Becoming a buy to let investor with 45k capital - which way forward?

Looter

I'm thinking of buying property to rent out but could do with some advice on how to go about it.

I could afford to invest around 45k but not sure what my options are. I initially thought of buying one property at auction for around that price to rent out, could I then re-mortgage that property to buy another one and keep on doing that to build a portfolio?

On the other hand, would it be possible to obtain two or three buy-to-let mortgages with the 45k capital?

Any advice would be greatly appreciated, thanks!

Lilly_L

where are you investing?

googler

Looter wrote: »

I'm thinking of buying property to rent out but could do with some advice on how to go about it.

I could afford to invest around 45k but not sure what my options are. I initially thought of buying one property at auction for around that price to rent out, could I then re-mortgage that property to buy another one and keep on doing that to build a portfolio?

Essentially the modus operandi put forward by the likes of Instant Access Properties / Inside Track a few years back, where they enticed new investors to build massive property portfolios in no time. I wonder what happened to those people? I know that IAP went bust. They re-launched under a different name then went bust again. Read into that what you will.....

Looter

Lilly_L wrote: »

where are you investing?

North-West, Greater Manchester ideally. I went to a property auction last month and didn't realise you could pick up houses so cheap. 2 bed terraces in Burnley were going for around 22-25k.

googler

Looter wrote: »

North-West, Greater Manchester ideally. I went to a property auction last month and didn't realise you could pick up houses so cheap. 2 bed terraces in Burnley were going for around 22-25k.

The crucial figure is not what you buy at, but whether or not what you can rent at will cover purchase cost plus ongoing expenses.... Do you know what typical rents are in that area?

was that your first property auction?

princeofpounds

I can already tell you that you don't know enough to play the game with any confidence yet.

Understand that buy to let as a business model (as opposed to owning and letting out a single house outright for a steady income) is all about getting the right financing structure and gambling on house prices. The actual letting part is a relatively small component of your likely financial success in some ways.

The way people make money is through a principle called gearing. This is the use of mortgage debt to amplify your returns on equity.

For example, you buy a house for 200k using a 40k deposit. 80% loan-to-value. You rent it out, using the rent to cover the mortgage cost more or less. Maybe you get a little bit more money from the letting by achieving a high yield, maybe a little less after voids and maintenance.

House price go up 10% over a couple of years, a very possible type of move. You sell for 220k. You pay off your 160k mortgage and have 60k profit. You have made 50% on your money in just two years. You are a business genius!

Only you are not. Because if house prices fall by 10% (also quite possible) then you LOSE 50% of ALL your money.

Gearing (aka leverage) simply amplifies profits and losses. Housing just happens to be one of the few places where the man on the street is allowed large levels of gearing at relatively cheap prices.

The most important financial factors are therefore gambling on house prices (an easy bet for the last 20 years which is why so many people thing BTL is a cash machine, but not so now) and getting the right mortgage (variable rates are cheap but dangerous and so on - many considerations here).

The letting out is important particularly because there are two key crunch points for this business model. One is making the monthly payments on the mortgage. Too long a void and you are toast. The other is negative equity, get anywhere close to it and your refinancing options are screwed. So if things start going wrong you don't get to hang on until they go right again.

Hope that helps.

Looter

googler wrote: »

The crucial figure is not what you buy at, but whether or not what you can rent at will cover purchase cost plus ongoing expenses.... Do you know what typical rents are in that area?

was that your first property auction?

2 bed terraces go for around 325pcm, and yes it was my first auction, will probably go to a few more before deciding to buy.

Looter

At yesterday's auction a 2 bed terraced in Burnley with a guide price of 12k sold for £15,500. What's wrong with Burnley?!!

Cheeky_Monkey

Being a Southerner, I don't know too much about Burnley but I would say check out the level of unemployment there first.

It doesn't really matter where the place is, the principle is the same, if the housing stock is dirt cheap, it's that way for a reason so you'd have to do some pretty extensive research.

Thrugelmir

princeofpounds wrote: »

House price go up 10% over a couple of years, a very possible type of move. You sell for 220k. You pay off your 160k mortgage and have 60k profit. You have made 50% on your money in just two years. You are a business genius!

Hence why people go wrong.

£20k gross profit.

You've included £40k deposit.

Then you need to factor in purchase and sale costs of the property. Interest payable while the property is vacant awaiting sale.

Not forgetting the 4% - 5% you could have earnt on the deposit money if left in an ISA.

Is it worth the hassle?

Werdnal

Never been to Burnley, no connections with it what so ever, so I may be way off the mark, but Burnley to me means high unemployment and low wages where there are jobs, small back to back type mining terraces, thrown up quickly and not well built, and a history of mining subsidence. Forgive me if anyone lives there - no offence intended!

Cheap properties are not usually the best investments as they are cheap for a reason. They may need work to bring them up to a good standard and ongoing maintenance due to structural issues. They may be in poorer areas where rents are lower, and employment issues may mean you have trouble getting long term tenants.

From some of the comments you have made, you appear to know little about the actual requirements of becoming a LL. Have you read this thread:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

Becoming an efficient and profitable landlord requires a good knowledge of the laws and regs surrounding letting, as well as knowing your target market. Buying the property is the easy bit ... the rest ... well this forum would be a darn sight quieter if all prospective LLs sat down and learned their business at the start, instead of bumbling in, dazzled by ££££ signs before their eyes and riding roughshod over their tenant's rights, with total ignorance of their LL obligations and putting more emphasis on building a property empire than getting the basics right!

Your £45K may be burning a hole in your pocket, but buy the wrong property and it will burn you big time!