Advice for a new start with 450k

[Richard S]

Hi All,

Me and my wife are looking to try and start a business that we hope in the longer term will allow us to quit our jobs and work for ourselves. I know it may not work out but we want to try.

She already had a business with some property up in Scotland which her and her sister owned (inherited) and they are about to sell because we live just outside London and the yields and distance meant that profitability was low. The plan is to buy her sister out and use the remaining 50% of funds to invest (around £450k).

3 years ago we bought our own home with separate financing and renovated it and between that and her experience of letting up in Scotland we feel that we have a fairly good starting point, though of course we are far from experienced. Our own mortgage is small so we just want to invest under the company name, though I am not exactly sure how beneficial it is to keep it under a business rather than private other than not suffering capital gains tax if we withdraw.

Anyway we are looking to invest in the South East England area, Surrey/Berkshire are ideal so that we can manage the properties. Property prices are high down here but we should have enough to start. We want to grow the capital as fast as we can perhaps with a longer term aim of managing multiple BTLs and so I believe the only real way to do that is by flipping property.

It can be very disorienting trying to find a starting point, the internet is full of conflicting information and opinion but the main thing I am not sure on is how the new BTL mortgage changes will impact the market, though I am hoping it will benefit cash buyers. If you, the more experienced investor, had that sum and lived in that area, what would you do to build capital as quickly as possible.

Thanks for your time,
Rich

 

[lookinginvest]

Hi Richard,

First of all, welcome to the forum. Your initial investment pot of £450,000 is substantial but I would try to take away some of the focus from “building capital as quickly as possible” as the best investment portfolios have good foundations and long-term aspirations. The ongoing issues with Brexit have dampened the UK housing market as a whole with particular emphasis on London and the South. So, if you shop about there is every chance that you could get yourself a bargain especially if you are a cash buyer.

There is also the possibility of adding leverage to your situation by taking out a corporate buy to let mortgage loan although this is a lot different to taking out a normal mortgage. Personally I would look to retain your property assets within the company, leaving your own home in your own name, as certain costs can be deducted from company expenses which are not available when held in your own name. You may need to give some kind of personal guarantee to push through a buy to let mortgage, but it is worth checking the market before taking the plunge.

You will know the property better than me but I would be tempted to bide my time at this juncture because the Brexit situation may worsen before it gets better. If property owners do see a potential worsening of the Brexit situation then some may be tempted to sell up their properties and bank some profits. This is where you may well grab your best cash purchase deals.

 

[diyhelp]

Do you have any experience in property investment aside from buying your own home?

If I was in your shoes I would initially look at relatively low risk property investments with long-term tenants and an attractive rental yield. I would also caution against what can become an obsession with short-term capital gains as these do not come without significant risks. Get your investments bedded down, get yourself a strong rental income and then you can look to diversify in the medium/longer term.

 

[Richard S]

Thanks so much for the great advice guys!

So to clarify you both think buy to let is the route forward, I assume putting down large deposits on multiple houses and having fairly small buy to let mortgage through the business and slowly leveraging the properties to buy more.

My biggest concerns are the changes to BTL mortgages (though I haven't crunched any numbers on that yet),eventual increase in interest rates and house prices dropping after purchase.

Aside from our own home we do not have any experience, so I really am looking for good advice

Thanks,
Rich

 

[Longterminvestor]

There are a number of factors to consider here:-

• A high rental yield will offer a degree of support to a property value in choppy markets
  
• High rental yields tend to indicate reduced potential for capital gains
• Do not over stretch your finances
• Crunch the numbers on individual property options to make sure they work
• Do not invest all in one go - stagger it over a period of time (a type of pound cost averaging)
• Spread your investments across different areas/types of property - do not put all of your eggs in one basket
  
• If an investment looks too good to be true then it probably is!

Take advice from anyone who is offering assistance, use the internet to learn as much as you can BUT it is your decision and your money at the end of the day so the final call is down to you.

 

[Richard S]

Hi all,

I thought I would revisit as I have thought hard about what you have said and think it all represents very sound advice that I plan to follow.

The aim I think will be to purchase fairly cheap flats (150-200k) in a staggered approach over time.

Areas I am specifically looking at are Basingstoke and Slough, both of which seem to me to be up and coming areas with HS2 and people moving out from London. Anyone in the area have any thoughts on these 2 places? I suppose we could invest in both but Basingstoke for example is a lovely place to live that already has good transport links to London. Slough seems to be experiencing some of the largest growth gains in the country.

One other question I had was regarding BTL mortgages and how to scale up a portfolio over time using borrowing. I know the changes have significantly reduced the viability on larger mortgages, is there an estimate on at what point it becomes not profitable in terms of percentage mortgage? I am wondering how it is you would scale up over time taking on a lot of debt that is far more expensive than personal mortgage debt.

One idea I had for releasing additional capital is increasing the mortgage on our personal property at a cheaper rate and doing a directors loan to the company, but after that I am not quite sure how to scale up. I know this is very long term, but I am curious if it is still viable.

Thanks,
Rich

 

[diyhelp]

I would be very careful about putting your personal property at risk although the idea of using some equity from the property would give you additional capital to invest in the company. Take advice to ensure that you house is protected in the event of a worst case scenario.