Advice needed - starting a portfolio

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    Advice needed - starting a portfolio


    I will be soon be looking to buy my first buy to let property so I am after some advice.
    I want to give you some details about myself without giving my id away hopefully.

    We possess our property outright and we have about 60k sitting in savings making next to nothing. I have been risk adverse in the past and have not trusted share investments etc etc so probably have lost out some money.

    My income from day to day job is about 30k per year. I hate my job but for now it is safe but with no wage increase for who knows how long....and no you an idea what sector I work in.....
    My wife will be qualifying in a few months and should net around 25k per year, her job prospects are decent although by no means certain....
    We lead a fairly normal lifestyle with no excesses and have no other committments neither are of them any planned.

    My dream is to one day leave my day to day job and I would quite happily do that if I could earn 30k from a property portfolio in ten years time. Basically I would rather live on 30k thanks to property portfolio without my day to day job than live on 60K (with my day to day job still going on).

    I am decent at diy, can paint, wire a socket, change a fitting, wallpaper. Cannot solder pipe and will not mess with consumer unit.
    But to give you an idea, if I get a flat I can paint it in three days.

    I live in the GManchester area so there would be plenty of choice in terms of market. Now here come the questions:

    a) What is best for a novice landlord? Professional market? Students? HMO? I would guess the answer will be to leave the HMO to the more experienced but I was wondering what would be best in terms of professional lets or student lets.

    b) How much of my savings should I invest in my first property looking at my financial situation?

    c) Should I keep my main property morgtage free or is this a waste of money when I could raise finance on that to increase my portfolio quicker?

    d) Flats better than terraced or viceversa?

    e) Can you buy a buy to let property at auction or will this be a problem for the mortgage4 provider?

    f) How far do you landlords live from your properties, 5, 10, 20 mins drive? For GM I was thinking of Fallowfield or Prestwich. Both areas appeal to the professional with Fallowfield also attracting many students.

    g) Better to setup as a ltd or not? I understand there are implications in terms of cost with the ltd option but there is the upside of limiting liability should something go wrong ie. a civil claim.

    h) How much does a good landlord liability insurance cost? Can this be separate from the property insurance so as to cover the landlord for more properties?

    i) Which is the best way to advertise? gumtree? rightmove? own board outside property?

    I have a lot of stuff in my head and I want to research everything. I would be extremly grateful if the experienced landlords of this forum could give me an answer to my questions, especially David Winter and Phlash.
    I am very enthusastic about my prospects on this but I want to cover all angles.

    werted - just to let you know I am not a landlord but I work extensively with them, my background is in funding commercial and residential investment property which is why I predominantly frequent this specific forum and hopefully provide relevant information, so those landlord specific responses you should get in due course.


    In answering some of your questions:

    Firstly if you are looking to replace a £30k PAYE income with portfolio income a good target is set yourself a goal as to what level of gross income you will need in the future so that after costs you achieve the level you want, then work out by when you want to get there and work back from there as to how many properties that would realistically need.

    In the shorter term having a background income will open up more lender opportunities as most (not all) look for some personal income outside of the portfolio so that you can maintain your living standards and your personal commitments.

    The route you take, single tenants, students HMO or whatever should relate more to your time to look after the portfolio as external management will eat into your income. Students are OK but you need to understand the right location, the fact that timing is critical (most student lets are now lined up for the new term so a feb/march purchase could have a few voids before being fully let). You need to work with the local unis and colleges because some of them are actively developing their own halls and could be stealing your tenants in the short term (1st year freshmen at least). Some student lets will be by default HMO's so you personally will need licencing if necessary and that usually brings with it a higher level of specification for the properties. A single let is easier but again if you have a wayward tenant, all your eggs are in one basket.

    There will be specialists in all these areas that can help you if you ask on the most appropriate forum.

    As to how much of your savings you invest should be dependent on the return they would give you held in property as opposed to investment rates and of course your attitude to risk. In the bank there is none, in a property you might be asset rich but definitely cash poor. bearing in mind that if you achieve say 70% LTV funding, your deposit monies may be able to cover more than one property which will allow the portfolio to grow quicker (and spread the risk somewhat), but don't bank on any major capital appreciation in the short term, so remortgaging at a higher value may not be around for a few years yet. You could of course buy properties that you can add value to but the major leaps are probably beyond a DIY'er and better suited to someone with more trades experience ( and more time!).

    The cheapest money you can generally get will be on your own residence but assessment for any borrowing will be against your salaried income excluding any rentals. If the borrowing is solely used for business purposes, a good accountant will be able to apportion the interest charges to your 'property' business.

    On the flats or houses front, houses are easier to finance and seem to be more in demand in certain areas. The area to be aware of is leasehold flats (no one apart from banks will finance freehold ones) will generally have some management charges to find, so further expenses to consider.

    You can buy a B2L property at auction but a lot come with a sting in the tail due to condition, title issues or indeed some repos requiring as little as 14 days to complete. Realistically a conventional B2L funder can't react quickly enough and you may have to bridge first, so other costs to take into consideration. If you do fancy the auction route, do several dry runs first to see what stock is on offer, what bids they reach and what sort of buyer is snapping them up. Don't be swayed by guide prices though, they are just to get bums on seats.

    Distance is generally based on how you intend to manage. I have landlords living in London who rent to students in Manchester but they have to use local agents, others, like a very prominent HMO landlord in the Midlands is within 3- 4 miles of all of his hundreds of properties because they need a lot more work.

    As to whether you incorporate or not, you need to speak to an accountant versed in the property sector (not all are) and they will help you weigh up the differences, the tax benefits and the additional costs. Don't think being a limited company will avoid any liability, the H & SE could sue a director of a company for the company’s breaches as a landlord, and all financiers will want personal guarantees as you are new and have no track record.

    As to the last 2 questions someone with more appropriate knowledge will be along soon.

    Above all don't rush into things, due a lot of due diligence and as some say, hope for the best, prepare for the worst and your business model should sit somewhere in the middle.


      Thanks for the comprehensive reply.

      I will come back with more questions / comments at a later date as I want to take time to digest the info.

      When you mention raising money on my own residence being cheaper does this imply that it is possible to raise a mortgage on my home to fund BTL? I thought lenders were against this sort of thing.
      I've mentioned to my wife the possibility of raising a mortgage on our home and she has had a hissy fit already....she is happy with the thought of not having a mortgage on the main home but that will need some work I think...

      I will leave the auctions out for the time being until I become more experienced and a have a few under my belt.

      In terms of locations I have plenty of choice in Manchester. For students I would have Fallowfield, Withington, Didbsury etc etc but in South M prices are higher.
      For the professional market I wonder if a terrace in Manchester is really the best option. Most jobs here are now in legal firms, banks, or media city. The type of young pro that will work in these sectors probably won't be too keen on a terrace house, maybe more into trendy flats but this could just be my own interpretation, again will need to research. It would be good to have feedback from Manchester landlords if there are any on here.

      I will also try to devise a business model. In order to make a start I would like to assume a first purchase of 100k with 30% deposit. Assuming it makes a rent of 450 quid a month how much would mortgage repayments on current rates likely to be per month on this?
      I am a basic rate taxpayer so I have to deduct 20% of the income if that is correct.

      Many thanks

      p.s. the midlands landlord made me curious, surely with that amount of properties you would need a full time letting manager and at least two full time handymen?


        Don't need to buy expensive books or go to seminars. The fundamentals can mostly be summed up in a page of text;

        Average yields for flats are 6%. In other words a £100k flat will let for £6k per annum. So you'd need £500,000 of property owned outright to return 30k gross. Take off £4k pa expenses & you're left with 26k. So with just 60k you're a very long way from living off property.
        You might get 10% yield from a student let if you don't mind the additional hassle. Either way your only hope is to stay in high gear & hope the market rises. Over time you can do draw downs & increase your portfolio.
        At present your best hope would be a £300k student let or HMO. You put in 60k & borrow £240k. So your 5:1 geared. Your mortgage might be say 5%. So 5% gross income (10% rent minus 5% mortgage) = 15k less espenses of say 2.5k. You're left with 12.5k. Not enough to live on but still a nice return on 60k !
        Plus you're 5:1 geared to start with so if property value rises 10% your stake will have risen 50%.
        So now you see how to become a property millionare :-)
        I live within 3 miles of all my BTL's. I don't want to trust or pay agents or maintenance men. So if you feel the same way as I do then don't buy somewhere miles away from where you live.

        Friends thinking about doing BTL often ask me for tips
        I send them this little summary of key points I've put together from 20 years experience:

        Buy to let

        Bear in mind most tenants are in their 20's.
        Majority prefer to live near to City centre, shops, universities etc

        Crucial figure is to aim for 6% yield or more. Yield in % = annual rent x 100/property value
        £100k flat letting for £500pcm achieves that. Yields on houses are lower unless you get into HMO's & students.

        Expanding your portfolio
        One can only expand one's portfolio by raising deposits on borrowed money when the market is rising. As your property's rise you can get them re valued & borrow more against the increased equity back up to 85% loan to value (LTV). Then use that borrowed money as deposit for more properties. That's called 'gearing up'. To start with you need 15% deposit. lists various BTL mortgages.

        Lease needs to be well over 80 years of unexpired term.
        Once less than 80 years extension of lease costs more due to marriage value of lease.
        Ideally the freehold will be owned by the leaseholders.
        Next best thing to owner ship of the freehold is if they've set up Right To Manage (RTM) instead.
        Even if they have gone RTM keep an eye on lease length.
        All RTM does is prevent management 'rip offs' by the freeholder.
        It doesn't negate the need to renew the lease as it heads towards less than 80 years of unexpired term.
        If the flat isn't in an RTM block then check the state of the communal areas such as entrance halls & exterior painting to see if that's well maintained.
        Occasionally leases are defective such as they aren't worded in the right way to give the freeholder the right to collect maintenance money & manage the maintenance. You need to make sure your solicitor checks the lease wording on this & other points carefully.

        Check list to ask estate agent/vendor before flat purchase
        1] Do leaseholders own freehold. Or if not have they set up ‘Right To Manage’ (RTM) ?
        2] If neither then what is management like ?
        3] Check the annual service charge. Should be IRO £600 to £700 pa.

        Most important - When you retire & want to sell the flat/s they will need to have about 85 years unexpired term on lease.
        Less than that then the solicitors of any potential purchasers of your flat may advise the buyer of that.
        At some point flats aren't even mortgageable when the lease gets below a certain amount of term left.
        Around 70 or 80 years. It costs money to renew a lease. So you don't want that unless the flat is a bargain.

        If you borrow 85% LTV you'll be 6.66:1 geared. So your gains on your 15% stake are multiplied nearly 6.66 fold !
        Example, if you invested £15k in a £100k flat & then property values rise 10%, your 15k's in an investment that's gone up 10k. That's 66.6% !
        Bear in mind though, your losses are multiplied in a falling market. Even then it doesn't matter too much if you don't need to sell at that point because eventually they price would recover. It just highlights the fact that the safest way to invest is have long term view 15 or 20 years or more.

        Tenant’s income should be 3 x annual rent. Look at their credit history to see debt level as salary might need to be higher if they have heavy credit loans to pay.

        People are fussy. Don't want this or that. I got so tired of moving furniture in & out of storage I now do unfurnished apart from furniture that came with flats when I bought them.

        I advertise on Gumtree &

        Vital questions to ask prospective tenants before deciding to arrange a viewing. I use email as It's frustrating ringing & getting voicemails or being disturbed by phone calls;
        When people agree a time to view. Ask them to ring you 30 mins before to confirm they are coming.

        Your name:
        Your phone number:

        1] Date you need a flat ?

        2] Are you in full time employment or education and if so what is your job or subject?:

        3] Proof of income is req'd if you view then wish to rent the flat. What is your (joint) annual income ?:

        4] Please give details of any additional tenants & income if any:

        5] Before we rent to anyone we always check their credit history with credit reference agency. Have you always made monthly payments on time for credit card bills, rent, bills, loans& never been taken to court for debt? In other words DO YOU HAVE A CLEAN CREDIT HISTORY ? :

        6] Do you smoke?

        7] Do you have pets?

        8] Are you over 20 years of age?

        9] How long do you need a place for ?

        10] Any comments or questions you may have


          I have posted on a couple of other threads about this -see US forclosure properties- My advice stands the same here. With an outlay of around 230K you will get your 30K a year immediately..fact!. The down side is you need cash to purchase, you can't get mortgages in the US at the moment. I have six properties. They cost around 170K (sold some useless buy-to-lets in the UK to raise the finance) I get 2K a month after property taxes and management, insurance etc. Beautiful houses as well.


            Thanks Pobin for the long reply.
            I have a question for you, what do you do when you meet a tenant to view the property and you feel something is not right, do you tell them straight we are not going to get on or do you tell them its already gone. Also at what stage do you issue your questionnaire? Before viewing or at viewing or at contract signing?

            For the american lady, how do you look after these properties, do you use local letting firms?


              Ask initial questions on first contact, more detailed ones on the viewing, and further ones after credit checking.

              You should have no questions at contract signing...

              Secondly, don't undervalue the use of a quality letting agent. Doing your homework and selecting a decent agent can really be a saving... (Yes, I do own an agency, but I think we add more value than we charge - I am primarily a landlord, secondly an agent - small agencies like this can be very good quality in comparison to some of the bigger options, just check their experience/credibility!).

              £60k is bang on the amount of cash required for a larger HMO with ~10% yield.
              I can take no responsibility for the use of any free comments given, any actions taken are the sole decision of the individual in question after consideration of my free comments.

              That also means I cannot share in any profits from any decisions made!


                How much more hassle are HMOs against flat rentals?

                I don't wish to rent to DSS or newaly arrived people in the UK, I would be more interested in the professional market.
                My newbie guess is that a decent HMO used to rent to new doctors / newly qualified solicitors would cost a little bit more in terms of making it attractive to that market and also would need more maintenance to keep it up to spec.

                Also is there any point in having no mortgage on my own property or should I remortgage to raise money for portfolio build?
                There was a similar thread on here and there were conflicting views on this.

                Also would you bother paying into a pension? I pay 150 quid a month into one and i am not sure if it worth doing.....putting into a property mortgage sounds better


                  HMO's can be triple/quadruple the amount of work on a yearly basis, but that is why the returns are higher.

                  If you raise a mortgage on your own property, you may find that you can access 'cheaper money'. i.e. the mortgage rate on that loan in comparision to a BTL loan is less. If you do it in the right way, then this is tax deductible as well. Meaning the cost of the borrowing is reduced by the tax rate that you pay.

                  I.e. £100 interest gives you a £100 deduction against your profits, meaning you save £20/£40/£50 in tax depending on your tax bracket. So the net cost of the interest is £100 less the £20/£40/£50 additional tax you would have paid had you not had the tax deductible interest. The 'effective interest rate' is therefore [(1 - tax rate) x interest rate].
                  I can take no responsibility for the use of any free comments given, any actions taken are the sole decision of the individual in question after consideration of my free comments.

                  That also means I cannot share in any profits from any decisions made!


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