Finding Your Own Investment Properties

Steve Croxton

A remarkable statement, but absolutely true. Here is how it works. You find a property, old or new, house or flat, big or small, it really does not matter. What you are looking for is any property you can negotiate an 18% - 20% or more discount. You buy the property using a Bridging loan and then immediately remortgage. Lets say you negotiate 18% off the asking price, which means you will get a Bridging loan at 82% loan to value. When you remortgage you will aim to get an 85% or even 90% loan to value remortgage. This means you will have released between either 3% or 8% of the equity in your investment property when you remortgage. After taking into account you're purchasing costs, ie, survey and solicitor fees, Bridging loan charges and stamp duty, you should find you are left with between 1% and 4%, sometimes more, that can be banked as profit from the purchase. Find 1 property per month and you should be earning in excess of Ј50,000 per year. Important Criteria The type of property is not so much an issue, you may prefer low maintenance new build properties, or the old 2 bedroom terraced properties, usually with higher yields, what is important is that there is a demand for rented accommodation in the area and that the rental income is realistically proportional to the value. For example, we were offered apartments in Bradford 2 years ago. They were contemporary, nicely finished, comprehensive range of kitchen appliances and Plasma television in the lounge. Even with 18% discount the rentals locally were too low to support the mortgage, which made these apartments virtually impossible to mortgage and therefore unattractive to investors. To sum up, the apartments were attractive, but the high price for the area made it an unattractive investment. Around London, however, the property prices are high but the rentals are also high, so it depends on the locality. To earn your Ј50,000 per year, you must not only find attractive investment property, but also ensure that you will be able to rent this property easily and quickly. Otherwise your Ј50,000 will be used up paying mortgages that have no tenants. Where should I buy? I suggest for most people you buy in the area you are familiar. You will know the good areas and the areas to steer clear of. You cannot buy property based on wordsay from a friend or a property finder, nor can you buy from a brochure, regardless of how attractive the deal may look. You need to take the time to go to the location and check out the area, the local facilities, availability of transport, proximity to hospitals, universities, schools, etc. A national builder a short time ago built a very smart and contemporary block of apartments on the outskirts of Nottingham. Unfortunately the site was sandwiched in the middle of two housing estates with a very bad reputation. People who lived locally expressed no interest in buying the apartments so they were offered to investors. Needless to say the majority of investors bought off a web site and from property finders and found themselves with attractive apartments that nobody wanted to rent. When investors find themselves in financial difficulty it is usual to find that they have bought extensively, usually in areas they have no knowledge and invariably the locations are unattractive with low demand for renting, or in areas totally saturated with similar property, ie, 2 bedroom apartments in most city centres. So to sum up, buy investment properties in areas you are familiar with the housing and rental market. How much do I need to get started? That rather depends on how much discount you have achieved. If you are achieving 18% discount or more off an investment property, then you should complete the deal with an immediate release of several percent into your bank. If your discount is less than 17% it may start costing you. It has to be stressed that every application for an investment mortgage is judged on it's own merits and there are many factors that will determine the lowest interest rate and maximum loan you can achieve. Also lenders are changing their mortgage interest rates all of the time, often with very short notice, which means you cannot pre-judge which mortgage you are going to use to purchase your investment property, but once you have agreed to purchase a property, move quickly to fill in and sign applications and make sure you have all supporting documentation ready, any delay in the current mortgage climate could mean you lose the mortgage or remortgage you wanted. The very least you will need to get you started in purchasing your first investment property is the cost of a survey and your solicitors cost. If your property is not over Ј200,000 you will probably cover those costs with about Ј1,000. Ј50,000 income per year? You should aim to achieve this income from money released immediately after you have purchased an investment property. In addition, depending on the properties you have been purchasing, you should also be showing a small profit from the monthly rental incomes from your properties. The main profit for most will be the increasing equity in your investment properties. With property prices rising by 8% per year and a forecasted 40% rise in property values by 2012, the majority of the profit will be released when you sell your investment properties in years to come.

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