My property investment career – please help me to make some choices

by Readers Question

8:31 AM, 3rd October 2013
About 8 years ago

My property investment career – please help me to make some choices

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My property investment career – please help me to make some choices

I have questions which I’m sure many people outside of property investment ask themselves before drawing a blank or getting confused or deciding they don’t have enough information to make a decision.

“How much money do I need to begin a viable property development business?”

And

“What’s the most sensible route as an entry point?”

I’m in a position right now to seriously consider this, having just been given notice of redundancy. I have savings, shares, redundancy money and the option to release equity in a flat I have which I currently let out. Altogether this would amount to around £250k. Below are the scenarios I’m considering as viable options. It may help to know I’m 45 and have a family of dependants:

1) All in – Devote all my energy into buying high yield properties in the north of England, circa £50-60k @ £400 to £450 per month rent. My property investment career - please help me to make some choices

Pro’s

• Lot’s of fun and what I would prefer – an adventure!
• Steep learning curve
• Large portfolio to spread risk

Cons

• I’ve no experience in managing a large portfolio
• Lower equity yield than most property
• I live near Watford
• Can I deal with the admin?

2) Eggs in one basket – Buy 1 or 2 flats in west London (where my current flat is), @ between £1,2oo to £1,700 permonth rent

Pro’s

• High equity yield from London Cross Rail benefits
• More local to maintain
• Easy to rent to professionals

Cons

• Low rental income means it could not be my “new profession”
• Lower relative rental yield than north England option
• Slow way to build portfolio

There’s a third option which would be to buy up to 8 houses in South Wales, where I originally hail from, which would give me a geographic advantage and I also have family and friends who are tradesmen and could possibly manage the properties, which falls in between the first two options.

As you can see from my options, I’m stuck between the pragmatic and the adventurous options and I may not get another opportunity to chase my dream again, but I’ve got a lot at stake if I fail.

One of the things I’ve been interested in pursuing is a mentor system where an old hand in the housing game could act as mentor, for free, or a small stake in the business. Maybe someone who works in a different location, is semi retired, or deals with much bigger fish, so as not to have any conflict of interest. Does such a thing exist? If not, is that something we can kick off in this forum?

What I’m seeking from you all is your opinion or advice, all of which will be gratefully received!

Regards

Matt

Comments

Scott Scott

11:23 AM, 3rd October 2013
About 8 years ago

Reply to the comment left by "LucyM " at "03/10/2013 - 11:05":

I suspect your assuming his partner doesn't work. If she does then she can take out the mortgages and he needn't get a job. If she doesn't then she'll be managing the family and he need not worry.

Lucy,
I assume you don't have 13 BTLs and a family otherwise you would know anything is manageable. Plus if he went through a letting agent it's almost hassle free. Don't forget the £55,000 set aside.

This is exactly what I would do with an additional £250,000.

Jeremy Smith

11:32 AM, 3rd October 2013
About 8 years ago

Reply to the comment left by "LucyM " at "03/10/2013 - 10:12":

Hi Lucy, and all,
You make some good points Lucy, particularly about interest rates.
The reason I would spread an investment over more than one property is purely for voids, or worst still, the tenant stops paying.
With several, if you lose a tenant, then you lose just a % of your income, not the whole lot in one go!!
If they're a non-payer, it could take up to 5-6 months to get your property back and re-let, and with only one property, the paddle and creek come to mind !!

Vanessa Warwick

17:02 PM, 3rd October 2013
About 8 years ago

Hi Matt,

You are in an interesting and healthy position but I want to caution you, if you don't mind?

£250K sounds a lot of money, but, in property, mistakes can be very expensive and none of us can afford the cost of ignorance.

My first thought is that you are being unrealistic in expecting to go into property full time .

When you actually crunch the numbers, you will find that they simply don't add up for you.

Let's say, for the sake of argument, you bought 4 x £250K properties in London which would requires £250K in deposits (and 75% LTV BLT mortgages) and give you a million pounds worth of property.

Then let's say that those four properties each gave £500.00 per month positive gross cash flow ... (Which would be VERY challenging in London but I am being optimistic here).

That equates to £24,000 per year positive gross cash flow before taking into account voids, arrears, repairs, fees, insurance etc etc.

And I have not included the

13 costs associated with purchasing a BTL property

http://www.propertytribes.com/13-costs-associated-with-buying-a-btl-property-t-9115.html

On a typical property puchase of £250K, these would amount to approx:

£4,750 per property.

So approx £20K in acquisition costs on top of your deposits.

I don't think you could live off this income unless your wife is working and has a good job?

Have you considered starting a property related business or joining a property related franchise to create cashflow while building your portfolio? I think this could be the way forwards for you.

You are welcome to give me a call on 07918 684598 if you would like to chat through what your options are. I have nothing to sell you. I am a landlord of 10 years with over 20 properties and I'm NOT writing to you from a beach in the Caribbean!! 🙂

I also hope you will take time to read my "Top 10 must read discussions for novice investors" which will keep you away from the property snakes and help you up the property ladders!

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

Remember property is not "one size fits all" and you must do what is right for you and protect your funds, as they will soon go if you make some poor choices.

Lucy McKenna

17:26 PM, 3rd October 2013
About 8 years ago

Hi Vanessa, please explain the term gross cash flow, I usually use the term gross income and net income. Gross income in London on a £250,000 property would be about £1500 to £1700 per month and as for voids they should be non existent in London. One usually has to programme in a weeks void sometimes to get some major works done.

Vanessa Warwick

17:30 PM, 3rd October 2013
About 8 years ago

In this case, I meant the difference between the mortgage and the rent.

You can suffer voids in London, just like anywhere else, and it would be foolish not to factor them in imho, especially as a newbie starting out.

Numbers never lie, so it's vital to get them right.

If you don't get any voids, then great and your cash flow will increase, but if you do get one, you have taken that into account.

It's just belts and braces Lucy.

Lucy McKenna

17:42 PM, 3rd October 2013
About 8 years ago

Reply to the comment left by "Vanessa Warwick" at "03/10/2013 - 17:30":

Thanks Vanessa, I agree your comment on voids and I am all for belt and braces. Therefore major thing to point out here, as I have said before, if your calculations are based on current mortgage rates if they go up to past rates, or even go up substantially, as they could, he would be in big trouble.... The only thing that would probably save him in London, is that he could as things are, sell on at a profit but if for any reason this changed it is still risky. There was a time, and we were there, after 9/11 that everyone was very twitchy about living and working in London and property prices fell,

Lucy McKenna

17:50 PM, 3rd October 2013
About 8 years ago

Vanessa, I find this interesting and I am keen to learn so please believe I am not being difficult. If you divide £250000 by 4 properties, that is £60,000 deposit for each and £190,000 mortgage. At todays mortgage rates the cost of the mortgage would be about £500 that should give a difference of mortgage to rent of about £1100 I think

Mark Alexander

18:10 PM, 3rd October 2013
About 8 years ago

Reply to the comment left by "LucyM " at "03/10/2013 - 17:50":

Hi Lucy

4 X 250,000 = 1 million

Assume 75% LTV mortgages

750,000 of mortgages at a rate of say 5% = 3,125 pcm

If we assume rent of 1,500 per property that is 6,000 pcm

Therefore, gross cashflow per property is just over £700 pcm

All totally meaningless though.

The figures need to be run through our calculator to make any sense at all as there are so many other factors to take into consideration.

See >>> http://www.property118.com/landlords-buy-to-let-property-investment-strategy/calculating-rental-yields-and-returns/
.

Vanessa Warwick

18:17 PM, 3rd October 2013
About 8 years ago

A 75% LTV mortgage on a £250K property would create a mortgage payment of around £750 pcm.

A £250K property in London would achieve between £950 and £1250.00 pcm rent ... hence how I arrived at my figures.

To be achieving £1500 pcm in London, you would be looking at properties at around £300K.

Lucy McKenna

18:22 PM, 3rd October 2013
About 8 years ago

Reply to the comment left by "Mark Alexander" at "03/10/2013 - 18:10":

Thanks Mark, brilliant explanation, love the idea of the calculator as it gives, I believe different scenarios re mortgage rates. I still think way to go with a relatively small investment might be no mortgage and peace of mind the mortgage seems to be the risky factor but I guess there are many big, buy to let people out there that will laugh at this view and are making a great living in good times and bad

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