geek84 Posted March 10, 2013 Report Share Posted March 10, 2013 Hi Folks When purchasing a buy to let property, is it best to pay as much deposit up front and pay off the rest via monthly mortgage payments or pay the minimum deposit and use your surplus funds sitting in the bank, earning minimum interest, to buy another property to let? Thanks in advance for your responses. Link to comment Share on other sites More sharing options...
Richlist Posted March 10, 2013 Report Share Posted March 10, 2013 Woud need more details for an answer to be usefull. Link to comment Share on other sites More sharing options...
Mortitia Posted March 10, 2013 Report Share Posted March 10, 2013 Well try this example Richlist - it relates to someone in my family who is not a UK taxpayer except on income from this BTL. Person has 120 K on deposit earning peanuts. Found BTL at 115K but bank will happily lend 60K+ at 4.2% over 13 years, fixed for first 2 years. BTL would generate income of £600 - 650 pcm. All answers welcome and it might help Geek Link to comment Share on other sites More sharing options...
Richlist Posted March 10, 2013 Report Share Posted March 10, 2013 There is still not enough detail to run a comparison.......I try not to make assumptions if I can. The 120K in savings could be producing virtually nothing due to poor investment choices or £3500 + on term deposits/ tax free accounts. The bank may have arrangement fees, the property may need money spent on it before letting, there may be set up costs of the BTL, the property may be leasehold, the landlord may need to employ an agent & contrators as they are not hands on etc etc etc...... Link to comment Share on other sites More sharing options...
Mortitia Posted March 10, 2013 Report Share Posted March 10, 2013 OK Richlist - arrangement fee with bank is £995. Property needs £4K spending to make perfect - needs DG and a few small touches. I will be the agent for free and it is leasehold with ground rent of £50 pa. I intend to try to negotiate to buy freehold for the 20 odd properties that are on the same freehold eventually - if it all goes ahead. Link to comment Share on other sites More sharing options...
Richlist Posted March 10, 2013 Report Share Posted March 10, 2013 OK......I'll use your figures and make some assumptions... * Your family member could get £3500 from their 120K cash investment.....risk free. * The property lets at £600pcm / £7200 pa * Mortgage costs are £60K @ 4..2% = £2520pa and £60K @ 5.2% after 2 years = £3120pa * Service charges are £1000pa * Ground rent at £50 * Plus.......any repairs & maintenance, freeholder permissions, utilities during voids, renewals & replacements, postage,, telephone, books/publications/ subscriptions, cleaning materials, stationary, bank charges, rent guarantee insurance, EPC cert, gas cert, electrical checks, deposit protection, rent guarantee & landlord insurance, advertising, consumables and all the other expenses I have forgotten. * Income tax I'd suggest after expenses, your family member would be getting a smaller return.... ie less than £3500..... than if they had left their money invested in the banks. Link to comment Share on other sites More sharing options...
Mortitia Posted March 10, 2013 Report Share Posted March 10, 2013 Thanks Richlist - but there may be an increase in the value of the property in coming years - would you not agree? Looking on Zoopla it was last sold for £K134,500 in 2007 and it is now a distressed sale at £K115 - someone has a big loss! Link to comment Share on other sites More sharing options...
Richlist Posted March 10, 2013 Report Share Posted March 10, 2013 Properties selling for around £115K and generating rental income of £600-£650 pcm are '10 a penny' in my area....... they don't need £4K spent on them and almost certainly aren't distressed sales. I don't consider any of them make particularly good investments. If you are expecting increases in capital value then you may have a long wait......2007 was the peak of the market and virtually all property values have dropped since then. The point I'm trying to make is that often people looking to buy property to rent don't consider all of the costs........I haven't even touched on making provision for redecoration every few years, provision for bad debt or loss of income or additional costs if you get a tenant from hell. The reason many of the established landlords are doing well with BTL is that we bought the same properties when they were considerably cheaper than they are now and have mortgages at 0.5 % above base. Link to comment Share on other sites More sharing options...
geek84 Posted March 10, 2013 Author Report Share Posted March 10, 2013 Thanks for all your responses, folks. Link to comment Share on other sites More sharing options...
Geezah Posted March 11, 2013 Report Share Posted March 11, 2013 You dont supply enough information for a meaningful response. There are so many variables. What is your game plan? Interst only or repayment mortgage? Buy through a company or as a private individual? what is your attitude to risk? the list goes on and on. You need to speak to a broker who is experienced in BTL so that you can go through all the details so that you will have enough info to make an informed decision. Detail is everything. PM me if you want to discuss. Link to comment Share on other sites More sharing options...
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