Just getting started on a long term BTL strategy

Just getting started on a long term BTL strategy

13:30 PM, 20th May 2014, About 11 years ago 13

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I’ve decided to get started with buy-to-lets after a long period of interest but without enough capital. Just getting started on a long term buy to let strategy

Borrowing against my home and using savings I’ll have just shy of £100K to invest into deposits.

I’ve been reading Mark Alexander’s advice on capital/debt so plan to retain some of this for rainy day funds rather than go all out, and will be seeking buy-to-let mortgages.

With the referendum in Scotland and economic uncertainties my gut instinct is to buy in areas where property value is most resilient and likely to grow so that I can release equity in a few years to expand and make this full time.

The issue here is that most flats in the prime area that are affordable to me are 1 beds, and have a slightly lower yield than larger, more peripheral properties. Not far outside the city is another university town where property prices are cheap. However, capital appreciation in this area is less likely but yields are higher.

I’d really welcome any suggestions on the best strategy to ensure capital growth/release to build a portfolio – so that I can do this full time.

With thanks

Sarah McC


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Vanessa Barlow

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12:25 PM, 26th May 2014, About 11 years ago

Hi Sarah,

Rather than add anything else on yields v capital where a lot of good advice has been given, a few thoughts from me on location which also seems to be a question for you.

A few months ago I bought my first development property, and living in London I could not afford anything within a 2 hour drive! I ended up buying a 2 bed modern flat in stoke for £58k cash, significantly below market value as it was a repossession (but luckily in very good nick).

If you decide to buy outside Scotland because of your concerns about the future, do very good research. I don't know Stoke but by using right move and street map I could see what sort of area it was and how well cared for the properties and cars were (not perfect, but not too bad). I used police crime maps and stats to see what crimes were committed on that street, and environment agency maps to check flood risks. I also googled the street name with the words arrest, crime and police. This particular tactic alerted me to a bargain price flat in Portsmouth I had looked at, which was either the location of a recent murder, or if not the house next door (estate agent feigned ignorance!)

For my stoke flat, I then also visited at 3 different times of day and was able to see that there was a bit of rubbish littered in car park and garden, but at least I had my eyes open when buying. Finally...schools! Obviously checked the ofsted ratings of local schools, but also on my visit drove past primary schools at home time which gives you a good feel for the area, seeing as I did a lot of well behaved children, with parents who were attentive, so despite it being a poor area I knew the residents were good and cared, very important for guaging an area. And finally via an estate agent, discovered it was a very easy block of flats to let, as it was opposite a new retail park with tesco, Argos and next, close to a number of call centres employing young professional renters and as I already knew 10m drive to M6.

It's not perfect, and it is always good to buy in an area you know well, but even with just 2 visits, plus internet research, and good relations with a carefully chosen estate agent I felt confident knowing I was making a good purchase decision.

Regards,

Vanessa

PS - flat rented out in less than a week of being on the market, and making a 9% gross yield, 6% after agency fees and leasehold service charges. My aim was to refurb and sell for profit, but am short term renting for 6 months approx whilst waiting for the market to improve more for capital gain, stoke is starting to turn for houses, but not yet for flats. My point being, you can make a decision on capital v yield but need to constantly review decisions based on the market conditions.

Jonathan Clarke

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14:16 PM, 26th May 2014, About 11 years ago

Reply to the comment left by "Vanessa Barlow" at "26/05/2014 - 12:25":

Hi Vanessa

Sounds you did a lot of research and picked up a good deal . Did you look at Milton Keynes as a matter of interest. Its just up the road from London as you know. That`s where i invest. You can still get 9% yields.
I personally would have also bought 2 freehold properties with your 58K leveraging at maybe 80% LTV.
Twice the cash flow roughly ( circa £850 pcm ) . Twice the potential for capital growth and adding value . You would also be able to save costs by self managing possibly as its much closer to home so no agency fees or service charges .

Just a thought
.

Vanessa Barlow

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16:00 PM, 26th May 2014, About 11 years ago

Hi Jonathan,

Definitely some good ideas there for the future. I actually avoided Milton Keynes because I have family there and wanted to keep my first property very separate -and do it all myself (probably sounds a bit bizarre!) but I agree, lots of young families and renters. I would love to leverage but am currently freelancing and don't have the first year accounts yet to be able to get a mortgage. I also figured I could do just as well profit-wise by getting a BMV property which I couldn't have got if I did have a mortgage as I would have lost it to a cash buyer who could complete within the 2 wk limit. But once I am able to get a mortgage I definitely want to try that route. Meantime time will tell how much profit I have gained by buying cheaply ... Am finding starting a new business all very exciting, and enjoying learning from everyone's experience on the forum.

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