Best way to finance property valued under 50k

AdrianC

KO_Dub said:
Hi Adrian. Not sure what you're beef is... But instead of misquoting me, and making snidey good luck comments, and aggressive remarks,  you might be better served trying to be helpful, not trolling this site, or just moving on. Never did I say anything about a goldmine. 12% 'yield' can still be marginal 'profit' when its all going off a short term mortgage... The figures leading to that 12% are absolute fact. Maybe brush up on your maths AND English. I don't have any unshaken faith in the BTL market either, hence why I'm on here. I'm also not relying on any lightning fast surge in property values... A 10yr term or maybe more is hardly that anyway. And who says lots of guys with cash to burn are not buying many of these properties... Because that's exactly what I've seen happen at the auctions. Listen, you don't know the market I'm looking at, you've chosen to overlook the fact that i would like an asset at the end of this (if I choose to do it at all), and you're making incorrect assumptions. I'll take the couple of remotely helpful things you've pointed out, of which I was aware anyway, and forget the rest of your nonsense. Have yourself a g&t there if you manage to get down off your high horse. Ta

I have no beef. None of my comments were in any way personal digs or slights. They were merely discussing your situation, as you described it. I have not once "mis-quoted" you.

If the "guys with cash to burn" were buying these properties up, then the prices would rise. Basic supply and demand.

You say you would "like an asset at the end"... Cash is an asset. You are talking about borrowing £15k, so presumably have £~25k cash asset currently. £15k personal loan over 7yrs is going to cost you £2,070 in interest at 3.8% APR (Tesco bank max term and representative rate), with monthly repayments just over £200.

£4800/yr - 10% each for voids, management = £3840 - £900 maintenance = £2,940, before tax, £2,350 after basic rate.
Now take your £2,500 financing cost off that, and where's your 12% gone?
You're now subsidising your tenants by £600/year = -1.5% return.

You're actively reducing your cash asset by £4,200 over the seven years of the loan.
You're reliant on a 10% increase in property price to break even.

And that's before all the purchasing and sale costs... You might have broken even somewhere around the end of the tenth year, excluding property value increase. So let's say that has gone up by 10%... over a decade. 1% annualised.

Honestly, find a decent savings account, put your £25k in it, put £200/mo in it, and you will be QUIDS ahead at the end of the decade - with a lot lower risk, a lot healthier blood pressure, and a far less cynical world view. And that's assuming it all goes well, without the tenant's screaming baby drowning out the phone call to tell you the boiler's gone bang half-way through the afternoon of 23rd December, no tenants vanishing on the eve of possession owing you months of rent and leaving the place a mess...

Right now, you're just proving me right when I said...

AdrianC said:
Sounds to me like you're working backwards from the end decision and coming up with whatever justification you can. Good luck. You're going to need it.

AnotherJoe

KO_Dub said:

GDB2222 said:

You’re probably underestimating the effect of voids and expenses. It depends a lot whether you would manage the letting yourself or get an agent. Also whether you would do all the maintenance yourself or employ tradesmen. 

Cheers, yes if I do eventually go into the market I'll get it managed, atleast til I find my feet. But that is with a friend of a friend and mate's rates so not so bad. Decorating and some maintenance I could do myself but again have good pals who are tradesmen so... Also, whether realistic or not, in my calculations I'm allowing for 600-900 worth of work p/a.? I'm hoping that's over-egging it to be honest. Insurances, fees etc I know all take their toll. And no doubt some surprises but all part and parcel. And all very small figures relatively speaking so no bank-breaking going on if things go wrong. That's my thinking anyway. If anything though being on here is quite discouraging. Maybe the guys who've been in it for years and seen the cash cow disappear over the hill just have that bad aftertaste.... There has to be something good to be taken from owning property. I guess it's about not over exposing yourself. And getting some luck with tenants. I'd be happy to make a small rolling profit and a few k at the other end. I have almost everything in stocks and shares... A little bit of diversity is surely a good thing... 

Well, no, there doesn't. Not as an investment anyway.

As someone else said , you seem to be working backwards from your predetermined conclusion and that comment perhaps shows it.

End of the day though its only say £15k-£20k  of your cash at risk so go ahead and try it and let us know, maybe it is indeed a great investment , possibly the first of many. I'm not being sarcastic, I mean that, though i dont believe it will be simply on the grounds that if these properties were so good people with deeper pockets than yours would already have bought them. But maybe me and the naysayers here have missed something. YOu wont know unless you've tried it.

Re investment diversity, you can buy a property fund, which is more diverse than just one property and much less hands on. MUCH less. In any case that's somewhat of a strawman argument, why not also invest in art, whisky, classic cars stamps star wars lego and beanie babies?

EDIT: Just read AdrianC's numbers. Hmm. Run that through your own maths slowly, i haven't checked them, but if they are in the right ballpark you'd be mad to do it, and that shows, why, indeed people with deeper pockets aren't diving in to snap these "bargains" up. If those numbers are correct, this is simply not an investment opportunity.

 

artyclarty

Fellow North-Easterner here! I paid £55k for my ex-council house. At such a low price the only option open to me was paying cash. I thought about purchasing next door when it came up for sale after the tennant from hell got evicted but still not being able to get a mortgage was the stumbling block. Luckiy, my neighbour is another first time cash buyer like myself, even works similar awkward shifts as I do!

Our street is about a 1/4 owned,  1/2 housing association and 1/4 private rentals. It is always the private rental tenants that cause nuisance issues and damage.

The going rate for a 3 bed here is about £400pcm, but we are boardering on university commuting for postgrads which bolsters the price a little. Some of the mining villages with little transport or amenites go for around £2-300pcm for a 3 bed. I have a friend who owns in such an area and his neighbours are generally unemployed who will get more space for their housing benefit.

macman

OP, your completely OTT response to AdrianC's very thoughftul and detailed post proves what I suspected all along: that you've already made up your mind that this is a great opportunity, and that no reasoned advice or counter-arguments will make you change it, however strong the evidence to the contrary.
Do the maths again, with some realistic figures, and you will see that your 12% yield is just a fantasy. 

AdrianC

macman said:

...you will see that your 12% yield is just a fantasy. 

It's not necessarily a fantasy. It is, feasibly, the raw yield.

But, of course, the raw yield is just a very small part of the complete picture - especially when considering a leveraged purchase, even more so when considering employing management, and particularly so when it's a relatively low-value property in a depressed area - which multiplies any relatively fixed costs and introduces the issues of sub-optimal tenants...

But, when you've convinced yourself that there's a pot of gold at the end of the rainbow with your name on it...

PerfectMess

I would personally doubt though that buying a property is high on the agenda of minimum-wage-earning 20 somethings in this part of the world, but maybe I'm wrong. 

As someone from Newcastle I can say hand on heart that at 20 odd when I was looking to buy my first house I wouldn’t touch a £40k property. Mainly due to the areas they are in but the ones closest to where I would consider living have short leases that make them unmortgagable hence auction guide price £40k looking for a cash buyer. 

Competsoph

Throwing in my 2p, how does anyone make money in property if that is the case? I think BTLs are a vision for many in the future, but it’s true there is a huge amount of consideration to be done before jumping the gun.

[Deleted User]

Competsoph said:

Throwing in my 2p, how does anyone make money in property if that is the case? I think BTLs are a vision for many in the future, but it’s true there is a huge amount of consideration to be done before jumping the gun.

Yeah, I was thinking the same. BTL seems like a lot of stress.

AdrianC - am curious. Any chance you could enlighten us on this?

Grumpy_chap

KO_Dub said:

AdrianC said:

£400/mo rent on a £40k property is 12% raw yield.

Just pause and wonder about why these absolute investment-gold-bargains haven't been snapped up already...?

Some risk has to be taken at some point as most would concede.
Ideally that would be with as little of my own capital as possible,
My ideal scenario would be less than 10k of my money, on a sub 50k property, so a BTL mortgage of maybe 30-35k. Own it inside 7-10years, with very marginal profits within that time, most of which could be absorbed, on paper atleast, through costs etc...  But I'd have something to sell on or base another acquisition on.

OP - you seem to think you have hit on an amazing yield investment, yet there remains room for more people to enter that investment market, which will not possibly remain the case for long if the yield is truly as good as you envisage.
Despite the amazing return that you expect on this investment, you wish to do this with someone else's money.  That seems very much like "privatising the gains while nationalising the risk" or "having your cake and eat it". 
Presumably the reason you want to do this with someone else's money is that, if it all goes awry, you can run away from it through bankruptcy or other default processes.  If that is not the case, put your own money where your mouth is.

AdrianC

holyrottweiler said:

Competsoph said:

Throwing in my 2p, how does anyone make money in property if that is the case? I think BTLs are a vision for many in the future, but it’s true there is a huge amount of consideration to be done before jumping the gun.

Yeah, I was thinking the same. BTL seems like a lot of stress.

AdrianC - am curious. Any chance you could enlighten us on this?

It helps massively by not being heavily leveraged, and not paying others to run your business.

That apart, people don't usually actually do the sums, and people have historically been saved by capital growth.

We've got a net pre-tax return of ~4% over 6yrs on ours, but that's down to self-management, minimal requirement for maintenance so far (that'll change), no leveraging, and a large dose of pure good luck. Neither are showing much signs of growth. Would I buy them again now? No.