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No More 80% Buy To Let Mortgages

So let's do the math. I know you guys would love to know the figures on this one.

The initial plan was as follows:

Purchase Price: £189,000

Stamp Duty: £6,950

Legal Fees: £5,000

Refurbishment: £30,000

Total spend: £230,950

Now I was expecting a valuation amount of £325,000 and an 80% LTV (loan to value) mortgage.

£325,000 x 80% = £260,000 end mortgage after works are finished

On this basis I would have got back all of my initial spend plus an extra £29,050 cash in my pocket. This would also be tax free cash as it's a loan on a remortgage and not a profit on a capital gain.

Now if you do not use your own money and instead bring in an investor or bridge lender then you will need to factor their costs into your expenses. Bridging is expensive but it could allow you to use absolutely none of your own money.

The rate, or profit share that you agree will depend on your lender and your negotiation skills but on a deal like this you can easily expect £25,000.

So, if you did bring in a funder, then you could be giving away most of the cash that you pulled out. But you would still have £4,050 and its cost you absolutely £0 of your own money. Not bad for a bit of finger pointing, right?

But wait... don't forget about the equity still in the property. If I got it valued at £325,000 and took out a loan amount of £260,000 (80% LTV) then the difference between the value (£325,000) and the loan amount (£260,000) is your equity which stays in the property until you sell it. And the plan is, that this figure increases over the years.

If I add £65,000 to the £29,050 that I pulled out tax free it would give me £94,050. Minus a pay out in interest or profit share to my investor/funder.

This deal has made me £94,050 plus any future increase in value.

Why would you bring in an investor or lender? Because you can't buy everything and my systems and network means that I get offered more deals than I can buy, so why not spread the love.

And this is the typical type of deal that I do. Day in and day out.

But guess what? It didn't go according to plan. Which can happen when it comes to investing. Property investing has its risks, even for someone like me, and the problem that I got hit with on this one was Covid.

But i'm not the only one in this boat, everyone in the world has been hit somehow. Some people are losing their jobs, their businesses and their homes, so I shouldn't complain too much, but here's what happened to me.

So firstly, the surveyor down valued it. He came back at £315,000. Considering market conditions and the way that surveyors operate it’s not that surprising. But if you do a certain quality of refurb, dress the property a certain way, and have it generating the amount of income to justify the value, then you are eliminating the reasons that a surveyor could use to disagree with your end value.

So, with a value of £315,000, that decreases my loan amount to £252,000. So I pull out £8,000 less. That's not the end of the world. But it doesn't stop there. Due to the pandemic lenders have withdrawn all 80% products and are only lending 75% of the surveyors value.

£315,000 x 75% = £236,250

So, £236,250 - £230,950 = £5,300 cash in my pocket, tax free

What a big fat kick in the Goolies. But you don't lose all of that money. It just stays in the property. So, although the amount of cash you pull out drops, your equity increases.

£315,000 - £236,250 = £78,750

So, my actual profit was £78,750 + £5,300 = £84,050

And there my friends, you have it...

It really is as simple as that.

Buy, refurbish, refinance, rent, repeat

Or BRRRR as those Property Gurus out there like to call it 🤣🤣🤣

Get as much of your initial spend back out of the deal on the remortgage and go again.

Did I invent this system? NO!

Am I rinsing the arse out of it? YES!

But what about the rent? How much does this make on a monthly basis.

Ok, are you ready? here goes...

So, I got a mortgage rate of 3.5% on an interest only mortgage.

£236,250 x 3.5% = £8,268.75 Divided by 12 months = £8,268.75 / 12 = £689.06

The rent on this should be £1,200 which would have given me a monthly profit of £510.93 but as this is the other side of London from my office I’ve given it to a company that I use who offers a guaranteed rent service and they are paying me £1,075 per month rent. But this means no headache and no void periods. (empty periods)

£1,075 (rent payment) - £689.06 (mortgage payment) = £385.94 (monthly profit before other expenses) with minimal headaches

So, all we need to talk about now is capital appreciation. How much is this property set to increase by over the next 10 years? But I’ve hit you with a lot today. Let's save those numbers for another day.

Should I be pleased with this? Let me know in the comments.

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