Buying a BTL - Is the below calculation correct

GC2012

Hi,


I am saving for a BTL property and should be looking to buy around October time once funds allow (nearly there!). I remember speaking to my mortgage broker last year when buying a new home for my self about this and I just wanted to clear things up. Hopefully someone with experience can confirm my calculations so I can then half a final figure to aim to and then get the ball rolling:

Purchase price will be £60,000 - £65,000 (lets base the calculation on 65k)

Rental price: £500 P/M (I have family with rentals in the area and this is what they achieve easily)

Deposit £13,000 (Really hoping to get a 80% LTV but understand it may need to be 75%) Is it worth going for 25% deposit even though it will take me a couple of month more to save?

Stamp duty for second property: £1950

Mortgages fees - Vary but lets say £200

Solicitor: Again vary but £500-ish from past experience.


So based on a 20% deposit I really need to be looking at having £16k in hand to buy the property?


Thanks in advance.

ACG

Yup.

You will have many more options and better rates at 75% LTV.

GC2012

Thanks. I expected that answer but was hoping I could get away with 20%.

Perhaps I am been a bit eager and should probably wait until I can afford a 75% LTV mortgage.

Quick side note, the properties I will be buying need minor refurbishment so probably cheap kitchen, bathroom and then paint + carpets and general tidy up. By doing this I will of course be adding value to the property.

Is it generally around 6 months before you can release some equity from the property?

My aim would be to release about 8k after 6-8 months then put money on top of that for the next property which I will then hopefully buy at 80% LTV?

ACG

This is becoming more complicated.
If you are looking at building value into the property and the pulling more money out of it fairly soon after buying I would speak to a broker about your plans and get personalised advice.

Are you aware of the recent (and upcoming) tax changes on BTL income? I struggle to see why anyone would want to be lending 75-80% LTV of a BTL. Personally I would only purchase a BTL if I could get the mortgage cleared off pretty sharpish.

ACG

Also have you accounted for stamp duty?

GC2012

Yes, in the region of £2000 per property.

My aim is to use release some equity from one of the rentals to move on to the next, so maybe 7-8k from property plus 8-10k in savings every 8 or so months in order to build a portfolio quickly as possible.

I will be going through a broker from day one rather than arranging mortgages my self as I know it wont be easy but I am hoping achievable as there is a fairly good rental yield on the properties plus they will all be on repayment.

Thanks again for the reply

amnblog

Two things stick out here.

Too conservative on the fees.

Don't assume you will be able to pull equity of that level out of the properties that quick.

Thrugelmir

GC2012 wrote: »

My aim is to use release some equity from one of the rentals to move on to the next, so maybe 7-8k from property plus 8-10k in savings every 8 or so months in order to build a portfolio quickly as possible.

You may well struggle to release equity for this purpose. Regulators have picked up on this very practice. Leveraging with debt worked when HPI was rampant. That era passed a while back.

Newtown

Purchase price 65000 + (lets say 5000 transaction costs etc) = 70000

rental value 6000 Annual

Gives you a gross yield of 8.5% (Might shift slightly depending on other expenses etc )

On paper looks nice play but in practice hmm who knows .Next few years could be very interesting for property market.I agree that the quick buck of BTL is era of the past.

GC2012

Thanks for the input everyone.

I based the fees on some quick research online, some were lower and some higher so I went roughly down the middle. Looks like I was wrong.

Equity is something I need to look in to then. I bought & sold a property in the area I am planning on buying in a couple of years ago (prior to me having the mortgage I do now). The purchase price was 59k, I spent approx 6k tidying the property up (done majority of the work myself) and then sold it within two weeks of advertising for 85k.

I am hoping to leave a similar margin on the rental properties so on paper its worth 85k but has a mortgage of 45k-ish.