ASK484: Should I take out equity to buy more? PLUS: Is this an opportunity or should I walk away?

0:02Hi, I'm Rob. And I'm Rob. And this is Ask Rob and Rob. Yes, it is Ask Rob and Rob. Welcome to the show where we answer two of your property questions every week without fail. And the reason this works is because you send in really interesting questions. And Rob, the way to do that is so, so easy. It's so easy whether you want to leave a voicemail, you want to leave a recording via your computer, or you want to get in touch to maybe see yourself in the Sunday Times where we answer your questions every week as well. You can go to the one place. It's propertyhub.net forward slash ask. Go there, submit your question however you please and from that you may see your question in the Sunday Times or hear yourself on the podcast which a lucky listener is about to do.

0:47Hi Rob and Rob. My name is Aaron. I'm in my early 40s and I live in London. I've been interested in property investment for quite some time but I haven't yet taken the plunge. I've only recently discovered your podcast, but that has renewed my excitement to begin my journey. So thanks very much for all the content. I'm still working through all the past episodes and have started taking some of the courses, but I have some unknowns that are blocking me from getting started. My current position is that I have decent equity in my primary residence. I have around 25K in available savings for investment.

1:18And based on your insights, I'm considering locations such as Doncaster, St. Helens, Derby, or maybe some different ones. I'm weighing two options currently. Firstly, either using my 25k savings to leverage a property worth £100 ,000 or combining my savings with 25k's worth of additional borrowing from my current lender against my existing equity and invest that in either a£200 ,000 property or two£100 ,000 properties. I have a couple of questions that are really stopping me from being able to get started. Firstly, would you recommend waiting to save more or tapping into my available equity to get started sooner.

1:55I note from previous podcasts, the importance of getting started. So I'm thinking more towards tapping into the existing equity, but I'd really appreciate your guidance here. Secondly, you mentioned buying in the right part of a town or a city. Does it mean focusing on the most desirable parts of the town, such as specific streets that are in an affordable range? Or is it about being in the right town or city that is the most important thing? Thanks very much for the guidance and thanks again for the hard work hey Aaron thank you for your question really good one now you've touched on a few areas here let me try and give you the best advice I can in a short period of time it's going to be hard to say you should do this or you should do that because I don't have all your information and your circumstances and what's important to you and your goals so I'm just going to give general advice so this is not me telling you what to do But I'm sure there's other people in a similar situation to you, and this gives you something to think about.

2:55So first of all,£25 ,000 is a great sum of money, but it's going to be hard to invest with that amount. Because it's not simply putting 25 % down and buying 100k property. You're going to have other costs involved as well. So realistically, you can only put£20 ,000 down to save 5k for costs, which means that the property you'd be able to afford with leverage is about 80k. And you're really going to struggle to get anything for 80k. in any part of the country and the properties that you can get for 80k you probably don't want and you've touched on that when you've talked about the areas some of the areas that you're looking at are great but because they are more affordable compared to other parts of the country I would be looking for the very best stuff in those areas absolutely the best stuff and that would mean either saving some more or considering using equity now releasing equity isn't something you should do lightly and there'll be some that will just say no no no don't do it for me it's a numbers game and a circumstance game so first of all you need to understand where you are in life and your situation and whether taking equity out is a good thing to do judging your age your early 40s it's certainly possible it's not something i would be doing if i was 20 30 years older than you but where you are right now it's certainly possible so once you understand you know whether it's a good thing to do depending on your circumstances then it goes over to the numbers and for me it's simple if you are borrowing say at five percent you put that money into a buy to let you want that buy to let to be working a return for you of at least five percent and normally more so if you're putting it at five and you can get a 5.5 return on your money then you are up so not only are you buying a property and you're hopefully getting some capital growth over the long term but you are getting a better return because you're borrowing at a cheaper rate than you can invest into and then by a numbers game and it's there's no emotion with numbers right that's what makes it simple but by a pure number standpoint you are in a better position your portfolio is growing you may even get some rental inflation as well which would help with things and if interest rates trend downwards, and that's an if, but if they continue to trend downwards, then you could be better off in the future as well.

5:11Now, it could go against you, rents could crash, interest rates could go up. None of that looks on the cards at the moment, but it is worth just balancing that out. So it's not to be done lightly, but as long as it doesn't put you under pressure, as long as you could fund that extra mortgage if you had a tenancy void for a protracted period of time for whatever reason, then I would be comfortable with releasing equity based on the general information that you've given me. And then focus on the best areas of some of the locations you've identified. And overall, Aaron, I think you'll be in a good place.

5:43Good luck. Okay, let's move on to our next question. Hello, Rob and Rob. I've been a listener for a few years now and I've just offered on my second buy to let. I believe the property being in a block of eight storeys falls under the Building Safety Act. Additionally, I believe the vendor has multiple properties within the UK, thus making the property non-protected by this act. although this hasn't been confirmed by the agent. I'm also yet to receive confirmation on whether the building has received a CWS1 cert. Finally, on viewing the property, some of the balconies within the block have timbers in their structure, so there must be some sort of element of cladding assessment or fire risk assessment taking place in a building.

6:24My question is, would this make you run a mile or would you build this added risk into the price? you've got any experience of buying properties that don't fall under the Building Safety Act. Any help? Much appreciated. Thanks very much for the content, Josh. Thank you for your question. And yeah, all this stuff is so messy. So there's a few different things going on here. And let's see if we can unpack them all. So when it comes to the Building Safety Act, basically, there's this weird thing where the amount of liability that a leaseholder has for future repairs is based on the status of the property on a date that is frozen in time, which is the 14th of February 2022.

7:03If the lease was held by someone who owned three UK properties or fewer on that date then it's a qualifying lease which basically means that the liability for some but not all costs related to remediation are£10 ,000 to£15 ,000. If it's not qualifying then there are no caps. You're on the hook for whatever it is. It sounds in this case like this one doesn't qualify. If it does qualify then there should be a certificate saying so which you can ask for. The other part is the famous EWS1 form. So if the building doesn't have one of those yet, then it's likely going to be very, very difficult to get lending on it.

7:36And the fact that you mentioned timbers in the balcony, if you're sure that that is the case, then that probably means that when it does get an EWS1, the rating is not going to be good. And it is very likely that there will be costs associated with removing those, which will fall upon you. So is that a giant red flag or an opportunity? Well, it's both and it depends on who you are. It is possible to make really, really great money by buying up flats like this in cash at a time when no one else can get a mortgage on them. So that keeps the value down and making sure that you get a big enough discount to more than cover any costs that are going to fall upon you in the future.

8:12So if you've got loads of cash and you're an expert in this area and you're pretty confident that you can estimate the likely future liability and get a bigger discount for that to make the whole thing worth your while then great if that is not you then personally i would stay away there is no shortage of stock on the market there is more available on the market to buy than there has been for years and years and years so why go for a tricky one when you could go for an easy one so i appreciate that that is very black and white and life is not always as simple as that and there may be other factors why this one does particularly appeal to you but that's how i look at it and what i would do josh and i hope that helps and we hope it's helped many of you the advice that we've given to our two listeners this week.

8:51And do you know what else will help? Returning on Thursday for the Property Podcast and then picking up the Sunday Times, flicking through to the home section and see our beaming faces smiling back at you answering questions there. If you do all that, then I'm sure your property knowledge will go even further. So make sure you enjoy us for those wondrous events. Until then, take care, have fun. Bye-bye. Bye-bye.