Loan to buy cheap property for investment

barrymung

Hi All,

I'm looking to buy a freehold garage to rent out as an investment. This will probably cost between £8000 and £12000. Looking at rental prices in the area I should get a yield of 10% per year (£80+ per month rental income).

I already own one freehold garage which I own outright and this could be used as security on a loan for a second garage. I could also put down about £1,000 to £2,000 as a deposit.

I'm told that I could only get a mortgage on something over £25k, so that's out.

Personal loans - the ones I have found run for a maximum of 10 years (Most are 5), which is too short for me as I'd be paying more per month to the loan than I'd be earning in rent from the second garage.

Does anyone know of any longer term personal loans? Any other ways of financing such a property?

HappyMJ

barrymung wrote: »

Hi All,

I'm looking to buy a freehold garage to rent out as an investment. This will probably cost between £8000 and £12000. Looking at rental prices in the area I should get a yield of 10% per year (£80+ per month rental income).

I already own one freehold garage which I own outright and this could be used as security on a loan for a second garage. I could also put down about £1,000 to £2,000 as a deposit.

I'm told that I could only get a mortgage on something over £25k, so that's out.

Personal loans - the ones I have found run for a maximum of 10 years (Most are 5), which is too short for me as I'd be paying more per month to the loan than I'd be earning in rent from the second garage.

Does anyone know of any longer term personal loans? Any other ways of financing such a property?

Seriously.....

You really should diversify investments by having different income streams.

Cash is the way to finance an investment like that. It pays a high yield as it is risky.

You can get multiple personal loans to fund the investment and make the payments. Even though the term is 5 or a maximum of 7 years you can use your rental income to make the personal loan repayments and some of your employment income and at the same time run up debt on an interest free credit card to meet your shortfall then in two years take out another smaller 5 year loan once the interest free period expires to refinance the credit card and open a new interest free credit card which can quite effectively stretch the payments you are making out to 10 years. You need to be very good at cash management to make that work and keep the interest rates low.

Lungboy

barrymung wrote: »

Hi All,

I'm looking to buy a freehold garage to rent out as an investment. This will probably cost between £8000 and £12000. Looking at rental prices in the area I should get a yield of 10% per year (£80+ per month rental income).

I hope that's a typo and you mean £800 per month...

MallyGirl

who would pay £800 per month for a garage?

Lungboy

Not me, but £80 per month wouldn't be a 10% yield on £8000-£12000 purchase price.

andyfromotley

Lungboy wrote: »

Not me, but £80 per month wouldn't be a 10% yield on £8000-£12000 purchase price.

errrrr... yes it would.

12 x 80 = 960

Which is 10% of 9600 (obviously i prefer your rate of return which is 100%)

seriously:wall:

Lungboy

Oh dear, my mistake. I was going on the monthly value rather than the yearly for yield. Oops.

barrymung

So...my logic is that if I can find a suitable loan I can purchase a second garage, using the first as security and putting down a smallish deposit.

I'm looking for a loan that can be covered by the monthly rent; then, once the loan comes to and end the garage would be paid for.

Question is, what sort of loan? Mortages are only given out for £25k plus purchases.

spadoosh

I dont think youll get a loan for the purpose you wish. At least not if you answer honestly as to why you want the loan.

For you to pay less than £80 per month you would need a loan thats over 10 years.

So lets say you buy a garage @ £8000. over 10 years. Using rough mortgage rates (you wouldnt get them that cheap) Youll repay about £1700 in interest.

Tesco will do a 10 year loan @ 5.4%. If you buy a garage at £8000 that will be £85.91 per month. Repaying £2309.20 in interest (plus the £8k you borrowed for the garage).

Thats not to say you cant make money renting out a garage but borrowing to buy a garage to make money when your already concerned about a slight shortfall in money in/out just doesnt seem that wise to me.

Honestly its not really financially sensible to make money this way. Unless your a garage collector or are doing htis for reasons that arent financial i would suggest other ways of making money.

SeanG79

Or take the 5 year loan, the rental income from the 2 garages should cover the payments, provided you get the loan at less than 7.42%.

You will be sacrificing one garages income (that you currently own) for the 5 years, but they will also be paid off sooner, and with an annual inflation increase on the rental income, you will get some money back.

Also with the personal loan, there wont be any security on the loan...

tonyh66

SeanG79 wrote: »

Or take the 5 year loan, the rental income from the 2 garages should cover the payments, provided you get the loan at less than 7.42%.

You will be sacrificing one garages income (that you currently own) for the 5 years, but they will also be paid off sooner, and with an annual inflation increase on the rental income, you will get some money back.

Also with the personal loan, there wont be any security on the loan...

this is the sensible answer, generally businesses make no money in the first few years due to outlay, which is why you need loans and grants to start, but if the business is sucessful then it becomes self financing eventually.