the issues surround the negativeness of a BTL are putting me off, now that I've been made aware of them.

However, I was looking at Capital & Interest BTL - Yes the mortgage repayments would be more, and I realise that after the mortgage term, if you were to sell, anything over your original purchase becomes liable for 40% after your £8,800 threshold of Capital Gains Tax. Ok so no biggie if the BTL pays for itself.

(So I'd end up releasing equity from a BTL that way, so no 100% mortgage is required)

.. And even so, if I were to make a loss on that BTL mortgage itself, you can claim XX% of the losses back from the Government. (Isn't this figure based on your Income Tax rate? (Which would mean I'd end up doing a 100% mortgage on my own place)

Going back to the Capital & Interest BTL - meaning that a few years down the line I should have enough equity in the BTL property to put down as a deposit for my own place. Although in heinsight that's correct - If there were a decrease in market values then that wouldn't be the case of course.

In 2000, I was a mere 14 years old - Turned 15 in the May. I think I only became aware of the Stock Market about 2 years ago :rotfl:

A wider spread of funds across investments is certainly the safest way to go without a doubt, although that requires more capital to invest...

Food for thought, no doubt.

Again, thanks for input.