Buy to let mortgage advice.

HopefulBTL

Thrugelmir wrote: »

BTL is a business not an investment. With an investment you only your original lose your stake, however with a business its conceivable to lose everything far more.

Although I may argue with your definitions, eg, warrants, options, etc I wouldn't class as a business! I take the point you are making re risk and it is something I am well aware of and have mentioned above. However, let's take some imaginary figures. Let's say I bought a house for 100k, with a 25k downpayment. Also let's ignore mortgage arrangement and exit fees for simplicity.

That means I owe 75k. In theory I'd lose my stake in the house if it fell by 25%, a high % but as I'm sure many can attest to not out of the question.

If i needed to sell, I would indeed have lost my investment. And of course if I needed to sell the property with it having lost more than 25%, I'd lose more than my investment. However, and I think this is the key thing, I am investing for the long term to cover mortgage payments, not to sell quickly for a capital gain.

However, to mitigate (note, not eliminate) this risk, I plan to do my best to buy at a good value. To me, 'value' is a combination of rental yield and rental demand for a particular location and type of home. If after 25 years the property had lost 25%, it'd still have been a good investment if I had managed to keep it relatively free of rental voids. IE, renters will have payed for me to end up with a property worth 75k for an investment of 25k, at current rates.

Any profit made from letting will be subject to income tax. What you have to calculate is how much profit after tax is required to repay the mortgage. Over the term of the mortgage i.e. 25 years you will incur refurbishment costs on the property. This needs to be factored in as well.

Right, again, I'm aware of this, which is one of the reasons I'd ideally like to be more highly leveraged, it allows me to deduct more interest against my income. Yes, I realise this means higher risk, and yes it's all a house of cards if I have trouble tenanting the property at the required yield on a long term basis. But all investments carry risk as I think we've already agreed. I may well decide that to be so highly leveraged is too risky, I expect it may well depend on what I find in my further research into the local rental market and available properties - thus, something I'm unable to be 100% sure of yet.

Never fails to amaze me how often people set off on a long term project. Without giving the matter the thought it deserves.

I don't feel that I've given off the impression that I'm rushing into this or not giving it sufficient thought and if I have I apologise for misleading you, but surely that's why I'm here, for advice and to help me reflect, after all?

GMS

You have clearly done plenty of research but points being made are valid and not intended to judge you. You need to be aware of the pitfalls as well as the possible gains.

One point you mention is that somebody else will have paid for the house. For this to happen you would need a repayment mortgage which may cost you more than the rent the house brings. Many BTL mortgages are interest only with the investor relying on the capital gain. You need to get some figures for repayment mortgages and see if the rent is still covered.

If there is a discrepancy between the mortgage and the rental income then you would need to fund this and with a relatively low wage it may become difficult. A Buy to Let really should be self sufficient. Simple way to look at it is if you could afford the your residential and a BTL mortgage on your wages then go for it. If you cannot and rely on the rent being paid every month then tread carefully.

Well priced property is available in Merseyside at present as you rightly say, and you have mentioned avoiding the city centre which I would agree with. You will have seen more 'To Let' signs on seemingly hundreds of flats there. The suburbs you mention command high prices with not great rents.

Near to me a £100,000 property could get £600 per month rent. In the same area is a £800,000 property being rented at £1500 per month. Rather have 8 100k properties than one 800k.

Carry on with your research and speak to a broker about the mortgage options. Ultimately this will dictate what you can do in terms of buying a rental property.

Thrugelmir

HopefulBTL wrote: »

Right, again, I'm aware of this, which is one of the reasons I'd ideally like to be more highly leveraged, it allows me to deduct more interest against my income.

Interest is a tax deductible expense for any business (not for investing though). If you aren't paying tax then you won't be making a profit (i.e. generating cash). As its cash you need to repay your mortgage quicker in order to leverage up for the next property.

The boom years were built on capital gains not rental yields.

Thrugelmir

HopefulBTL wrote: »

I don't feel that I've given off the impression that I'm rushing into this or not giving it sufficient thought and if I have I apologise for misleading you, but surely that's why I'm here, for advice and to help me reflect, after all?

I only make observations in order to get people to think. Creating a long term business plan requires some work and most of all honesty with one's self. I've seen too many businessess fail over the years due to a lack of planning. Too easy to get carried away with the £ signs falling from the sky rather than the cold reality of what is in essence a 40 or 50 year plan.