Building my property portfolio – your thoughts please?

Hi Sally

There is no right or wrong answer to this one, save to save that number of properties is vanity, profit is sanity and cashflow is reality.

Can you share a bit more about the types of properties you are looking to buy and the important numbers, i.e. value, rent, types of tenants etc. please?

Hi Sally

If you do buy for cash you may well find it more difficult to be able to get a mortgage on the property within 6 months of purchase.

You will also have only a limited amount of lenders you can approach is you decide yo want 80% LTV whereas at 70% or 75% the choices are a lot greater and you will get far better rates and terms.

I like your quote

I really am a total newbie at this. I am not set on what type of property I buy, just ones that give me good returns, however I would prefer freehold but that is not set in stone. Really I want really run down places that will also make me a profit on sale as well as good rental income. My partner is in property maintenance and is willing to do up the properties, but what we need is a strategy.

the average cost of a 1 bedroom flat in hastings is about £50k and a 2 bedroom house £110 these are run down ones. I will have £75k from the btl mortgage on the flat and will get £90k from the sale of my shop. I have also had a value of our house at £150k which i bought for cash and renovated.

I just don't know what is the best way to make this money work for me as I will no longer be working so we have the time and the passion but not the strategy. i think I will be able to get a mortgage straight away as i waited for 6 months on my first flat to become an experienced landlord (LOL) and get a better rate.

shall i get a mortgage on my private residence too or is that madness

Hi Sally

Anon has made some very good points in the comment above.

Personally, I prefer freeholds. As a matter of interest, how much rent would you get on a £110,000 property in your area?

Also, is £110,000 the completed value or the value post refurb? I suppose what I'm really asking is how much you will pay, how much you are likely to spend on refurb, the value post refurb and the rent post refurb.

If the property is not fit for human habitation on the day of purchase (e.g. no kitchen or bathroom) then you will need to buy for cash and remortgage later.

You mention giving up your job too. I don't think that's a brilliant idea at this stage if it can be avoided as it will be much harder for you to get a decent mortgage if you haven't got a job.

Hi Sally,

Understand your predicament as a fellow property investor.

There is no single right answer to your question and fundamentally turns on:
1. Your attitude to risk and how highly geared (ratio of borrowing to equity) you want your portfolio to be.
2. Your view as to where interest rates are headed in the medium/long term and whether you can attract interest only repayment terms. I use a base rate of 0.5% with margins of 2-6% pa to stress test your analysis. Can you fix your rates?
3. Your property yields and whether the cover (ratio of rental income to mortgage repayments) work for your lenders and provides sufficient headroom. Banks normally look for a min 125%. I wouldnt normally consider gross yields of less than 6% pa.when analysing a BTL purchase and typically look at the sub-£100k provincial property market.
4. Likely void periods and the hole this could leave in your income whilst properties remained vacant - I always work on a 8% long term void rate as a minimum (ie 1 month per annum)

Some 'what if' scenario planning using simple spreadsheet formulations can help using different gearing and interest rate alternatives can help in the analysis.

Hope this offers some help

Hi Sally,

Forgive me, but I am a bit confused by your post.

The title suggests that you want to build a portfolio of properties, but you later talk about buying rundown properties and doing them up to sell them!

The two are completely different strategies with very different tax implications.

As you are not working, you may also find it hard to raise a mortgage as most lenders require a minimum of £25K income.

I recently compiled my "Top 10 must read discussions for novice investors" ....

http://www.propertytribes.com/top-10-must-read-discussions-for-new-investors-t-7030.html

If you can find an hour to sit down and read through these discussions, you should find that most of your questions are answered. 🙂

Hi Andrew,

Yes i found anon's comment very useful as I didn't realise you get a better rate at 30% deposit , with that i could still put down the deposit for 2 freehold houses or put the whole money into a 1 bedroom flat and then remortgage.

Depending on the area refurbed 2 bedroom houses sell from between £140k and £160. We bought our house for £80k, spent £25k and have had it valued at £150k. it was completely inhabitable when we bought that is why i bought cash. we were told that we could get between £650 and £675 pcm. I could also get a mortgage on this house for £105K. the 2 bedroom flat we bought for £63K spent 12k and is valued at £110k that is the one we are getting the remortgage on.

I have sold my business so will technically be unemployed. I thought that it didn't matter as I had properties. maybe i need to go to Asda for a part time job 🙂 Thanks for that eye opener 🙂

I would buy 2 run down properties at 80% LTV then add value to them then remortgage them when you can to release equity to put down as deposit to buy more. Also if you are not too risk adverse I would be taking out a mortgage on your main residential and utilising the dormant cash contained within to produce an income for you

As your partner is in property maintenance you could sell where you are buy somewhere bigger needing doing up and do that and sell and repeat as many times as you need to until you reach the financially free position you wish to attain.

Leverage to the max but ensure your cash flow is strong and keep a sufficient cash buffer so you can sleep well at night.

Sally, good luck but expect the unexpected in your plans, things are not completed on time, mortgages may be more difficult to come by, where are house prices going dont want to put you off i did the same approx12 years ago and learnt the hard way, load of voids people not paying rent etc.But id did pay off after a few years but I was very cautious bought 2 the first year, 2 more 2 years later then i cut my teeth on a big refub with planning etc, that was an experience and it taught me that you can do anything if you focus on it,I am happy with my existing portfolio but still get the urge to do "just one more".
Cash flow is king

@Sally Lloyd - please take a look at the Property Refurbishment section > LINK http://www.property118.com/property-refurbishment/ and in particular the article entitled "Sell or hold after completing a property refurbishment?"

If you can keep doing deals like the one on your own home you will be very successful in time. Please remember though, property investment in a marathon not a sprint. As Donald Trump once said "don't wait to buy property, buy property and wait".

Based on what you have said I think you should be doing one deal at a time. You have said that your partner in in property maintenance and that's fantastic. He can only do one job at a time though unless he finds a way to clone himself.

You have good working capital and from what you have said I see no reason for you to consider remortgaging your own home at this stage. Just do two or three deals a year similar to the one you did when you purchased your own house and over the next 10 years you stand to make a LOT of money. It took me nearly 20 years before I could live entirely from my property income but I started in a very different place to you.