Buy to let portfolio – help me see the bigger picture

Hi Kelvin,

IMHO I would suggest you would be doing rather well to save £10,000 and purchasing a property per year 🙂

Please remember everyone's circumstances are different and you can't really judge your success by others. Also be very wary of get rich quick Gurus and parting with any cash for expensive seminars.

As a first time buyer your first purchase may have to be at a slightly lower LTV such as 75% because of lenders criteria, but as you begin to own more property options will open up for you in the lending market.

To get a better handle on Costs and Cash flow you may like to use the Landlords Calculator >> http://www.property118.com/calculating-rental-yields-and-returns/
and the Portfolio review calculator >> http://www.property118.com/property-portfolio-review-spreadsheet/33695/

Other useful sections to get you started but by no means all of them are;

How to become a Landlord >> http://www.property118.com/learning-from-experience/61558/

and the finance section >> http://www.property118.com/find-finance-buy-to-let-commercial-mortgages-development-funding/

I know readers all have a large variety of strategies that may assist you as well 🙂

Rent of £400 less mortgage payments of £150 leaves a £250 pm profit you say. I can see why you think this but with flats there also comes a yearly service charge and ground rent payments. Plus gas safety certs, boiler servicing/repairs, agent fees for finding tenants, insurances, i think realistically (pardon my spelling) a monthly profit of £0 would be more be more likely. Although thats not to say you shouldnt do it you have to look at long term, or possibly buy cheap freehold houses to eliminate service charges and ground rent.

There are buy-to-let seminars where they will show you all sorts of tricks but be warned that anything which enables you to buy lots of property with little or no money down is very high risk.

The most extreme will encourage you to borrow money on low interest rate credit cards and use these as the deposit on a below-market value property which you can then "flip" (i.e. sell on at a profit) or re-mortgage to release funds for the next one.

I'm a long-established letting agent and I've seen a small number of people make serious money like this - it can be done - BUT, and it is an extremely big BUT I've seen many more people lose their shirts. Some have "only" lost tens of thousands of pounds when their rental properties have ended up being repossessed. Others have ended up bankrupt and losing everything. I can't emphasise enough that although they make it sound easy at the seminars and tell you that they will hold your hand every step of the way (in return for a substantial fee) this is a very high risk approach.

My advice - never buy anything unless you can afford to pay the mortgage from your own funds (i.e. without relying on rental income) for at least three months so that you've got a safety net for void periods, or if a big repair bill crops up.

One a year is plenty fast enough when you are starting. You would be unwise to leave no money in the bank, keeping £10K cash in the bank will let you cope with most problems with one property.

However after the first few years, hopefully the value of your first property has gone up and you can remortgage, doing this may allow you to buy 2 a year after the first few years.

Try to buy a property you can add value to, but think about when you do the work. E.g. if the kitchen is “good enough” maybe you should put in a new kitchen in 4 years times so it provides the most value for remortgaging.

You can get a very good retirement buy only earning a handful of properties that are mortgage free, it is not about the number of properties or what they are worth, it is what cashflow they will give you in 20 years time.

However at your assumed age….

You may be better to buy one 3 bed property to live in yourself, checking that the mortgage allows you to take in lodgers. Then live in 1 room while taking in 2 or 3 lodgers to pay the mortgage.

Most BTL lenders will not lend to you unless you already own your own home

Reply to the comment left by "Ian Ringrose" at "23/07/2014 - 10:39":

Ian's suggestion that you start by buying a house for yourself and taking in lodgers will probably be the most boring suggestion you'll get on here.

It is also likely to be the best. I strongly recommend that you give it serious consideration.

Great comment from Steve, I agree entirely, there is a lot if BS out there!

And to Kelvin, if you are serious about investing & becoming a landlord, be careful, as fellow forum members have suggested in respect of so called Gurus offering to show you the way with exbortent fees, if you need help, then please contact me via Property118.

thanks guys - all your comments shed a bit of light. Unless you sell your property.. say u have 20 at an average of £100 profit per month from rental yields.. You have a very high liability in terms of how much debt you have and £2000 a month doesnt sound like a lot of money.

I'm just struggling to see how people have become millionares from buy to let portfolios.

Kelvin,
This sounds like a get rich quick scheme - can I have some please!

Firstly I am surprised at your figures. It tells me you don't understand at all about costs. I have children, living in their own owner occupied flats earning £20-30,000pa. Yet you can only 'save' £10k pa when earning £60kpa, and living with your mum. Wow you have serious personal running costs.

Secondly if you can borrow £40k at 4.5% on an 80% LTV, I would like some of that too please. Not too clear whether you are implying that is an interest only mortgage or includes repayment of capital.

Then wow you have found the Holy Grail - a BLT proposition where you have 100% occupancy and no costs other than the mortgage. No insurance, no council tax in voids, no repairs, no ground rent, no maintenance charge, no redecoration ...

I think your best option would be the lottery - at least until you have generated a proper business plan with a 10 year cash flow forecast. That is what the professionals do. They don't go bankrupt.

Reply to the comment left by "Mike W" at "23/07/2014 - 12:34":

Mike W

okay, first of all - I do actually earn £2500 (sometime more) per month (coz I DJ 3 nights a week at £150 per gig + full time day job - hence the high income.

Ive read success stories of people like you and me who started from nothing. Of course there are other costs to be factored in. I am not boasting about how much money I earn or whatever - the £100 profit I envisaged is simply based on a £200 mortgage on a small property with £400 rent.

I didnt post this thread to be ridiculed - only to be advised.

I want to start with small 1 bed apartments or 2 bed terrace properties worth 40 - 60 grand. LTV of 75% can be arranged within 15 months or so.. the 80% I quoted is a simple example. I want to come up with a long term plan, so if you have something positive to add - please do.