What is build to let

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Self build for 'buy to let' is 'build to let'

Introduction

Build to let has all the advantages of self build added on to the concepts behind buy to let, this has a large number of advantages and guaranteed profit in any economic climate.

In this article we want to look at buy to let and then take it a stage further and see how the profit can really stack up.

Very many people have become wealthy through 'buy to let', and many are still in the process of doing the same. While some look on it as a way towards generally a better life style, others use it as a way to build a real pension, that is as proof against inflation and safe as any, and not affected by the roller coaster of the stock market. Although many are persuaded to go on expensive courses spending anything up to £8,000 on a few days course, the theory of buy to let is extremely simple, and the rules to make it work well known.

If you have read other sections of this web site or on buy to let elsewhere, you probably already understand the theory of how it works, but lets just recap quickly

The theory of buy to let

1. you utilize the equity you have or by some other means raise a deposit for a property
2. you get a buy to let mortgage, usually at 85% of the value 
3. you buy a property, and rent it out, using the deposit and mortgage
4. rent covers most, if not all, of the mortgage and running costs
5. property prices go up
6. you now have more equity, which you can use against a loan or mortgage to throw up the extra cash
7. you use this cash as a deposit for another house obtained in the same way as above.

This can be repeated  as many times as you like, only restricted by how much the properties increase in price and the equity you can make available. As the number of properties increase the cycle speeds up, as you have more properties whose equities can be added together. Some people have got hundreds of houses now, while quite a large number have well over 20 each, very many have 10 or more.

You can maximize the growth rate by

• clever buying, buying under the current value
• self build, making a 25 to 60% saving on purchase costs
• spotting properties that can be increased in value with minimal work, and cost
• selecting areas where prices will increase rapidly
• selecting areas where the demand will increase rents, and keep your properties full
• making things happen fast
• getting started as soon as possible

The risks are

• voids (empty unlet properties) you still have to be able to pay the mortgage
• bad tenants and poor agents, so rents are slow to arrive
• paying too much for properties (very common), so that you have to wait for the properties to catch up before it starts getting equity
• old properties where maintenance and repair cost can increase over time
• property prices dropping, this would mean you would have to hold at the level you were at until prices rose again, however in most cases valuations don't fall, just people accept less for a while so you may actually be able to raise as much and buy cheaper in this period, so continue to grow and be well placed when the market picks up again.

Tax is not a problem as you never sell, although there are special arrangements with reduced or in some cases no tax if you sell in under a set number of years. If you were to sell up completely as an individual, after building a large empire over many years, you would incur large capital gains tax  bills. If you had the houses all owned by a company, and sold the company, the ownership of the houses does not change, so no capital gains tax or stamp duty is payable and you would be likely to end up with a great deal more. You of course never need to sell, property over time will continue to increase in price and rents will continue to go up, giving you both the chance to raise any sums you want, as well as receive an ever increasing surplus over costs.

Build to let.

The advantages in self build, over going and buying a new estate house is cost, and knowing the quality of the build is high and you will not have problems in the future. Any newer house should require less maintenance and be far easier to keep let all the time than older properties. As the area becomes established, landscaped etc, rents will reflect this increased quality feel.

With a saving of 25% to 60% being made on self build you will see why it is an attractive route for rapid growth and at least some growth is guaranteed independent of generally rising prices in the area, so you know that you will be able to move the cycle forward with a another purchase, even if the property market slows. 

How much can you actually save, well it depends on house style, location, your ability to get a plot at a good price and how organized you are. If you use the services of the Self Build Homes Club, or many of their services by becoming a member of our club, then you should get at least a 40% discount, and as the property is not your dream home, you should be able to improve on this, and perhaps a 50% saving is what you should be the minimum you should be aiming at.

It can also allow people to get involved who have less capital and those with the same amount of capital to get a number of builds started at the same time. This is because:-

• you spend less on each property saving 25-60%
• you can get a 95% loan/mortgage on a self build (land and construction costs) which can be remortgaged to 85% when completed as a buy to let, using the equity that is already in the property means you need no further deposit, and most likely will get a large sum back to go into the next step.

Although some do build far larger, and more highly specified houses by self build than are available conventionally, this does not need to be the case, and you can, by the same methods and means, build properties of any style, size or for any market.

To get into property owning or to add an individual property you can see, can be achieved by raising just 5% of a far smaller sum, and even this can be recovered as soon as the house is built. 

So how does it stack up financially

Lets suppose you have a little over £15,000, and lets see what happens if we put it into shares, buy to let and build to let, and follow what we think will happen if the same happens in each case.

We are assuming 

• You can qualify for a mortgage, and you get as high a mortgage as you can using your £15,000 as a deposit.
• You can get a build to let property at a 50% discount, this is not particularly high and many achieve this or more. We have used 50% because it makes the figures in the example easy to understand.
• That over time, the value of your investments doubles be it shares or a house.
• We have not allows for club membership, stamp duty, legal cost etc.
• The self build you live in, at least for a while so no tax is payable.

So in the example above is it reasonable to expect. Well property doubling historically has occurred about every 5 to 8 years, so to double twice it might take 10 to 16 years, of course in the last few years many areas has seen it double in a year, so on that basis in the right area it could be 2 years.

From a build to let perspective

As with buy to let, the equity can be used to develop more, and with larger savings it means guaranteed large equity at an early point and therefore very rapid growth capability. Given that you can get so much initial equity rise, you can see that by remortgaging on buy to let mortgages on completion of each releases so much capital that you can build so many more that the predictions look totally undeliverable,

Another alternative is to go slower and eliminate mortgages. To understand how to do this read the article on this, which is little more than an example worked out, just to show you how it works.

You will se that by using different amounts of the equity to fuel growth and some to reduce mortgages you an vastly increase the growth that you can get.

Already in buy to let

If you are already in buy to let then you will have financial models, created with spreadsheets that will allow you to try out different combinations of purchases, rents etc. If you have not yet become involved in self build, can I suggest you try out within your model the effect of a number of self builds, and I am sure you will be delighted at how this can drastically improve the projections.

The down side

There are a few factors that put off 'buy to let' people, but these are only mostly misunderstandings.

You may have been put off by the theoretical work required to make this happen, of course very few self builders ever touch any tools at all.  In most cases you will use a project manager who will manage the build for you, so you not only need to have no building experience, but can also allow someone else to do the whole task for you.

You may have heard that there is a shortage of building sites. There is no shortage of land, but in some areas a shortage of plots with planning consent that matches the requirements of self builders in the area. At any time there are well over 10,000 plots available to everyone and some others that we have options on, so are only available to our members. The Self Build Homes Club knows of over 14,000 sites at any time and over half of these have 5 or more plots on, so there are plots about if you know where to look and can get in on joint projects to use the larger sites.

You may have realized to make this happen  and get the most savings, you need to be involved with a group and perhaps just don't know enough like minded people who would like to become involved.  Through the Self Build Homes Club, or as one of our members accessing their services, of course you have your requirement specified and get invited to join projects, so this is not a problem.  

You may have felt that most self builders are developing homes for their own occupation, so would not welcome a buy to let person. This may be the case within self formed groups, who may have a small number of vacancies and be looking for like minded people, while within the clubs our approach is different, we meet people needs, not form social groups, as well as people who want to live in homes, we will have people who are developing a house to eventually retire to, buy to let people and a wide range of others. 

You may have thought that self build would just take far too long, but the actual time it takes to build a modern house need not be long, after all the ones that go up at shows such as the ideal home exhibition, are built in days and some buildings are largely factory pre constructed, so the build on site is accomplished very quickly. Getting planning approval for your design, getting in quotes can take a few weeks, this is nothing compared with the delays involved when buying a house in a chain, and you may find that if you compare the time from beginning to look, to completed and occupied it is not that far different from finding a house, buying it, refurbishing it... as you might think.

What about capital tied up you may ask, well in most cases you are involving less of your own cash than you would put up as a deposit and this is split, so that the land and build costs are payable separately, although both qualifies for mortgages and secured loans. 

Any size, budget or style 

It could be a detached property, semi, terraced property,  holiday accommodation, could include some commercial space, shops or offices and by selecting the size, area it is located in and a few other factors you have a considerable choice over the budget. Perhaps you could afford one detached, two semis, or 4 apartments and this may give you the chance to either choose the level you start at, or to get a larger number of units faster.

Getting started in build to let

Getting into build to let is exactly the same as any other members of the Self Build Homes Club , the only real difference is in the personal specification they work out with you. It is likely that the quality of finish and size of property will be more like a conventional commercially produced house, than the above specification favored by people developing homes for their own occupation. As each member has an individual specification worked out with them there are no problems in involving them, and from a time perspective they can often become involved faster than other members as their specification is often more flexible, they are not so concerned about the location and may be able to change their specification slightly, if a  particularly good deal comes up. 

It is considerably easier within the club than going it alone for a number of reasons, not least because of the clubs ability to not only find good sites but also proactively creates them.

If you want to buy existing investment property overseas then we are your best bet, but if you might want to build overseas then the SBHC has the edge as they area fully international club and have a lot more going on, , while we have to send someone from the UK, or draw on their services. Again in theory it should not make any difference as we can both access each others services, it just may be simpler as you would be working directly with them rather than through us. 

As you can transfer between clubs at the same membership type, if you join one and later feel that the other would have been a better bet then you can transfer at no additional cost to you. So as your needs change you can switch about. If you don't know which to join then join the SBHC first, as they have local consultants and a whole procedure to start, using workbooks to help you to decide exactly what it is you want to do, and how you are going to do it, what else you need to find out and more so will get you active far quicker then we will. Both clubs are devoted to giving members there best service so if they work out with you that we could have helped you more there will not be any hesitation on their part in suggesting you transfer to us. Even when we are not open to new member joining directly, we still accept transfers.

If you want to take a look at their main UK website see www.self-build-homes-club.co.uk 

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