OPINION: To buy, or to by to let - that is the question

Twenty-something investor Alex Daley took the out-of-the-ordinary option of investing in a BTL before owning his own home. Should you follow suit? He weighs up the pros and cons for others.

Should I buy a BTL or home first?

This question or some variation of it is often kicking around the Buy To Let Group on Facebook. The general consensus, (although recent interest rate rises will have a strong bearing on the conversation) seems to often side with owning a roof over ones own head before investing in others. Many previously cited stamp duty as the main reason for that, alongside lower entry cost and various other elements we’ll explore. In my view and certainly in my case, it’s not quite as black and white as that.

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Firstly, a quick intro about me, I’m Alex, I’m 26 and I’m from Bristol (no, you’re not the only person who read that with Paddy’s voice from ‘Take Me Out’). I have a small portfolio, largely in the East Midlands with a mix of a single let and a number of HMOs. I’ve been self-employed since the age of 21, running a small marketing agency which keeps me busy. But, I’m yet to actually buy a home of my own. If you’re young, are yet to buy a home and are weighing up whether to start with a BTL or a home to live in, this one might be for you. If you’re marginally less young as I appreciate many of you will be, I hope you find my take on this increasingly popular way of getting into property interesting. So… Why on earth would you start buying investment properties before you’ve secured a home?

HOUSE PRICES

Buying a home down south is just very, very expensive. I think Bristol is bad so I don’t even want to consider what it would be like to live in London. My least expensive house set me back £115,000, which was in Nottinghamshire, for a nice two-bedroom three storey house that rented out after a very light renovation for £750pm. In Bristol for £115,000, you’d get, well, nothing and in London, you’d somehow get less than nothing. If you’re up North or in the Midlands, this is much less of a consideration and actually, the balance may swing back to home ownership for some. This just emphasises the point, that there’s no necessarily right or wrong answer.

FLEXIBILITY

I’ve never thought you need to be in any rush to settle into a particular area. Of course, I know, buying a home isn’t a forever tie-in, but it definitely isn’t as flexible as other options. If ever you’re going to be transient, it’s surely going to be in your 20s. New job an hour up the road? No need to sell. New job across the Atlantic? No need to sell. Test out whether you like a new city without having to grow some pretty expensive to remove roots. At the same time, your property is cash-flowing nicely, which is covering a chunk of any rent you might pay and you’re benefiting from any appreciation. Life could be worse. The downsides, and yes, there are downsides.

Matt Hardman - The Buy to Let Broker

ENTRY COST

Remember that £115,000 house I mentioned before? Well instead of a 10% deposit, you’re probably going to fork out 25%. Then there are those annoying little extra elements (especially when you buy under a LTD company as I have) such as personal guarantees, which for a few minutes ‘work’ has solicitors earning the same amount as premiership football players. Lending - You guessed it, it’s not quite as easy to get a mortgage. Very doable, but not quite as easy. My situation, with the selfemployed income, meant we were down to fewer lenders at the time. My initial rates weren’t great but the maths still worked out on my deals. That said, I’m not a broker, so I asked my broker to weigh in.

Matt Hardman is the director at The Buy To Let Broker: “Numerous key drivers exist for clients motivated to invest in a BTL ahead of purchasing their own home. The motivators could range from employers providing accommodation for example - such as with the military, quite happily residing with family and not feeling the need to run for the hills, or simply due to the local market being very expensive... However, getting a foot on the ladder in this marginally non-conventional way can very much work for some. “There is a common misconception that you need to own your own home to get started, we have plenty of investors who don’t fit neatly into that bracket; Alex being just one,” continues Hardman. He suggests that those entering property with a business mindset at a younger age might suit the BTL-first approach. “Let’s face it, often the best time to start a business/invest can be when personal outgoings are low, allowing new investors to cut their teeth without the worry of other financial commitments, reducing the risk factor to them. “This hurdle does constrict the number of lenders who will consider an application, it’s not impossible by any means, as with most things it will fall to your individual circumstances. To access the best the market has to offer, lenders will be keen to ensure no foul play, by lending you no more against a BTL than they would on a residential basis. In other words, applying the same affordability calculations to the BTL loan, as if it was

indeed your first home. Therefore, personally earned income is paramount. “There are other fringe lenders who don’t apply these same income thresholds, however, the base interest cost does multiply,” Hardman says. “For prospective landlords, the right advice is key, both for your mortgage and for the overall ownership structure. We always encourage taking quality advice from a property-savvy accountant, to seek solid tax advice on whether purchasing in your personal name or via a Limited company is the most tax efficient for your circumstances and future plans. Sadly, often this initial crucial element is missed, but can be the difference between a mediocre or successful investment.”

HAVE YOUR SAY

So, has the time come for me to look at buying my own home? Yes, it seems it has. I think, now my portfolio is starting to stabilise and I’ve eaten up most of the large expenditures (*frantically touches all the wood nearby*) I can start to look at that next stage. Look, I’ll probably still try to make it as much of an ‘investment’ as possible - somewhere that needs some work. I’m sure you’re the same, that it’s hard to break out of the investor mindset, ‘Oh it’s five minutes from the hospital, that’ll rent out well.’

Have I got it all wrong? Have I played a blinder? Probably neither. Does it work for me? Yeah, I think so. Would it work for you? How on earth would I know? But if nothing else it’s something to consider if you’re young and looking at what that first step might look like. And if you’re *ahem* less young, enjoy watching us trying to figure this life business out whilst you sit back and sip on that cup of tea - or something stronger for those currently attempting a remortgage