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John_C
21-04-2006, 10:59 AM
Hi, just starting my first venture into the market.

About to purchase 5 apartments for £90k each

They should be worth over a £100k in my opinion.

I can get £500 per month from each one realising £30K in rent minus agents fees.

I have gone for a interest free 85% mortage and paid the rest in cash. 4.69%

I borrowed 100K against my own house and changed to Interest Free, the 100K is only costing me £127 per month extra.

I still have 45k in cash left, should I hold tight with the cash, in case i can't rent for a period, which I doubt. Or shall i wait 6 months and see how this new venture goes? Anyone any thoughts. I still have another 100K equity in my own house

curmudgeon
21-04-2006, 20:02 PM
There are a number of questions you should ask others and yourself.


Do you understand the difference between, and the relationship between, cash flow and profit.

Has anyone else confirmed your opinion that the apartments are worth £100k each? Do they have an interest in convincing you that they are worth this. Is it independent evidence?

Do you have independent evidence that you can get £500 per month for each apartment?

Agents fees are a cost. you don't mention how much they are. If they're quoting x%, dont forget that its x% plus vat.

If you are taking out an interest only mortgage (not interest free, thats something different!!) you are effectively renting from the bank. If you fix the interest rate fror a period, you know your funding expense for that period. If you give abn AST for a period, you know your income versus the funding expense. However the credit risk on the income is not known. (ie if the tenants sign an AST, you know how much you''ll get if they pay you. If they don't pay you, it doesn't matter how much the amount in the AST is, you'll still get sod all.)

as well the renting from the bank, you are taking a massive free bet on house prices. The bet is free because you dont have to put cash up front. If prices go up, you're quids in. If prices go down, you could quite easily be stuffed, becasue of the need to have cash when you cant realise further cash from the assets, and as a worst possible case, you could lose your current house. You yourself have to judge how remote this risk is.

Hope this helps. My own belief is you should keep your £45k cash for contingencies. Based on my experience and unfortunately current beliefs, if you have more than half of this left after 6months you're doing well.

Steve C
21-04-2006, 20:25 PM
I think you need to look closely at your sums, as I don't think you will be making much after paying mortgages and agent fees. You don't appear to be factoring in any further costs or allowing for void periods. one month empty each year is £2,500 off of the £30k.

Your £127/month for borrowing £100k. Who is the lender, at 1.5% interest I think there will be quite a few of us interested in loans like that.