Overstretched BTL landlord seeks financial suggestions

[zen888]

hi, guys.
i am new to this forum.

i would like some advice if anybody out there would not mind?

i have slowly but surely managed, by hook and crook and a little blood, sweat and a lot of tears, to set up a reasonable portfolio of properties in the uk, all on buy-to-let mortgages.

i have six at present, all are rented, but here is the crux of the thing--i remortgaged my own house heavily in order to release the equity that i needed to put down on the investment properties.

so, with the recent interest rate hikes, my own mortgage which is arpprox £190 000, has rocketed to the very limit of being affordable.

the story with the rental properties is this--the rents are covering the mortgages just about, and what little i am left with goes to the managing agents who are charging around £30 a month. i have had the properties about 3 years and by conseravtive estimates, each property has around
£10 000 equity each.

now, my dilemma is that as i am finding it very difficult with little or no cashflow, i am considering selling off all the rental properties and ploughing back what i get back into my own home, so that it reduces my mortgage and i can at least breathe a sigh of relief!

but of course that will mean the loss of all that hard work in locating, buying, letting etc of my valuable portfolio!

and i cannot remortgage those properties easily now as my credit record has suffered too, when a couple of the rental properties became vacant, i couldnt afford the mortgages, so i missed around 3 payments on them.

this is the rock-and-hard place situation i am in now.

i am hoping that someone amongst you may have the vision of "looking in from the outside" and advising what to do as i may not be able to see the wood-from-the-trees, as i think i have tried everything but the only thing that makes sense is to liquidate all the properties and forget about it!

what do you think, pls?

[pcwilkins]

If you were to release the £10k in each property that would give you £60k. How much would that reduce your mortgage repayments by and would you actually be sufficiently better off for it to be worthwhile?

That was my first thought, I havn't time to think in more detail right now. But I'm sure you'll get plenty of advice :-)

Peter

[jeffrey]

zen888: are incoming rents now covering all outgoing mortgage interest, and were arrears (missed payments) cleared?

[Skengland]

Yes, I have some advice. Stop whining and be grateful that you can afford to buy one house let alone 6. You're not in a 'rock and hard place situation' - try being a tenant for a few years.

[zen888]

hi, jeffrey and thanks for your help.

yes, incoming rents are covering almost all the mortgages, apart from 1 or 2 where i have to add around £100 total to top them up. the arrears i managed to clear from my own savings but that still leaves my credit in a mess for around 6 mths minimum before it clears up.

the question is that, is the portfolio worth keeping, as because of it, i am having difficulty paying my own mortgage!?

and as another poster has said, if i do sell them all off, it will net me around £60 000, which although is not a lot these days, it will drop my mortgage to a reasonable level that i can afford.

i cant see any way to profit from the portfolio presently aside of selling out.

the only hope is to grin and bear it until such a time that my credit record clears up and finally remortgage them out.




zen888: are incoming rents now covering all outgoing mortgage interest, and were arrears (missed payments) cleared?

[Poolboy]

if 6 are stressing you out then why not liquidate half, bit of a hybrid approach, but I can´t see the economic outlook over the next 12 months helping you out.

Also, depends where & what they are, ie, they could be replaced at similar money.

Another idea - get a partner to share the risk, sell half your portfolio to an investor.

[wotnot]

You've had the properties for 3 years and only have 10k equity in each? Where have you been investing - America?

Sell one and use the 10k to supplement your mortgage for say 2 years, this would give you £416 per month to help with your repayments. Put it into high interest saving/ISA's and you get a bit more.

I lose about £100 a month on most of mine due to the interest rate rises, so think yourself lucky :eek:

[LandlordZONE]

I suspect that at this time you are one of many in this situation and if things get worse, as they could well do, there will be a lot of properties coming on the market, which will further exacerbate the problem, leading to spiralling price falls - you'll probably then lose money if you sell.
People have been enouraged to keep on investing, with dangerously high gearing levels, as though the rate of growth we've experienced recently with continue forever - it won't and it can't. Fortunately, rental demand is still good in most locations, unless they are oversupplied.
In your situation I would be pulling all the stops out to hang on in there, perhaps liquidating the odd property on a selective basis - pick the one with the worst return or amenties / features / letting location first.
Secondly, have you considered taking on the management of these properties yourself? It's one area where you can save yourself a lot of money and perhaps turn them into viable investments in the short term.
You must of course have developed some management expertise first, otherwise you could get yourself in even worse trouble - the last thing you need is tenant problems right now.
Long term - if you can see it though - your property portfolio will increase in value and you'll be out of the woods, but this is likey some little while.

[pcwilkins]

Yes, I have some advice. Stop whining and be grateful that you can afford to buy one house let alone 6. You're not in a 'rock and hard place situation' - try being a tenant for a few years.

I understand your point, but I think the problem is that he could not afford to buy 6 houses. He borrowed money to buy them --- that's not the same as being able to afford them, in my book. I could borrow enough money to buy a house, but in my opinion I can't afford a house at the moment.

The distinction is what people don't realise and that's why they end up in sticky situations. If I lend you £1m today on the condition that you repay me £2m over the next 25 years, does that make you a millionaire? Nope.

Peter

[wotnot]

It will if your properties you bought with the money treble or quadruple though!

[pcwilkins]

It will if your properties you bought with the money treble or quadruple though!

Of course. But the same could be said about anything. But that doesn't affect whether you can afford a house now, does it?

Whether you can afford a particular investment doesn't depend on the future value of that investment.

Whether borrowing money to invest is worthwhile does depend on the future value of the investment. Then it becomes a question of risk. Are you willing to take the risk that prices might not rise enough to cover the interest you pay on what you borrow?

In this case, OP decided that said risk was worthwhile.

Peter

[wotnot]

The answer is to restructure your spending habbits. I have had to adjust mine and I have several properties losing £100+ each per month. Ive cut down on takeaways, dvd's and new 'designer' clothes to be able to afford the mortgages. Where theres a will as they say :)

[P.Pilcher]

Well, there is more advice encouraging you to hang in there than to get out now! The problem is of course the successive rate rises that the BOE have been imposing over the last months which has caught many people with high gearing like you out. Now, a few months ago the "gurus" were suggesting that there was still one rate increase to go before we reached peak, however these people have been remarkably quiet of late and it is possible that interest rates have now reached their maximum. This is particularly so as the BOE have imposed rate hike after rate hike before letting the market fully react to the last one, thus inflation has now been very substantially reduced. Of course there are lots of other factors which an "expert" will take into consideration, but if we look at trends, the interest rate has definitely stabilised and the next move might just be down. I don't suppose it will happen for quite a while as otherwise the market may over-react, but hanging in there if you can may well be the right thing to do. I doubt it will get any worse anyway.

P.P.

[Skengland]

Thanks Peter. Very sensible. I suppose it annoyed me as I rent. I don't have credit cards or store cards. I could afford to buy a house but I'd have to count every penny. People who get into huge amounts of debt and then moan about it annoy me.
zen888 has no thought for his tenants. Having a landlord who may flog your home because he overstretches him/herself must be quite stressful as you may be evicted.

[zen888]

thank you all very much for the comments and suggestions.

it has given me a new perspective on things, as when you are in a tough situation, you do tend to get irrational!

also i would like to say to one or two posters here who are saying that i am heartless and do not care for my tenants -- my purpose has always been to ensure my tenants have the best accomodation that i can muster, and this is probably why i am in the fix at present, as i have never ever delayed or penny-pinched on keeping my properties up to date and fully certified as far as health and safety are concerned.

if i were to sell them off, i would give the tenants the option of staying on with the next landlord if that is what they wished, or give them ample time to find alternative accomodation. i dont think one can be fairer than that.

thanks once again and i will keep looking into the forum occasionally to see if i can help anyone in turn! :)

[Flo]

For what it's worth, I agree with PCWilkins. Why sell the properties when you can release equity to lower your home mortgage. £60k from remortgaging rental properties is a fair amount and you still have the properties as long term investment. If you go for the right mortgage, £10k per property shouldn't increase your outlay too much but £60k on one mortgage might reduce it substantially.

[lorenzo]

For what it's worth, I agree with PCWilkins. Why sell the properties when you can release equity to lower your home mortgage. £60k from remortgaging rental properties is a fair amount and you still have the properties as long term investment. If you go for the right mortgage, £10k per property shouldn't increase your outlay too much but £60k on one mortgage might reduce it substantially.

What am I missing? The overall debt burden would be identical, but there would be fees, though there may be some tax advantages.

[Brit1234]

If you are in a area where the house prices haven't started coming down I would sell something. The problem is if the national prices fall reach your area and you have release further equity you could be putting yourself in negative equity for a period of years.

[Sandi]

Why not take a capital holiday from your own home, it sounds like you have a good portfolio and providing an income of £600per month even in difficult circumstances. RBS economist reckons next movement on rates is down which should improve your situation.

[pcwilkins]

For what it's worth, I agree with PCWilkins. Why sell the properties when you can release equity to lower your home mortgage. £60k from remortgaging rental properties is a fair amount and you still have the properties as long term investment. If you go for the right mortgage, £10k per property shouldn't increase your outlay too much but £60k on one mortgage might reduce it substantially.

That's not what I was saying at all!

From where I'm sitting such a suggestion has no advantage, as Lorenzo points out. If you increase the equity in one property by decreasing the equity in six others, you're no better off --- your total debt remains constant. And on top of that you would have all the hassle (and financial cost?) of remortgaging the 6 properties.

My point was that even if you release the equity in the 6 rental properties (by either remortgaging or selling) you have still only reduced your debt by £60k. How much of a difference this would make to your monthly mortgage repayments is the question.

Is OP prepared to hang on in there and skimp and save in the hope that the rental properties will increase in value? Is he prepared to risk it --- the rental property prices might (will?) fall and he may end up with £0 equity in the properties, a rental income that only just (if at all) covers the mortgage for each property, and still a large mortgage on his own home which he has to pay somehow.

My advice would be to sell up. But OP has put a lot of work into his portfolio. Maybe he'd prefer to just sell enough to reduce the debt on his home to a level where monthly repayments are manageable.

Peter

[Flo]

Quite right posters. I was rushing through the thread and didn't read properly. Oops!!

[silvercar]

I would find a mortgage broker (whole of market and fee free) to check over your portfolio. Even with a poor credit rating, the exercise won't cost you anything and could bring you decent savings.

You have, I guess, 6 BTL mortgages and your residential mortgage; you need to make sure they are all at the best rates possible. The BTL market has moved forward in the last year or 2 and you should be monitoring closely the rates you are paying.

I presume that your BTL mortgages are interest only, there would be no harm in my view, of going interest only on your residential mortgage for a couple of years if that helps your cash flow.

Selling a property with a tenant is not sensible; tenants don't display the property as well as you could, may point out too many flaws with the house and limit your market to investors only.

[arusha]

Zen888,

Are all your mortgages interest only? If they aren't and you are able to change them (i.e. not tied in) then that could save you some short term money. If your credit rating is affected I wonder if the same lender would let you switch to interest only then you may not need to be recredit checked. It isn't very tax efficient to have capital repayment buy to let mortgages but I know some landlords still do it. Can't see why.

Also some mortgages let you have payment holidays without any penalties. If any of yours do this, (I expect it would be your personal one rather than the buy to lets but may as well check them all) then take them up on it, get the cash and put it in a savings account for emergencies like future void periods.

If I were in your position I would sell at least one property. At the end of the day cash is critical. It doesn't matter how many properties you have, you need cash to prevent a bankruptcy.

[Brit1234]

If you are going to sell you have to do it now and put a discount on/or appear to have a discount on. The longer you wait to sell the more buy to let flats will go on the market especially in April when most of the landlords I know are going to sell (ie capital gains 18%). The market will be flooded by then and prices way down.