General (main property discussion here) - raising capitol

good day to you all, bit of a converluted question regarding raising capitol My partner and I have converted our home into 5 self contained bedsits.. here in braintree, done most of the conversions myself being a qualified plumber...anyhow was probably lucky but demand has outstripped supply despite being a small village location. We have a mortgage on the house approx 120k with around 80k equity, Now any sensible advice on best option to aquiring another property would be most appreciated, ideally hoping to pay a deposit and have funds to convert to more bedsits ! Ps photos are available on request for those who are interested in having any rooms converted ! steve

hi steve, I think you could find a decent portfolio builder (although you'll pay thousands and they're all crooks!). Or if you've got 80k to play with, you could build a decent size portfolio - plough through websites such as this one to get a better idea of what's out there.

steve,

my advice is to use one of the recent draw down buy-to-let mortgages. this mortgage product lets you mortgage at a fixed rate to say 85%. but what is nice is that you only have to draw down as much as you need at a time up to 85% of the value of the mortgage.

this equity can be used as the deposit to future purchases.

i can't remember which company is doing this product but is is one of the big ones.

might be worth giving these guys a go http://www.landlordtrader.co.uk/the_chelsea_mortgage_shop.html as they are offering cashback on the mortgage fees which sounds good.

also why not stick with what you know and keep doing HMOs in your area?

tom

Thank you chaps, Tom, never thought of a draw down option until you mentioned it.. bloody good idea! You may have gathered i am new to this business but worked in the industry for years for a slumlord in the mids, basically i turned up 8 till 5 and alas that was all the interest i had at that time. Been fortunate enough to meet a like minded partner here in the south east who has the same desire to build our own empire. As far as HMO regarding bedsits I have picked up on quite a lot of the pro's and cons of letting a house individually or sub dividing , from my ex employers trials and tribulations, and found the later to be more labour intensive which is good from my prospective has i like to be "hands on" Luckily enough I seem to have landed in a sweet spot with a demand for all in- reasonably priced decent accomodation, seeing has i have replied may has well sneak in another niave Q ha.. here we go Does a yield apply to bedsit properties and how is that calculated please ?? steve

Dear Steve, Can you please e-mail me the photographs to memonrehman@yahoo.co.uk? Regards Rehman

Steve,

Yield will apply to any for of investment. Its not specific to property or indeed type of property.

Firstly, define what profit means and know that it is different from the so called yield.

My understanding of yield has been cobbled together from reading Ajay Ahuja’s books as well as talking to fellow landlords (by the way, if you do go for any of his books, I would say just buy 1: the best in my view was BTL bible). So, yield: in simple point of fact it can be taken to be an annual income expressed as a percentage of an investment amount. Simple. However, what is that investment? Is it your deposit or is it your total liability? Only you can decide on that. My preference is to look at both of these for interest only buys, and deposit only for the few free-holds I have (deposit here being buying costs, decoration and sundries etc).

Also, many accountants will suggest that you should ignore the PCM theory of how many weeks / months in a year, and do your reckoning on 12 months in a year, any extras being a bonus.

So: say the rent is 400pcm. This gives you 4800pa. Say the buying price was 102K, the yield will be (4800 / 102000) x 100. In this case, yield is 4.7%. Good or bad? Only you can decide that based on how much deposit you put down, work put in etc… Ahuja suggests, indeed implies very directly, that double digit yields are plausible and realistic. I agree in general, but have never experienced them! Others may have, but for me a 12% yield is a distant dream.

Anyway, say you put down 15300 as a deposit. Well, your R.O.I will be 31.4% BEFORE any outgoings. Hope this helps, and best wishes.

Regards, Malik

Hi Malik, right i have fiddled with the calculator and lets see if i have the gist ! mortgage on prop is 120k income from rent is 22k pa 22/120x100 = 18.3% minus mortgage payments and maintenance costs say £14000

8/120x100 = 6.6% yield ?? if correct is this a good return for a first timer ??

Your calculations add up. For me 6.6% is an acceptable yield. Off course this can be increased as times moved forward by increasing rents and decreased borrowing. For your own thinking, do the sam calculation again, this time looking at what your rental income is versus what deposit you put in. Now for me, thats the true return on invetsment, and will / should be in high double digits...

Regards, Malik

steve,

i personally don't include mortgage payments in my calc as sometimes i use debt sometimes i don't so in order to compare like with like i don't include debt.

for me it is annual rent / value x 100. this is simple yield. i use purchase price when analysing a new investment and current value as part of my evaluation for whether i should consider selling a property.

also i assume 20% of the rent per annum is lost in letting agents fees, maintenance charges, voids, arrears etc. this is then gives me my income yield so to speak.

tom

ok so the calculation i performed is in actual fact a profit percentige, i see tenanted properties for sale displaying yields obtainable... do all the landlords use the same formula and if so what is that formula... rents /deposit ...or rents / deposit and mortgage or,,,rent/prop value ??? ooerr getting a cuppa and a couple of asprin !! steve