Is Buy-To-Let Property Investment Dead?

It’s September 2021 and property prices have absolutely rocketed all across the country and in many parts of the world now. As property prices go up, that actually means that it’s harder for investors and first-time buyers to get the deposit together to buy a property.

The stamp duty holiday has now ended, so the amount of money that you have to put down to buy an average house is significantly higher than it was a few years ago.

That being said, it’s much harder to get the returns that you could get back in the day, especially with things like tenants’ rights now. If there’s a bad tenant, to get rid of them is a process. It’s expensive, and then you’ve also got problems like the tax changes.

Section 24 means that you can’t claim your mortgage expense back as tax deductible, unless you buy through a company (which of course means that you have to pay an accountant to do your accounts). So is the profit being squeezed out of buy to let property so much so that it doesn’t make sense any more to save deposits, and buy a property and build a portfolio?

Well, my thinking is whenever the market changes, you need to be creative and you need to find new ways to win in property. The vanilla, straight forward, buy-to-let is less attractive than it was five, ten, fifteen years ago. I bought my first property in 2009; it’s now 2021. There are a lot of changes; house prices have doubled in value in most parts of the country. So what is the solution? How can property as a vehicle continue to be productive and profitable? How can you recycle your deposits and get more for your money?

Get Bridging Finance

Instead of buying a property with the view to rent the property out and get a high return or a high yield, I think it’s much more lucrative if you can find properties that have got something wrong with them. Find a rundown property that’s unmortgageable. If there’s no kitchen or bathroom in a property, you cannot get a mortgage on that property. So all the buy to let investors, all the first-time buyers, cannot compete for these rundown problem properties.

How are you going to compete then? How are you going to buy these properties? Well, what you’re going to do is you’re gonna buy them with a bridging loan. Now, some people are scared about bridging loans because they’re expensive; they’ve not done them before; they’re afraid of the unknown. However, when you know what you’re doing, bridging loans can be a very good tool.

Let’s say you find a rundown property. Let’s say you agree to buy it nice and cheap and you buy it with a bridging loan instead of a mortgage. This property is now effectively, as far as the seller is concerned, a cash purchase. There’s no mortgage, bridging is expensive but it’s also very, very quick!

This also opens you up to auction properties and all of the rundown, nasty properties that nobody’s interested in and nobody can compete over because they need a mortgage to buy their properties!

Go BRRR

Once you’ve bought these rundown problem properties, what you are going to do is fix these properties up. You’re going to get a new kitchen, a new bathroom; you’re gonna fix any structural problems.

Once you’ve done this, you’ve pushed the value of the property up. Now you’ll find that the property is mortgageable. This means that you’re suddenly going to be able to achieve a much higher price for that property. You’re going to then take out a mortgage and the mortgage is going to pay back the bridging company and, in some cases, it’s going to pay you back more than the bridging loan and you will get your deposit back in full. Then you can rent the property out; you’ve got your deposit back to go again and again and again.

This strategy you’ve probably heard of as Buy, Refurbish Refinance, Rent (BRRR). It means you can recycle the small pot of money you have, instead of leaving it down as a deposit on a buy-to-let property. It means you can recycle your money and build a larger portfolio, making more profit. This is the new way of investing in 2021!

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