BTL Financing???

Bigun28

I have 2 BTL properties currently financed on a 2 year fixed rate mortgage deal which ends in Jun 08, and hence I will be looking for new deals and maybe even further BTL options. I’m just trying to get the maths straight in my head as to how people release and use the capital growth in a BTL property to finance the purchase of another property.

Trying to explain what I understand in simple terms – you buy a BTL property for £X at say 80% LTV, and rent it for £Y per month which say covers mortgage costs at 130%. Over a few years the property value increases (capital growth) by say £Z, meaning that your original LTV has reduced.

You would like to release some of that £Z to provide some deposit to purchase another property. To release it, you will need to add it to the mortgage costs. So your new mortgage will be the sum of £X plus whatever amount of £Z you want to release from the property. To do that, you could go up to say 80% LTV again, but the increase in mortgage will also mean an increased monthly payment which must subsequently be covered by an increased rent.

If the current rent on the property is already at the top end of the market for that property (based on agent’s predictions), how do other landlords manage to release the property’s capitol growth without vastly increasing the rent? Surely landlords must already be setting the rents for their property at the max level that they can achieve for that area. If you try and push above the market level, you would price yourself out of the market.

Is there something that I’m missing here?

Appreciate any info/guidance.

neas

What are the properties valued at? If the valuaton has increased then you can release capital. Although as you stated you need to pay more if you remortgage more monthly. Also remember the mortgage rates have gone up lately... check what mortgage deal you can get.

I suggest you buy another 3-5 house for your BTL empire, you'll be a millionaire in no time

carolt

If you didn't bother to research/can't answer these questions yourself, before getting into BTL, can I suggest you're in the wrong business?

Good luck with your BTL empire - you'll certainly need it.

Trollfever

I think that there is a company that runs seminars on how to become a BTL property millionaire in six months.

Guess that you should sign up.

mlz1413

Randel did you pass your algebra tests at school? You seem to like using letters in your sums just a bit too much.

Trying to give you a push in different direction here - do you make any profit (nett profit) from your BTL's?

BobProperty

Randal wrote: »

..... how do other landlords manage to release the property’s capitol growth without vastly increasing the rent?....

They don't.

Randal wrote: »

Is there something that I’m missing here?

The above answer.

moneysavinmonkey

Randal wrote: »

I have 2 BTL properties currently financed on a 2 year fixed rate mortgage deal which ends in Jun 08, and hence I will be looking for new deals and maybe even further BTL options. I’m just trying to get the maths straight in my head as to how people release and use the capital growth in a BTL property to finance the purchase of another property.

Trying to explain what I understand in simple terms – you buy a BTL property for £X at say 80% LTV, and rent it for £Y per month which say covers mortgage costs at 130%. Over a few years the property value increases (capital growth) by say £Z, meaning that your original LTV has reduced.

You would like to release some of that £Z to provide some deposit to purchase another property. To release it, you will need to add it to the mortgage costs. So your new mortgage will be the sum of £X plus whatever amount of £Z you want to release from the property. To do that, you could go up to say 80% LTV again, but the increase in mortgage will also mean an increased monthly payment which must subsequently be covered by an increased rent.

If the current rent on the property is already at the top end of the market for that property (based on agent’s predictions), how do other landlords manage to release the property’s capitol growth without vastly increasing the rent? Surely landlords must already be setting the rents for their property at the max level that they can achieve for that area. If you try and push above the market level, you would price yourself out of the market.

Is there something that I’m missing here?

Appreciate any info/guidance.

doh! unless you are spunking the extra money you took out of the 1st property on a beamer or some other rubbish then presumably you invest it to make a return - eg another property which then brings in rent to cover the extra mortgage payments. If the 2nd property doens't make enough rent to cover the cost of borrowing the money to buy it then it's a bum investment.

Think you need to re-read you inside track /[insert name of dodgy propery investment seminar company here] notes mate.

tomatopuree

ouch, whilst reading his post I had a feeling he'd get ripped to shreds...

silvercar

The bit in your logic that is missing is the relationship between rent and house prices. If house prices have increased sufficiently for you to justify taking out more capital and keeping the LTV at 80% then something must have happened to rents in that time.

If rents really haven't increased then the yield you are now getting (ie rent as a percentage of value) is really too low and you may be better off selling the property and buying somewhere different.

In all likelihood rents have increased and you need to assess this. Its very easy to keep good tenants without looking at whether the market rent has increased. It means you have a happy tenant and no voids. This may make sense to you and is a valid business decision, but if your need is to release capital it may be necessary to reassess the rent.

For those who don't like alegbra:)

Property value ( in 2003) 150k, rent 625 per month (5% gross yield).

Two years on say property value 165k, rent 650 (yield now 4.7%)

Another two years, say property now 182k, rent 675 ( yield now 4.4%)

If you reassessed the rent properly you may find that you could get 750 per month. If you really are at top rent, then you may be better selling, clearing the mortgage and investing the money elsewhere (different sort of property, different area or different investment group) as 4.4% gross yield is not good for the risk you are taking.

All depends on balancing your needs now (to release capital?) against future capital growth.

dannyboycey

Randal wrote: »

Is there something that I’m missing here?

Your capital growth is completely dependent on an increase in market prices.

teabelly

Any capital released is dependent on market rent. If the rent won't cover the mortgage with sufficient spare then you won't be able to get at the capital via drawdown or remortgaging to a different lender. There are products that will allow it with sufficient income from other things but this is for experienced investors that have a good handle on cash flow and business sense. I don't get the feeling you have both.

In these times there are only 2 ways of getting money out if the rent hasn't increased and they both happen on purchase essentially- either buy at bmv and use a close bridge and cash out on completion or buy and do it up to full market value and get cash out when the place is revalued. In a stagnant market you have to either buy very cheap or add value. Just waiting for 2 years isn't long enough. If you are continually refinancing after 2 years then you are onto a loser. Pull out money every 5 years or so if you want to actually get a decent lump sum and still cover your mortgage properly. Also remember to stash some away for cashflow (always make sure you have at least 6 months costs of all properties at hand to cover the worst)

Never base your BTL strategy on capital appreciation as it isn't guaranteed. What you can do is choose what you buy carefully so it gives you cash back when you buy (or at first remortgage) and is cash flow positive from day one. Anything else in these times is a short cut to financial suicide.

I don't know what rate you are on with yours but they have just rocketed. BM have gone from 5.1% fixed to 5.7% ish. Mortgage Express have lept from 5.4% to 6.1%. 90% ltv deals have gone altogether. You'll struggle to release any capital if you have only had them for 2 years.