Next steps to build my property portfolio?

by Readers Question

4 years ago

Next steps to build my property portfolio?

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Next steps to build my property portfolio?

Firstly, I have to say “I love this platform”, thank you all so much. A brilliant resource which I often find myself reading for hours on end rather than getting on with work! Oh, and in ref to a comment this week I don’t really care if my questions sound naive!

My question is about the next steps with my very, very small portfolio and looking at what is the best way to finance next steps.

In total I have 4 properties, all paid for with cash and with no outstanding mortgages/debts. All are in tip top condition inside and outside. Three are based near Newcastle, 2x 1 bed apartments and 1x 3 bed duplex apartment. The remaining property is a 2 bed, 2 bath apartment directly on the beach and is based in the Isle of Man. All are rented out.

What do you think would be the best way to move forward and buy a couple more BTL properties? Next steps to build my property portfolio

The initial reasoning for purchasing outright was to relax and not worry too much if the properties were empty for any length of time as they all had major refurbs, financially things were a bit rocky for everyone and also hearing horror stories of whole portfolios being on finance and landlords loosing the whole lot.

It’s worth noting property is a long term strategy for me (10-15yrs) and this is not my main income, however, I enjoy the whole process of refurbishing however large. I always need a project!

Ideas, however radical, all welcome.

Thanks.

Angela



Comments

Mark Alexander

4 years ago

Hi Angela

I will be very happy to answer your specific questions online free of charge, just keep posting your questions in the same way. However, if you would prefer one-to-one confidential mentoring to help you to build a robust strategy of your own please see >>> http://www.property118.com/consultancy-mark-alexander/61522/

I have documented much of my own strategy and many of the lessons I have learned over the last 25 years in this series of articles >>> http://www.property118.com/learning-from-experience/61558/ and I would suggest this is as good a starting place as any for you.
.

Tom Sawyer

4 years ago

Hi Angela.
I am in a very similar situation to you in that i own 4 properties (houses) all unencumbered. Have you considered leveraging up to buy more? I have a goal of 10 houses providing a nice income say 60% LTV on 5 year fixes and also doing one maybe two BTS (buy to sell a year).
I still work full time, but looking to go part time when property income is double my day job
I will be interested to hear peoples ideas on the way forward.
Tom.

angela martin

4 years ago

Reply to the comment left by "Mark Alexander" at "16/08/2014 - 10:30":

Hi Mark,
Thank you so much, I will come back to you directly via the link. Your story and finance mantra is amazing and as a novice I hadn't even thought of financing they way you do. It's very refreshing to look at how to use assets to move forward in a different way. I am totally committed to a long tern strategy and not interested in a get rich quick scheme, that is unless I win the lottery! Ange

angela martin

4 years ago

Reply to the comment left by "Tom Sawyer" at "16/08/2014 - 12:48":

Hi Tom, Yes, I often think, could financing be the way forward? After reading Mark Alexanders piece about his own business model "Basic fundamentals of a buy to let property investment strategy" I feel it is most definitely the way forward. Marks article has helped me understand financing in a positive way and look at things from a different angle. He is completely right about cash being king. My main problem at this stage is I currently live in the Isle of Man and lenders seem a bit vague about IOM and UK properties. I do have another property in the UK which is mortgaged and unfortunately was bought just before the crash. I paid £319,000 for it. Beautiful house and brand new. I deposited £97k in to it and mortgaged the rest on interest only. After having dropped massively when I first bought it, now it has steadily increased over the last 3 years up to approx: £295 - £300k. This property will stay with me for some time, however, if possible, I haven't ruled out remortgaging to release some of the equity to reinvest elsewhere or even keep aside as per Marks idea of cash in the bank. Would be interested to hear what you decide with your portfolio.
Ange

Mark Alexander

4 years ago

Tom and Angela

Basing your strategy on LTV is fools gold. Some portfolio's are safe at 85% gearing, others will not be safe at even 60% gearing. Stress testing of cashflow is far more important than LTV. I suggest you take annual rent and deduct 25% for free holds (35% for leaseholds) as a rule of thumb in order to cover costs of letting, management, maintenance, insurance etc. The reason I suggest a higher figure for leaseholds is to factor in ground rent and service changes.

I then divide the balance by 7% to give me a maximum borrowing figure. This means that cashflow will break-even when the interest rate you pay on your mortgage reaches 7%. By all means adjust that figure to whatever you feel comfortable with.

I hope that also helps.
.

sally lloyd

4 years ago

Reply to the comment left by "Mark Alexander" at "17/08/2014 - 12:22":

Hi Mark, have just tries your stress test and I come up with £14.28. I am clearly doing something wrong. LOL My annual rent is £7500. I also have 2 unecumbered properties and 2 mortgaged. One of the unencumbered is my home and the other one is the one i can borrow £14.28 on.:) And am looking at my next step too. not much by my figures 😉

Colin Dartnell

4 years ago

Hi Mark and Sally, I am obviously making the same mistake, to take an example freehold property I own worth £240k, annual rent £14,400, minus 25% £10,800, divide by 7% = £1,542.86.

I think it should read rent £14,400, minus 25% £10,800, divide by 7 = £1542.86 times by 100 = £154,285 this being the amount you can borrow with a 7% break even level. i.e. £154,285 x 7% = £10,800.

Fingers crossed!

Oh, and yes 5% return is pretty good in my area!

Colin Dartnell

4 years ago

Oops I meant 6% return in my area!

Mark Alexander

4 years ago

Hi Colin

Yes your calculation is correct. Some calculators will give you the same answer using the following formula, not online ones though for some weird reason!

1) Monthly rent multiplied by 12 = annual rent
2) Annual rent minus 25% = rent net of running costs
3) Rent net of running costs divided by 7% = maximum loan to break even at 7% interest rate.
.

Ian Manning

4 years ago

Hi, Mark.
This is a fascinating thread and I am going to cause a few raised eyebrows by being very naive (or is that thick?!) and ask how you divide by 7%? I thought 7% was a division in itself. Do you mean the figure you end up with is 7% of the annual rent after deductions? Sorry to ask as it's obvious to others: maybe I'm being too literal.
Cheers,
Ian

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