Newbie Landlord – Taking risks growing my portfolio

by Readers Question

12:19 PM, 13th November 2015
About 3 years ago

Newbie Landlord – Taking risks growing my portfolio

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Newbie Landlord – Taking risks growing my portfolio

I became an accidental landlord in October 2014. I bought myself a one bed property in Surrey in December 2012, and had no intention of ever making property a business. However, when I approached my mortgage broker last year to discuss a switching deal after my fixed rate came to an end, he mentioned that the property had risen substantially in value and that I had enough equity to buy another property, so I did. I now rent out the property I bought in 2012 and I have bought myself a two bed flat in SW London.

I am now really keen to expand my portfolio and the dream is to one day be able to give up my day job, and be able to live off the income my property portfolio generates.

My calculations predict that I should be able to buy my second BTL in 2017/18 (market dependent) however I am aware that I may be cutting it fine with regards to cash flow. My current rental property doesn’t generate much cash after mortgages/ground rent etc, however the capital appreciation is good.

Should my next property be an income property to give me the cash in the bank to cover any unexpected costs that may arise?

Any advice on how to best expand my portfolio at an early stage whilst also limiting the risks of running out of cash would be much appreciated 🙂

Thanks in advance

Mike



Comments

Mark Alexander

12:23 PM, 13th November 2015
About 3 years ago

Hi Mike

I have written an entire series of articles based on this particular subject.

You can access them via the following index page >>> http://www.property118.com/how-to-become-a-respected-profitable-landlord/60765/
.

Recardo Knights

14:44 PM, 16th November 2015
About 3 years ago

Hi Mike,

Someone said expect the best but prepare for the worst. You will need to research and learn more about the property market, and knowledge can be gained from sites like these.

Your first flat, and you asked your broker for a better deal, why not the mortgage provider direct. I did this nearly 2 years ago (and always do where permitted) and got another fixed deal saving me over £100pm at a admin/arrangement fee of about £300. Will be doing it again soon.
Did you not check the market to see what your flat was worth.

If you are making very little profit on you rental now, what will you make once you deal taken in 2014 ends and their rates goes up. If there is a change of only 2% on your mortgage rate if the base rate goes up, will there still be a profit or loss.

If you are not paying an agent to manage (you are still held responsible, so keep tabs on them) or can you learn and reduce costs by doing it yourself of changing agents. some advertised here at app 4% fee.

Are you aware of the summer budget if not changed will mean you will effectively pay tax on the money you now pay your mortgage company, as if it was your profit, instead of an expense.

Don't understand what you mean by an income property, HMO's are more work but can get more income. Flats and house are less work, I'm told, and produce less income, but unless they make a profit what happens when the roof wants fixing, or the boiler needs replacing etc, and you have no money to cover it.

Any thought on void periods and refurbishments. Voids loose you the rental income but you still have to pay mortgage, upkeep and, rates to the council. In most cases you will have to spend to make it presentable to the next tenant, and agents fees for re-letting.

Do the research and then decide if it is the risk you want to take, but don't believe the people that know nothing when they say being a landlord is easy, money for old rope. Many LL's have fallen along the way through not knowing the rules, or just getting bad tenants.

I wish you the best, most people will not step out of their comfort zone, but will preach to others how easy it is. Ask the advise of people who are doing it, Listen to people who are walking the walk, not talking the talk, and read up on everything you can.

Bricks n Mortar

16:14 PM, 22nd November 2015
About 3 years ago

Hi Mike,
I wish you the best of luck, BUT beware of the impact of the new Government budget changes which start coming in from April 17 and will be fully in place by 2021.

Outstanding mortgage interest owed will suddenly turn from an allowable expense into taxable income. If you get caught with your trousers down, so to speak and have too much high gearing, you risk going bankrupt as you will owe HMRC more than you actually make in rent.

This of course is completely bonkers. However, making use of spare equity needs careful thought now more than ever as you will pay for this in more ways than one. Your broker should really have warned you about this:

http://www.property118.com/2015-finance-bill-receives-royal-assent/82480/

http://info.upad.co.uk/budget-calculator

Google the topic and get an idea of what this means for you. Everyone's exposure as a result of the changes will be different. The impact will be worse if you are a higher rate tax payer and even if you are not you could become one if your mortgage interest bill pushes you into the higher bracket.


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