Building A Property Empire

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My first blog post here is going to be about a topic I get asked about the most, rental property. It’s probably one of the biggest investments in anyone’s life, unless you’re a billionaire and you’ve bought several private jets, but then you wouldn’t be here…

Anyhow, I wouldn’t class myself as a property guru – but what I do have is first hand experience and it’s worked well for me. There is probably a million and one ways to do this, but this is the way I’m doing it, and as mentioned it’s working for me!

It’s also worth noting that I operate my real estate business within a limited company, the property is never owned by you as the deeds are in the company’s name. This is also beneficial if you don’t own your own home to live in, and are looking to use the government’s first time buyer scheme – then essentially you’d still be a first time buyer as your rental properties are in your limited companies name.

Also, in the long run if you plan to expand your property portfolio a limited company is the way to go. I’d suggest speaking to an accountant or a financial advisor first to make sure that’s the best option for your circumstances.

Remember, it’s worth noting that most buy-to-let mortgages operate on paying the interest only – that means after 30 years or whatever length you choose on your mortgage you still owe the amount that you taken the mortgage for. However, it’s probably realistic to think that property prices would have risen in 30 years.

So lets say you buy a house for £50,000 and your mortgage is £40,000, after 30 years you will still owe £40,000 to the lender. However, lets assume for this example the price of the property is now worth £70,000. So, when you come to remortgage after 30 years, either remortgage for the same £50,000 and keep payments the same or you can remortgage for £70,000 and withdraw a little more equity.

It’s important you never try and try and get your property valued more than it’s actually worth, as if property prices don’t increase then you may leave your self in serious debt – be realistic!

I won’t go into tremendous detail and bore you with all the ins and outs, but I’ll cover the basic protocol I use. So, let’s get started…

How I Build My Property Portfolio

Within the real estate industry is you can choose many paths, some choose to buy and then flip for a profit – but I think this requires someone that needs to be a bit more hands on, and you’re always on the lookout for your next property even before you’ve finished your current project, that’s not to say it’s not profitable because it is – it just isn’t for me.

The other option is buying property and renting it out, this is the method I feel suits me best, and provides me with that passive income I’ve come to crave. Even this method is split into two separate choices:

 

  • 1.) You have enough money to buy a property in full, without the need of a mortgage. The property may need some minor cosmetic work and you get the property for under market value. It’s key you can add value to the property or can at least ensure that the property would be valued more than what you paid when you come to get a mortgage on it. This is probably the easiest method: but requires the hefty cash flow of at least £40,000. Buying with cash also removes mortgage fees, so it does save
    • Do not look for properties over £100,000 – most properties of around £100,000 will bring in the same rental income as a £40,000 property. However, what a more expensive property may bring you is tennants you seem to be more trustworthy – I say forget this if your only desire is bringing in cash.
    • Don’t look for an area where you want to live, look where there is a rental market.
    • Use Rightmove to find properties up to £10,000 above your budget. Make sure you find a property that other properties in the same area, or even better in the same street have sold recently for more than your offer. You can do this fairly easy on Rightmove under the ‘Market Info’ tab.
    • Check the rental price in the area. There is an easy way to do this, by obtaining the post code and running it through Rightmove to get a understanding of the rental market. Unfortunately, Rightmove don’t get give us the post code easy – but with a simple hack we can get it. Simply, hover over the check for broadband speed and you should see the postcode in the URL in the status bar.
    • Another useful tip is to look for property that are not within a chain, as you don’t want to be waiting several months, only for a deal to fall through. If it is in a chain, there maybe the possibility the seller could move with friends/family or rent to complete sooner (which maybe an alternative).
    • So, let’s say you’ve found your offer and your offer has been accepted, and as long as your property has no chain and it’s a cash purchase you may have the keys to your new property within 4 to 6 weeks. This is when it sinks in, and when you realise you’ve probably got a hell of a lot of work to do. I underestimated this part, and thought I’d be turning the property around in a few weeks, when in fact it was a few months – mainly due to I was doing a lot of the jobs myself and relying on friends and family. It cut costs, but it took time and I was missing rental money. However, I never had an option as that was all my savings. Some tips when renovating a property is that you can do the house as basic as you want, a clean canvas so to speak – but it’s the kitchen and bathroom that sell a property (or make someone want to rent it). I looked on gumtree for nice looking bath’s, second hand but in good condition, i got a gorgeous looking free standing bath for about £70 and the retail value was around £500. I also picked up an expensive cooker for practically nothing.
    • Let’s assume you’ve now renovated your property, you now need a tenant. If you haven’t got much time on your hands and want to give away up to 10% of your rental income then by all means go with an estate agent. If on the other hand you want to manage it yourself then you need to market the property yourself (and of course be at your tenants beckon call for the rest of their tenancy). Rightmove is the place to get your ad listed, and there is some good cheap options to get your property on there without going through an estate agent such as http://www.mudhut.com. However, before I sink any money into advertising I always try free options first such as Facebook groups in the properties local area and gumtree. In fact on my first property, i took some nice pictures, listed on gumtree and within a few hours I had around 7 people lined up for a viewing the following day. Surprisingly enough, it was the first person that seen it took it. I asked her what sold her, and she told me it was the bath – what a good £70 investment that was!
    • Get your contracts in place, there are many free places online that can give you a tenancy agreement, spend a little time and amend it to your liking. However, it’s also worth considering paying a legal professional to write on up, as when you have it you can then re-use on your next tenant(s). Also make sure you get a guarantor, and do any necessary background checks (this can be done through third party agents). Again, http://www.mudhut.com/patron/tenant-credit-check offers a service for £12 – but there are numerous websites out there that may be cheaper.
    • Once you’ve got a Tennant in place, this is when you should finally start seeing a yield from your cash, but thats not where it stops. 6 months into your tenancy, you should be able to now remortgage the property (it’s called remortgaging even though you don’t have a mortgage already). What I tend to to do, which is a great little tip someone once told me, was to ask a local estate agents to come and value the property, tell them a little white lie that you’re looking to sell. Hopefully their valuation is at least £10,000 over the price you paid + any DIY. Now start the application for a mortgage.
    • Once your mortgage has been approved, hopefully you have enough, or close to enough to start the process again. It’s a never ending cycle and as rental income comes in you should start to build up enough cash for deposits without waiting for remortgages.

 

  • 2.) The other method requires a smaller amount of cash to start with, and all the same principles as above are applied. However, instead of paying with cash you will need to apply for a buy-to-let mortgage from the start. It also maybe harder to find companies willing to lend as it’s your first property – where as applying for a mortgage when you buy with cash, they see you have 6 months rental and this goes heavily in your favour. You’re also paying any costs that are associated with a mortgage twice (when the remortgage comes around. It’s also worth mentioning that buying in cash is generally so much quicker than mortgage applications.

Which ever path you take, it should be profitable as long as you do your market research. Just remember, stuff doesn’t always go to plan, plan for the unexpected and also take into account budgets are often underestimated. Take things slow and don’t put pressure on yourself to make the experience as enjoyable as possible.

Some other tips I’d like to mention:

Find a solicitor who will work fast and provide you updates. Large chains are usually less likely to be as hands on as they deal with multiple clients. I’d seriously consider a local independent solicitor, that you can get in touch with and that they can provide you advice and updates as and when. The same advice should be taken when looking for a mortgage advisor.

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About the author

Mr. Passive Income

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