Can anybody tell me if they have had experience of property investment companies who aim to give you substantial discount on new builds with a buy-to-let mortgage?
The discount acts as your leverage and you obviously need to rely on the lettings to cover your mortgage and perhaps a bit more to cover void periods. Apart from the initial 'finders' type fee this seems to be a good option, although I have heard people say they are sick of long void periods. Would these void periods be more on older properties?

Just wanted to know peoples thoughts on this if they have had experience? I am currently in touch with one but not decided anything as yet!

Cheers,

Dave

I have been looking at property investment companies too. The best thing is to do a bit of research on the area you're buying. If there are new businesses, new jobs then perhaps there won't be much of a void period. I think most renters wouldn't mind a new-build that has all new stuff, some period properties do look tired around the edges! What companies are you looking at. I have looked into Azzets, Imagine Homes and TIC Invest (this one has a lettings team that can help you rent out the flat). Haven't decided yet as they all have different fees.

Dave,

I don't mind showing that I'm a bit of a sucker for a deal. Problem is, I can't tell you for another 2 or 3 years if I will be happy with the newbuild investments I made last year.

I had traditionally bought (long time ago) with 75% mortgages on ten year repayment plans. Needless to say, this was a long, slow accumulation. Yields were about 16% back then, so it was actually possible to amortize a BTL investment in 10 years (those were the days). The problem came, after about 13 years, when we decided on a paradigm shift in investment philosophy. Armed with a stash of cash, we bought a big replacement exec let, then realized we would get much higher yields by buying smaller props. Around the same time, we went to a TMC presentation and met ordinary folks with over 30 properties, and we saw the light. A bit impatiently, we set about analyzing the newbuild flat market. We bought 4 apartments in Leigh, OMV £118K, bridge financing for a net purchase price of £101K and mortgages of £101K to boot (NMD, except fees and carpets/curtains). Total costs including finder fees were about £6K per apartment. We went through three letting agents before we found a reliable one (no area knowledge - first mistake). From a headline rental price of £525pcm, we settled down 3 of them at £450 pcm and the last one at £425 pcm. Now these are cash flow negative - very nice flats, but cash flow negative. I reasoned that, had I bought traditionally, I would have invested about £20K per apartment instead of £6K, so with the -ve cash flow, I would be no more cash poor in seven years' time by doing the bridging finance.

So here's the problem, and why I can't tell you if I am happy or not with the investment. And this indecision is solved if you follow all of the property guru's advice. Here's some advice from Robert Kiyosaki - a simple definition of assets and liabilities:

An asset is something which puts cash in your pocket.
A liability is something that takes cash out of your pocket.

This definition works in all markets. In the UK, because of its peculiar combination of positive population movement, demographic change of Brits leaving and foreigners arriving, and the continuing shortage of housing, prices seem to continue into the stratosphere without abatement.

I have bought a liability, not an asset, and if and only if property prices do continue to rise, will I see a return on investment. If property prices remain static for a period (like 1993 to 1998), I will have bought a negative return on assets.

Be careful how you play the leveraging game with new build property. If you can't easily afford the negative cash flow, you could very easily become bankrupt as the cash flow stops and you have no savings or income to stem the losses.

A bit of a long post, but I hope it answered your question by practical example.

A comprehensive answer from Gerry. It's so good that I must get him to write for Sq Ft Magazine!
Regards
Michele Andrew

I've researched a lot of companies offering properties for sale and many are more concerned with making the sale than whether the deal stacks up and it's a good investment. Whatever the discount offered, the make or break factor is - will someone rent it and for how much?

The only way to find this out is to use a company that provides good research on why the area is good to buy in. And to do your own 'due diligence', meaning carry out your own checks. Simple actions like calling local estate agents posing as an investor with a property to rent; then later as someone wanting to rent a property. See the difference in the rent they say you can get. Look on websites to see what properties are being offered for in terms of rent...note this is the offer price not necessarily what they get in rent. Remember to add in all the costs of running a property - management fees, service charges, ground rent, maintenance as well as mortgage.

Personally, I have some properties that don't wash their faces, and I have to subsidise them by £50-100 a month when all costs are taken into account. But I view this as a contribution to a pension; and I also know that it won't take more than 2-3 years before the rent will increase to a point where I break even.

Hope this helps.

Kimberley

Kimberley Charman
Property Investors Road