Pick apart my strategy!

Newlyboughthouse

Hi all.
New to investing so go gentle.

I have around £200k equity in my residential house. I want to additionally borrow £100k from my lender. The interest rate is 1.69% no fee. I have the decision in principle, now just need to apply. Unfortunately they will not allow me to do this on an interest-only basis - only repayment which I can afford and is only 2 year fix so not the end of the world.

I intend on placing the “released equity” in my Wealthify saver with is currently earning around 4% on my savings already in there, while I decide what to do with it.

I would like to get into property investing. I have seen two properties up for auction in February around £40k. I intend on bidding on both, having researched the areas. Should I be unsuccessful, I will move that £100k into a diverse range of index funds or REITs (yet to talk to financial advisor) that will give me easy access to sell my shares should I see another property. I already hold a number of shares with healthy returns that allow me to do this. 

The plan is to renovate and then rent the property(ies) out within Ltd companies, and then sell after 2 years (may be longer) to avoid CGT and claim entrepreneurs relief.

Is this a crazy idea? The way I see it, I can be making that released equity work way harder for me, and struggling to see the pitfalls at the moment, which is where I’m hoping you helpful people can step in. My salary is decent (would be in higher rate tax bracket if I hadn’t maxed matched pension contributions) and my job is as secure as it can be. I’m aware of the obvious risks e.g. investments turning out to be bad, losing home, but I currently feel it is worth it as long as I thoroughly research where I put my money?

Thanks in advance!

Thrugelmir

Leveraging with debt is double edged. Returns are magnified however so are losses. The old adage only invest what you can afford to lose will never cease to apply.  Investing has no guarantees. If making money were that easy why isn't everyone already doing this is the question you need to ask yourself?  

zagfles

This is more a business question than a financial question, the answer is like any other business question, how well do you understand the business you're getting into, will you be good at it, will you enjoy it, what's the market etc.

If you understand property really well, how to renovate, costs, dealing with builders, or maybe doing it yourself, and understand all the requirements of a landlord, the pitfalls eg what to do if the tenant doesn't pay rent, damages the property, refuses to leave etc, then maybe.

If you're one of these people who think it's easy to make money from property, "can't got wrong with property" etc, then no. There's a reason this sort of thing isn't done by big businesses.

Albermarle

I intend on placing the “released equity” in my Wealthify saver with is currently earning around 4% on my savings already in there, while I decide what to do with it.

These are not savings in a safe savings account . They are investments and subject to risk with no guarantee of the end result . It is worth being clear on the terminology !

Should I be unsuccessful, I will move that £100k into a diverse range of index funds or REITs (yet to talk to financial advisor) that will give me easy access to sell my shares should I see another property. I already hold a number of shares with healthy returns that allow me to do this. 

For money that will be needed in the short to medium term , it is normally recommended to keep it in a savings account. When you need this £100K to buy property it might have dropped to £70K for example if it is invested in shares etc .

thegentleway

I got into "property investing" 7 years ago with no idea how to renovate a property whilst having a full time job. I bought a shell at auction and renovated it to a HMO for student let. I knew it was a big project but I massively underestimated how much work/time it would take. Original plan was to release equity and do loads more. That soon changed after the first one: it was great learning experience but wouldn't do it again that's for sure! It can be done but it's a full time job and you've already got one of those!

zagfles

thegentleway said:

I got into "property investing" 7 years ago with no idea how to renovate a property whilst having a full time job. I bought a shell at auction and renovated it to a HMO for student let. I knew it was a big project but I massively underestimated how much work/time it would take. Original plan was to release equity and do loads more. That soon changed after the first one: it was great learning experience but wouldn't do it again that's for sure! It can be done but it's a full time job and you've already got one of those!

Remember that Property Ladder programme with Sarah Beeney about 15 years ago, following amateur property renovators? They usually screwed up big style, but were rescued by the high house price inflation we had in the decade before the financial crisis.

Funnily enough the series stopped at about the same time as house prices stopped rising...

Albermarle

thegentleway said:

I got into "property investing" 7 years ago with no idea how to renovate a property whilst having a full time job. I bought a shell at auction and renovated it to a HMO for student let. I knew it was a big project but I massively underestimated how much work/time it would take. Original plan was to release equity and do loads more. That soon changed after the first one: it was great learning experience but wouldn't do it again that's for sure! It can be done but it's a full time job and you've already got one of those!

On Homes under the Hammer , it is nearly always portrayed as a licence to print money . I suspect most of the ones that make a hash of it will not let the programme publish that episode !

zagfles

Albermarle said:

thegentleway said:

I got into "property investing" 7 years ago with no idea how to renovate a property whilst having a full time job. I bought a shell at auction and renovated it to a HMO for student let. I knew it was a big project but I massively underestimated how much work/time it would take. Original plan was to release equity and do loads more. That soon changed after the first one: it was great learning experience but wouldn't do it again that's for sure! It can be done but it's a full time job and you've already got one of those!

On Homes under the Hammer , it is nearly always portrayed as a licence to print money . I suspect most of the ones that make a hash of it will not let the programme publish that episode !

One day there'll be a "class action" against the makers of all these programmes on the grounds they make it look like any idiot can make money through property

Thrugelmir

zagfles said:

thegentleway said:

I got into "property investing" 7 years ago with no idea how to renovate a property whilst having a full time job. I bought a shell at auction and renovated it to a HMO for student let. I knew it was a big project but I massively underestimated how much work/time it would take. Original plan was to release equity and do loads more. That soon changed after the first one: it was great learning experience but wouldn't do it again that's for sure! It can be done but it's a full time job and you've already got one of those!

Remember that Property Ladder programme with Sarah Beeney about 15 years ago, following amateur property renovators? They usually screwed up big style, but were rescued by the high house price inflation we had in the decade before the financial crisis.

Funnily enough the series stopped at about the same time as house prices stopped rising...

To make money all somebody need to do was buy a property and hold it. No need to renovate and flip. 

Newlyboughthouse

thegentleway said:

I got into "property investing" 7 years ago with no idea how to renovate a property whilst having a full time job. I bought a shell at auction and renovated it to a HMO for student let. I knew it was a big project but I massively underestimated how much work/time it would take. Original plan was to release equity and do loads more. That soon changed after the first one: it was great learning experience but wouldn't do it again that's for sure! It can be done but it's a full time job and you've already got one of those!

There are a hell of a lot of variables at play here. You bought a shell - the ones I’m looking at are habitable but need cosmetic work. The sold prices on the same street are 3-4x as much. You also took on a HMO project - of course that’s a hell of a lot of work. BTL wouldn’t be nearly as much.

May I ask what became of the HMO?

BananaRepublic

I know someone who rented out his property. He used an agency and paid for the special service with better checks. He later found out that the rooms were all full of bags of rubbish, the bathroom was full of buckets filled with something horrible, the new kitchen had been trashed, loads of stuff needed ripping out and replacing, about £20,000 of damage. And garlic cloves were on all of the window sills. The agency had rented it out to someone who needed somewhere to live after burning his house down. They hadn't done any checks after he moved in. I know someone else who rented out his flat and something not dissimilar happened. You're probably okay with students as long as the furnishings are not new and you allow for wear and tear. They have a reputation, but probably aren't so bad, the odd cigarette burn, wine stain etc.

A friend has two two bed houses that he rents out, bought nearly new, he pays off a large part of the mortgage each year, they are doing nicely. I think he deals with tenants himself, and no decorating and DIY needed, yet.

Dealing with trades can be a nightmare, good ones are good, bad ones can ruin your life for many months. Decorating and DIY is hard work.