BTL Advice

cns06

Currently own 1 rental property. To keep things simple assume value is £200k. Rental income is £12kPA. No mortgage.


I am considering refinancing it to release £120k. Then take out 2 more £120k mortgages to buy 2 more £200k properties.


From my simple maths this equates back to around £1600 in interest per month leaving roughly £1100 before tax from the rent.


I have asked a few people who have property and they are all saying its a good idea in the long run but I don't like the idea of having 3 mortgages hanging over me. However will I kick myself in 10-15 years time for not doing it?


Property is pretty cheap round here and rents fairly high. (all 3 houses would be decent size 3/4 bed semis)


Anyone care to offer their advice?!

Linton

Unless you have a significant amount of wealth in other types of asset £360K of debt dependent on BTL is a serious unnecessary risk in my view. What happens if house prices drop and interest rates rise following a hard BREXIT?

Do you have a mortgage on your home? Are the mortgages interest only or repayment?

I suggest you start looking at other types of investment to reduce your risk. For example a range of overseas invested funds would provide protction against the effects of a further fall in the £.

cns06

I have other investments yes. Mixed globally in markets, funds, commodities etc.


My own house is on capital repayment mortgage which is being overpaid.


My other option is to buy a second BTL in cash but it would have to be smaller, probably c.£100-£120k. This would probably generate me £6-£7k a year. If I re-invest the rental incomes from both I could probably get that £100k back in 5 years.

SpeedSouth

People have done what you suggest in the past and made a lot of money. My folks for one! Others on this forum, although they mostly reside in the House, buying/rent/sell forum.

Most on this forum will be against BTL. I have one accidentally from when we combined houses. I've thought about doing what you say but, with 3 small kids decided it could get messy if /when rates do go up.

By gearing your investment, rather than buy in cash the rewards are higher. As Linton says there is of course risk involved.

That being said the high risk investments, offer the greatest return in light of this. 100% equities would be risky but chances are it would out perform 60% over the same period. Of course there is the chance a lot of it could be wiped off the value for a period of time.

Malthusian

There's not enough information to comment on the numbers (interest rates, income and expenditure etc) so I will merely say that if someone is unsure whether or not to gear up their personal assets to that extent, they probably shouldn't.

It would be a brave man to assert that the previous favourable environment for buy to let will continue, with the recent tax changes, the ongoing political campaign against landlords, Brexit, etc.

bigadaj

cns06 wrote: »

I have other investments yes. Mixed globally in markets, funds, commodities etc.


My own house is on capital repayment mortgage which is being overpaid.


My other option is to buy a second BTL in cash but it would have to be smaller, probably c.£100-£120k. This would probably generate me £6-£7k a year. If I re-invest the rental incomes from both I could probably get that £100k back in 5 years.

Can't you mortgage the existing house and just buy one additional, might be a lower risk option with some upside.

cns06

I could yes. Only question is will my lender allow me to keep my existing rate (1% above BOE)!!

LabRatty

Hi,
The changes in tax relief on BTL mortgages/income mean you'd have to do some serious planning to ensure you didn't come unstuck, plus enhanced stamp duty is now payable on additional properties.

While other forms of investment carry risk, with BTL it's less the risk, more the certainty that there will be maintenance/repair/void/damage costs that is the problem, which can be almost unquantifiable. If all goes well, fine, but the potential for the wheels coming off in one form or another is high.

All depends on your personal attitude to risk, your capacity to deal with stress and the depth of your pockets.

LR

elephantrosie

If you are young and healthy, go for it.

Wobblydeb

I would definitely look at it.......but would maybe scale back from doing the leap in one go.

Firstly, see what rate you would actually pay for a BTL mortgage on your current property. 1% above BOE doesn't sound right for a BTL.....

Then look for the next property. Try to find a bargain - e.g. through auction or perhaps last property on a newbuild estate? I would also look for some diversity, by going for a different type / area unless you have special inside knowledge that means you can drive better value out of sticking with what you know.

Then I would get the second property finished and tenanted before starting to look for a third. It also gives you a while to see if there is some heat to come out of the housing market. Looking at all the newbuilds around here, in conjunction with low interest rates IMHO we are probably in another peak right now.

Oh, and keep some of that cash back for voids / repairs / evictions.

bostonerimus

How much of your portfolio would be in rental properties if you bought another two? and how much in real estate including your own home? Think of this as an asset allocation issue and you don't want to be over invested in a single sector. Being highly leveraged in what looks like a very hot market (that might have just peaked) doesn't sound like a good move to me.

I have a single rental and it's worth around 10% of my portfolio (I usually don't include it) and I feel comfortable with that. I wouldn't want to be above 20%.