1 350,000 property or 3 for 150,000?

Discussion in 'Buy-to-Let Property Investment' started by shina, Apr 30, 2019.

  1. shina

    shina New Member

    Hi,
    I have few questions I would like to ask before heading forward with bulding my property profolio.
    1. I wonder if it'll be better to purchase 1 property in an area like Cambridge or London in opposed to 3 in an area say like Peterborough. the goal is to generate the highest cash flow as possible and on the other hand to gain capital growth profit.
    2. Would it be better to but properties that need doing (cosmetic things) and try and get them BMV or better to go for properties that are ready to rent straight away?

    3. should we use interest only mortgages or better to go for re-payments?
    Or maybe a mix of both?
    The main goal is to start and build property profolio and buy more properties.

    Would be happy to hear peoples approaches and strategies.

    Best regards,

    Shina
     
  2. Longterminvestor

    Longterminvestor Administrator

    My view for what its worth:-

    1. I wonder if it'll be better to purchase 1 property in an area like Cambridge or London in opposed to 3 in an area say like Peterborough. the goal is to generate the highest cash flow as possible and on the other hand to gain capital growth profit.

    This would depend on the rental yields - there is always a hedge between rental yield and capital growth.

    2. Would it be better to but properties that need doing (cosmetic things) and try and get them BMV or better to go for properties that are ready to rent straight away?

    I doubt if the issues were just "cosmetic" that you would get much of a discount. It also depends on how good you are at repairs/diy as to how much work you want to do. Personally, go for one ready to rent and start your cashflow.

    3. should we use interest only mortgages or better to go for re-payments?
    Or maybe a mix of both?
    The main goal is to start and build property profolio and buy more properties.

    If your rental income was to cover interest and capital repayments great. If it just covered interest on an interest only mortgage then you could remortgage at the end of the term, hopefully on a higher value.

    Lots of options :)
     
  3. shina

    shina New Member

  4. I think the key here is to consider what you are looking for capital gains/rental income because they are at opposite ends of the investment spectrum. Finding a balance will give you a degree of potential for capital gain as well as decent rental income. Rental income is steadier in the long run, capital gains go in cycles, but it does depend on your long term aims.
     
  5. mach

    mach New Member

    i think both Longterminvestor and Postbrexitinvestor both make very valid points and its great advice for sure.

    You are looking to increase your portfolio, as I seem to understand from your original questions.

    What I would do if I was you, remember everyone has their own strategies I am just stating mine.

    1. I would go for the 3 units - Diversify and reduce your risk. If one property doesn't do well the other 2 could end up supporting it, whereas if your "one" property doesn't do well... well then you are up the creek with no paddle as they say.

    2. Interest only mortgage or repayments - Well, as longterminvestor so rightly put it, it would really depend on on your rental income. But again what I would do in your position, with my 3 properties, is go for interest only mortgage. The extra cash in the account may be needed to cover costs of one of the properties that MAY not be doing as well, its a safety buffer that I would use personally and besides you must remember your aim is to increase your portfolio you cant really do that if you depend on rental income, its the capital growth that you need to focus on, so just pay it off when you exit.

    Which brings us nicely to

    3. To grow your portoflio I have found that Cap Growth out ranks rental income if time is a factor. So it depends how long you are willing to wait. With the right investment at the right time you can make 100%+ returns in 4-6 years... exit it and buy 2 in place of that and if you do that with all 3 of your properties you could potentially turn 3 properties into 6 in 4-6 years (maybe even sooner than that if you are lucky). Also remember that high rental yields are not always a good sign, just so we are are clear, rental yields are calculated as a percentage of yearly rental income over the value of the property, so if the rents are increasing (good sign) and the value of the asset stays fixed (or there abouts) then the rental yield percentage will be high (but your property is not increasing in value) OR if the rent is not increasing but the value of the asset is decreasing you could also see high rental yields but your asset is losing value, so be careful with this!

    4. Renovation projects are good and can turn a fast profit but it is an extra step that could be risky. If you know what you are doing with renovation projects then its not a bad idea, otherwise just steer clear, save yourself the stress and go for something that is ready to rent!
     
  6. lookinginvest

    lookinginvest Member

    Personally I would look towards three properties which would allow you to spread your risk a little but then it would incur three sets of fees. However that is my personal choice. I would need to check the figures but I would suggest there are higher rental yields outside of London?
     
  7. mach

    mach New Member

    Yes that is true. Rental yields in London today range between 3%-4% Net, whereas in the Northern Power house regions you are looking at 6%-8%, where developers will offer you a rental guarantee for anywhere between 3-5 years!!
     
  8. While investors will eventually return to London and the South East of England I think many will continue to chase the much higher yields which are available in the midlands and north of England.
     
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