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Originally Posted by Christine Young  Hi Kasim welcome to the forum where is your new property located? |
My property is located near my home (for easy looking after) in Birmingham.
Ye know, my property sourcer found a 2-bed property for me with a
RICS valuation of £145K. Fortunately, it came with a 15% discount so my mortgage was only £123K. However, I looked at some comparables and found that I could've bought it for £130K.
I tested the water by going to a Building Society and asking for a mortgage based on a purchase price of £130K. The adviser said you contribute £19.5K and we'll give you a mortgage of £110.5K - I only had £9000 at the time. So I stayed with the property sourcer. Even though it looks as if I was cheated, the worthless discount enabled me to get a mortgage for £123K without any money of my own. Actually my current mortgage is £116K because I volunteered a deposit of £7000 - it reduced my monthly payments.
It got better, if I eventually sell my property for £155K, I won't have to pay any capital gains tax because my gain will only be £10K which is within my
CGT allowance. If I had purchased it at £130K and sold it for £155K, I would've had to borrow an extra £10K for the deposit and pay
CGT on £25k @ 40% i.e. another £10K.
Some deals look outrageous but actually they're better than lower valued properties.
Consider also, if all properties go up by 10%: the £145K one would be worth almost £160K but the £130K one would only be worth £143K. If you re-mortgage to extract the extra equity the £145K property will generate £12.5K but the £130K one will generate only £11K. But you've paid a deposit of £19.5K - you'll be paying re-mortgage fees to extract your own money and not all of it at that.
As I said, the outrageous deals are the best BUT beware, do your due diligence. I attended a Brad Sugars seminar recently and he advised us not to bother with low value properties, the real money is made with the high value ones. I now know what he means.
But high value properties is where the greatest risk is. Just remember that nothing ventured nothing gained. You've got to speculate to accumulate but with extreme care. Beginners should always start with low value properties while they learn the ropes, to reduce their risk. Then, once they get the hang of it, they can take greater risks.
Kasim
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