Stop Investing Now or Start Again?

by Readers Question

4 years ago

Stop Investing Now or Start Again?

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Stop Investing Now or Start Again?

Having embarked on property ventures last year after a health scare forced me to embrace self-employment, I certainly fall into the camp of novice investors. This site is a constant source of advice, inspiration (occasional entertainment, those jokes were good) and I have recently become an accredited landlord with a national association. It’s true: you are a friendly bunch, happy to help each other and I am pleased to have joined your ranks. Stop Investing Now or Start Again

Investors – load your calculators – here is my question ….

Poring over hundreds of Property118 posts and having grown my own modest portfolio on gut feeling and good fortune I am now curious to know if I have exposed myself to too much risk, or whether I should be on the lookout for further investment.  Mark Alexander – I suspect you will tell me gearing is too low!  I retain a £10k contingency. All opinions/advice welcome, constructive criticism is fine and I look forward to receiving it. Figures are rounded for simplicity:

My own home is a large freehold detached period family house value £500k – finance: £200k – residential  mortgage fixed until 2018 at 3%. Potential income: £1900

Two small one bedroom purpose built flats with adjacent garage, 999 year lease, well managed, value £150k – finance: £80k,  BTL mortgage fixed until 2019 at 4%. Income: £600 pcm

The two properties above are in a desirable market town, both beside mainline station (50 mins from Central London) and in catchment for very oversubscribed state schools. 

I also own 3 coastal properties. They are are large two bedroom purpose built split-level apartments with integral garage/driveway, well managed, also 999 year lease, value £200k – income: £800 pcm – finance: £100k BTL fixed until 2019 at 4%.

Fortunately my health has improved and I have now resumed my main career; the sort of profession that lenders love and includes verifying passport photos and so on. I mention here as it is not my aim to make property a full time pursuit, although I shall always source and manage tenants personally. Rather I hope that as soon as my own children have finished benefiting from those super state schools mentioned above I can let property my current home for another family’s enjoyment, scale down work commitments and relocate to the coastal property. However, always good practice to make the best use of one’s ‘gold’, and being in business can be quite enjoyable.

Thanks

Bella



Comments

Mark Alexander

4 years ago

Hi Bella

It isn't possible to say whether you are under or over geared at this stage as it very much depends on other factors; i.e. you age, your end goals and time-scales, the running costs of your portfolio etc. etc.

May I suggest that you begin by analysing each of your properties using the Landlords Calculator we have created - see >>> http://www.property118.com/calculating-rental-yields-and-returns/

This will give you a much clearer picture of what your net returns are (or will be) from your portfolio as is, and also what interest rates will have to be for you to get zero income and to break even. With this information you will be able to make an informed decision on whether you will be in a position to accomplish your end goals without changing anything. If you don't like the answer then you will need to embrace change.

My two initial observations are that your liquidity reserve is particularly low for the value of the property portfolio and debt levels that you are supporting. Also, I doubt very much that your own home will make a good investment property based on the figures provided - the yield is very low and any net sale proceeds may well be capable of being reinvested to provide far higher returns.

You seem to be an ideal candidate for the Consultancy service that I provide and I will happily introduce you to other clients of mine, for the purpose of gaining testimonials, if you are seriously interested in clearly understanding the opportunities you have, minimising your risks, maximising your returns and achieving your goals. For further details please see >>> http://www.property118.com/consultancy-mark-alexander/61522/
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Shakeel Ahmad

4 years ago

In addition to what mark has stated. You have to ask your self your attitude to risk. While I hope that you have a very healthy future. Is there a chance of a relapse and if this happens, who will take control of the portfolio & with what level of competence.

The letting market is evolving & soon we will have more legislation's and the penalties to fill the coffers of the cash starve departments. Don't expect any sympathy/support from the envious citizens.

Bella Casa

4 years ago

Reply to the comment left by "Mark Alexander" at "04/08/2014 - 08:38":

Thank you for prompt response. Sorry, I see I have confused you with my incorrect use of Hashtags (which answers one question: I am mid-forties, far too old/uncool to attempt those). Portfolio is smaller than suggested above: the one house and one small flat in market town, one apartment in coastal town.

I have run these through the calculators but struggle with straightforward categorisations: house has been home for years and cost £150k (I developed it substantially), one bed was £110k cash as refurb needed (my occupation whilst unable to pursue profession) and coastal apartment £165k (found before it went to market) as I really want to part-retire there as soon as possible. Seems to me not many places, based on current values versus rent received are very profitable? I am green though! Leverage, gears, LTV, current value versus price paid are relatively new concepts. I need, as you say, to investigate the consultancy service but I'm also curious (after reading a recent post from Jemima) to see if others are in a similar position?

Evidently, I've set myself up for the next several years with current borrowing; at the time stability was important. For this duration at least there are also solid careers bringing in a respectable income, which I hope goes some way to explaining lower liquidity.

The three properties have been purchased for specific personal reasons; I suppose making me also something of a developer. It has been a surprise though, how much I've enjoyed looking after the let properties and their tenants, even though together we've battled floods, collapsed ceilings and all sorts. In response to a further question: Life without taking risks is not much of a life at all I'd say, but I'm not the type who could buy something off plan hundreds of miles away and never even visit. Definitely also of the 'hold on to places' mindset (transactional expenses unwelcome) although I did have a sneaking suspicion I could use the house asset more profitably. That said, one property bringing in £2k or so pcm must surely be less work than a clutch bringing in far less?!

Thank you Shakeel: I suffered an accident I was very lucky to survive and I'm happy to report my recovery is now officially acknowledged as complete. Agreed, who manages the portfolio if I cannot is a worry, although I have made some trustworthy friends through my landlord association and I am training my teens to see if any of them has an aptitude for managing their future prosperity. Agreed also, there is envy and misunderstanding around us which is why I aspire to relatively modest financial wealth and strive to preserve anonymity.

Mark Alexander

4 years ago

Reply to the comment left by "Bella Casa" at "04/08/2014 - 15:11":

Hi Bella

You clearly have a knack of adding value to properties and that is not a common skill-set.

Have you considered building on that skill-set by trading properties instead of holding them as investments? The reason I ask is that I can't see the point in dealing with issues and costs associated with property ownership and lettings if the return on equity is no better than the return you would get if you were to cash in by selling the properties and holding the funds on deposit. You need to factor in your time too. Also, you can't spend equity.

If all of that equity was liquid, could you do the same again? If the answer to that question is yes then perhaps you would make more money from property trading than investing?

When my returns on equity fall below double figures I seriously consider selling the properties and re-investing elsewhere. For the last 25 years, re-investment into property has always made more sense than any other investment options I have looked into but I have recognised that that may not always be the case.
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Bella Casa

4 years ago

Reply to the comment left by "Mark Alexander" at "04/08/2014 - 15:26":

Yes.. re-evaluating options right now, hence exposing self on here! However rewarding (personal satisfaction too). Developing/trading/developing/trading is high adrenaline + workload stuff. Hard to sustain alongside kiddies & a job with special needs ones too.

Glass of wine & contemplation called for... I certainly don't want to be 'filthy rich' (really!) just hope for a level of freedom for myself and a bit of security for my offspring. There must be many investors with this game plan now? Or are most too risk averse?

Mark Alexander

4 years ago

Reply to the comment left by "Bella Casa" at "04/08/2014 - 15:54":

Risk is a matter of perception. Most people would not be able to sleep if they had as much debt as I do for example.
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Bella Casa

4 years ago

Reply to the comment left by "Mark Alexander" at "04/08/2014 - 18:09":

Sometimes sleep is a matter of perception!


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