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How to fast track your BTL portfolio

buy to let Feb 10, 2021

 THE QUESTION

My husband and I own our own property and now we would like to purchase a buy to let property in the area we live.  We would like to purchase more properties in future, maybe between 5-10. 

Is there a way to fund your next property using the first one you’ve purchased or is it best to wait until you have the deposit for a second? 

THE ANSWER

You face the dilemma that every investor faces - do you buy ready to rent or doer uppers?  

Ready to rent is easy - buy it, put down your deposit, find a tenant, collect the rent.  The downside is that it is a voracious cash eating strategy. 

Depending on how big your cash pot is to begin with, you may only have enough to buy one rental property.  You can only increase your portfolio when you have got together another 20/25% deposit.  With the exception of those with relatively high earnings, saving up for another deposit is a long laborious task that slows your growth to a crawl at best.  With the ready to rent process, you will invariably run out of cash long before you run out of ambition.     

The alternative is the one that many investors favour, both out of choice and necessity to make their limited cash pot stretch a lot further.  This is the doer upper route.  Buy a property in varying types of poor condition, fix it up to push the value up over a short period of time, then refinance at the new uplifted value to pull out as much of your original deposit cash as possible to reinvest in your next property.  

This is commonly referred to a Buy-Refurb-Refinance (BRR) and has been used extensively by investors for years, with varying degrees of success.  When done successfully you can be buying your next property within 12 months of buying your last.       

Clearly it is more hassle than ready to rent because you need to find tradesmen to do the refurb work, and reliable ones at that.  You also need a much finer appreciation of the numbers to make sure that you don't:

  • Overpay for the property
  • Overspend on the refurb 
  • Over-estimate the done up value 

Any of these can scupper getting your deposit money back out.   

You will also need to re-evaluate how you finance the purchase because mortgage lenders do not knowingly grant mortgages when your intention is to redeem it a few months later.  Not telling them your intention to do so is obtaining a mortgage by deception and I hope you don't want to go down that particular avenue.     

To purchase property with the BRR strategy means you finance the purchase in one of two ways:   

1. Cash - yours or someone else's     

2. Bridging finance   

If you are like most people bridging finance will live in your scary box but, unless you can find someone privately with a pile of cash to lend to you, there is little other alternative to using bridging, apart from rarely available light refurb mortgages.    

If you’re considering this approach you may find my YouTube channel useful where I share free to access property finance tips and real life case studies of investors following the BRR route:

https://www.youtube.com/kevin%20wright%20property

You can learn more here:

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