My....maybe good idea....

[dw2019]

Hi everyone,

I am considering purchasing a property with scope to spend a bit of money in and flip to make a profit and potentially repeat again. I have done alot of looking into this, but I just wanted to air my opinion on my strategy and get some views from people that are actually in the game. So here's my situation:

We own two properties out right, one of which my wife and I rent out, both properties are mortgage free, I also own and run a small business which generates me a out 1k per month clear.

With my circumstances, I currently have about 240k in an unit trust investment of which obviously fluctuates but grows year in steadily.

I was thinking of buying a property of let's say 90k but buy it outright, depending on condition etc and work needed (nothing structural) and then sell it on. Minus initial buying fees, fees to do it up etc and selling fees, I would then have the profit left over, with only having to pay for small utilities and council tax whilst renovating and selling etc.

As a gauge I'm guessing if I went say buying a property for a bit more In worse condition i would probably have a bit more scope to make more profit but obviously have higher costs too.

I'm looking at this as I was considering instead purchasing a couple of small flates say 90k each outright and renting them out, but this seemed like another option to help grow the pot.

If anyone has any other ideas of views of what I could do then I'm all ears, just dont really want a load of debt in mortgages!

Think I have probably too many ideas in my head to be fair, but I know people keep saying borrow as much as possible and so on, but I'm in the position where I owe nobody nothing and I like it. I can see what to borrow, so I can get as much property for the least amount of my cash, but I just feel my idea is the safest but obviously not the most profitable.

Thanks for taking the time to read this. All feedback and advice welcome.

 

[Nicholas Wallwork]

Hi there,

Obviously keeping your properties mortgage free is your choice but you have to understand and appreciate the need for “good debt” over “bad debt”... I recommend you work more on the education side of property before jumping in as there are ways you can really make your money go further than just using all your available capital on a purchase... read “Rich Dad Poor Dad” for a starters... this will help with the fundamental financial principles of success and real estate.

Then read my own book “Investing in International Property For Dummies” available on Amazon worldwide and books stores from June. This has lots of other strategies you can learn before making the wrong decision!

Good luck with the learning!
Nicholas



Sent from my iPhone using Property Forum

 

[Longterminvestor]

I totally agree, there is such a thing as "good debt". If you could acquire property which was in effect self financing, i.e. rent income covered mortgage payments, etc, then this would allow you to use your capital to build your property portfolio far quicker. The key is leaving enough "headroom" between assets and liabilities. Plus with interest rates so low at the moment, debt is relatively cheap.

 

[diyhelp]

Points to consider:-

• Finance is cheap at the moment
• How quickly do you want to grow your portfolio
• What is your long term aim
• How much liquid funds do you have available

 

[Longterminvestor]

There is being conservative and there is being over cautious. It all comes down to your long term goals, how quickly you want to build your portfolio and gear up your assets. How much gearing/risk are you prepared to take?

 

[dw2019]

Hi, thanks for the input. I understand what you are all saying about finance is cheap at the moment etc and I get that, but is it not a bit trigger happy to jump in with this view, ad they are so good, the chances are very high that interest will go up, knowing my luck probably after my fixed rates are due to be re done. Then the interest rates would be high and then I'd be I trouble surely?

 

[PostBrexitInvestor]

I think people are just suggesting that interest rates are historically low so you can make good use to purchase property. If you have the funds on deposit if required then that is a nice insurance policy to have in place.

Interest rates are currently 0.75% with variable mortgage rates around 4%. You can lock in at 2.44% for 5 years if you wanted a degree of certainty. Lets say interest rates were to rise to 3% over the next decade it is unlikely that mortgage rates would increase by the same rate - there is a connection but not always like for like.

 

[Karen R]

We have many clients that do very well financially by using bridging facilities to 'flip'. They use their own funds as the deposit, borrow say 65-70% towards the purchase on a short term facility then either borrow additional funds (up to 100% of costs) for the refurb too or use their own funds for the refurb then sell the property, repay the loan facility in full and using any profit gained by selling the increased value property, they then inject to the next deal, usually a slightly bigger project. Many of them also (like you state in your case) have ample funds to use their own funds to do this but they much prefer to fund them this way for various reasons, one to run up a great borrower history as for future larger projects this places them in a very strong position than someone with similar experience that has never borrowed, the other reason is it leaves their own funds available for purchasing other property simultaneously (ie: the two flats you mentioned) which can generate an immediate monthly rental income without the need for being tied in to mortgages. It also helps with their asset and liability position to be able to evidence borrowings if this is their main type of business venture (flipping/property). The benefit with short term funding is you only borrow it for a short term, there are usually no term repayments and despite the rates, the profit margin usually makes the borrowing facility more than worthwhile. I appreciate you may look at rates and see 'cost' but higher rates do not always mean lower profits when you take in to consideration all the other options available to you if you retain your own money for them rather than investing it all into refurb properties you intend to sell. If you approach a decent commercial broker they will happily have a look to see what you could obtain should you consider the short term funding option and they will not usually charge any fee for doing so, they only earn if the deal proceeds and completes but the benefit with a broker is they know all the different facilities available and they know the pitfalls to avoid.

 

[realdeals]

My only concern with bridging loan finance, when flipping, is what happens if the market turns against you, prices fall and buyers disappear? Do you then become a forced seller at any price?

 

[James Bryan]

Interest rates plays an important role in property investments. If you are investing in a property with bank loans for a larger time period then ultimately you have to a higher amount.

In the current scenario interest rates are lower than the usual so you can think of buying some property.

 

[Karen R]

Market changes are gradual, furthermore prior to starting the project you would obtain local agents estimates on sale price and have them ready to market, they usually already have a list of buyers to approach that are looking for the type of property you are selling. If for any reason sale is delayed you have various options, you can refinance on to a buy to let and let the property instead or refinance/extend the existing loan to buy a little more time. If you are flipping property the whole point is you have investigated your market, contacted and made relationships with the local agents and work to a very strict timescale so you buy, refurb and sell within a 9 month period to ensure the market remains as expected. This is why it is important to make sensible decisions about the property type and location and level of work that will be performed and what value that will add. Research demand in the area, look in to recent sale prices of similar property, whether there are similar properties still on the market or whether similar property has sold fast. Agents can be helpful so getting them on board early on is important (unless you are massively experienced and have your own buyer network and know the area and market well). Birmingham is a great choice, major city, low purchase prices, high demand, being regenerated so property prices will benefit from uplift by association. Southend is also great, property is only on the market a few weeks due to prices being massively cheaper than London, seaside location but with the added benefit of being easily commutable to London and on a mainline train route. If you are prepared, take on the help of local agents, prepare for any snags in advance and also stick to a timescale, there should be no problem.

 

[diyhelp]

If you look at interest rates - lets say you can get a fixed mortgage at 1.9% for a couple of years and then it reverts to say 4% standard variable. In effect, with inflation at around 2.1% in the UK - assuming your income keeps pace with inflation - you are actually making money in real terms for the fixed term. Hope that makes sense?

What I am trying to say is that with interest rates at minimal levels it is very attrcative to lend - especially with a fixed rate.