Property consultancy buy-to-let.com has devised an innovative way of approaching property investment which it claims could offer investors equity stakes of £3.2m in 10 years from an initial capital outlay of £50,000.
David Humphreys, managing director of buy-to-let.com, said: “We have spent a long time working out just how and where to buy properties and the tax implications of releasing cash at certain junctures. The scheme works by buying distressed or derelict properties and then fixing them up to let out, with the equity made then used to fund what amounts to a production line of properties in development.”
Humphreys claims that buying just four properties at 85% loan to value (LTV) would get an investor started. “It is enough to create a pipeline which means they could buy further properties. Each time they remortgage the value of the property is much higher than the initial outlay and can further reduce the cash spend.
“When the property is habitable, remortgaging at 85% LTV again means probably leaving only 5% tied up in the property. The equity created can then be drawn down to rebuild the cash ‘pot’.”
Humphreys admits the scheme is complex, but claims the risks to investors are minimal as long as they are not concerned about getting into millions of pounds of mortgage debt.
The firm is so confident about the success of its scheme that it plans to hold a series of roadshows to explain the complexities of the scheme to brokers and investors.
Humphreys said: “For brokers the pull of the seminars will be arranging so many mortgages and remortgages on a regular basis.”
Commenting, Kevin Paterson, managing director of Park Row Independent Mortgages (PRIM), said: “I think it was only a matter of time before someone worked out a scheme like this. I think the targets are feasible, and the only problem may be finding enough suitable properties to renovate. Recent indications are that buy to let has become a mature market with a lot more potential growth.”
Steve Sandiford, head of borrowing products at BM Solutions, said: “The principle seems sound but there have been many ‘get rich’ schemes in the past and investors need to remain aware of their target markets and areas, and prepare for future rental voids.”