Exactly how do you "get into property "

benmurray85

Quick background. My family is probably representative of the majority of families in the UK. Very little disposable income, we get by but scrimp and save for any benefits (holidays, cars, nice clothes etc) It has always been like that since I can remember. My mum and dad both worked bloody hard (numerous jobs each) to give us everything we had and its instilled both me and my sis with a good work ethic. Now I have a son of my own I deseperately feel like I want to provide more for him and his future and Id love later in life to be able to work less and spend more time with him as well as leaving him a decent nest egg.

One of my passions would be to "get into property" I love all the TV shows and appreciate that they are probably heavily rose tinted but its something I'd love to at least try one day. It just strikes me that theres quite significant barriers at almost every level.

I dont see any possible way I could get into it, it seems like a closed shop. Has anyone done it? I'm 30 now and have started saving to try it one day (im planning 10-15 years ahead!) but Im saving minimal amounts and I know the inevitable will happen, Car will die, house repairs etc.

Anyways Im just mithering on it - would appreciate any advice from anyone who's done it from scratch.

octatonic

We bought one, then waited 5 yearsfor it to appreciate in value, then remortgaged & bought another one and so on.
I think you need at least 5 before it gives you a decent level of income to be able to not do anything else.

We did it tough for quite a few years- no expensive holidays or much other than the necessities.
When we bought a house in West London it took as 3 years to do it up and we lived in it while we were doing it.
I did a lot of the work myself to save money.

benmurray85

I should caveat this by saying I live in the north of England where housing is massively cheaper than down south!

im not even looking to make mega money in all honesty. I'd just love to build a little business that ticks over - I'm happy to graft for it though. But the aim would be to eventually have a nice chunk of money tied up in property 

octatonic

benmurray85 said:

I should caveat this by saying I live in the north of England where housing is massively cheaper than down south!

im not even looking to make mega money in all honesty. I'd just love to build a little business that ticks over - I'm happy to graft for it though. But the aim would be to eventually have a nice chunk of money tied up in property 

What do you think of as mega money vs a little business that ticks over?
How much income per month would you like to make from it after all expenses, tax, maintenance etc.

Axe_meister

Bloody hard once you already have a family.
When you are young you can slum it living on a mattress whilst you are slowly rebuilding a tiny shitty little flat you struggled to save for and pushed yourself to get a mortgage.
Now it is even harder unless you are willing to move away from big cities as far from London as possible.

ESBlonde

The entry ways are many and varied but all require some sacrifice and an element of hanging your arse in the breeze. Fears like negative equity or the place falling down play a part, or finding the property needs significant structural work that was never in the 'budget'.

If your plan is long term and you have council accomodation, then staying put and trying to buy as the tennant at a discounted rate has worked for many in the past. Do you have a works or personal pension scheme? It might be possible to invest some of the fund in property or use it as collateral for an interest only mortgage.

Buying land seems a decent investment, they are not making any more of it! Buying a property a long way from that London can be easier on the purse although the gains would be smaller by comparison. Buy a run down terrace house, do it up and put a tennant in it. sounds east but unless it's round the corner it's not.

Those of us at the end of our mortgages are now feeling quite comfortable, but let me assure you those early years ment a lot of sacrifices, simple living and doing perhaps two jobs whilst having no proper holidays. There are a small number who get burned, but it's a time linked game so get going now and see what you can find.

benmurray85

In all honesty I'd be happy with a business that broke even - obviously the money would be tied up in property and could be released later by me or my son after ive gone! But if it developed into something which provided an income that would be amazing. Whether its £50/month or more. I dont have grand ambitions!!!

TTony

Not saying that it can't be done, but it depends heavily on the right conditions in the housing market.

Assuming that you buy equivalent houses each time, but that the value changes through time as the market moves up ...

You buy property #1 today for £100k, maybe with an £80k mortgage.
You then rent it out (to cover the mortgage cost, plus a bit of profit for you) whilst waiting for it to appreciate in value.
When it's worth £150k, you can remortgage, thereby freeing up some capital (lets say £40k) to plough into the next one.
Next one you buy at £150k (because the market has moved up), with a £110k mortgage and the £40k capital that you freed from the first one, and rent out #2 to cover the mortgage cost.
When the market has moved up again, lets say both properties are now worth £200k, you've got mortgage debt of 2 x £110k = £220k and thus "profit" of £180k.
There are a number of caveats;

• You need to have good enough credit rating or security to get the mortgages.
• Mortgage interest rates need to stay low enough such that your property income exceeds your costs.  If you're renting them out, you also need to take into consideration the costs of doing the places up and on-going maintenance, plus the tax on your profits.
• You need reliable tenants and not houses standing empty for 6mths/yr.
• It's all based on ever-upwards house market values.  If, instead of increasing, the housing market falls, you end up with property worth less than your mortgage debt.  Which is not a good place to be.
• You'll be competing with everyone else who's watched the same TV programmes and think that it's a good way of making some extra dosh.

Not saying that it can't be done (plenty have done it in the past), but there are pitfalls.

octatonic

benmurray85 said:

In all honesty I'd be happy with a business that broke even - obviously the money would be tied up in property and could be released later by me or my son after ive gone! But if it developed into something which provided an income that would be amazing. Whether its £50/month or more. I dont have grand ambitions!!!

Once it starts working for you I reckon you will change your mind on this.

In the first few years it is a bit of a learning curve- you will make mistakes, you will have to pay for something out of your own pocket.
It is worth doing though- but I can't speak about property in the north, I have zero experience with it.
London has done well for us though- in 15 years of doing it we've never had a place vacant for more than a day.
With interest rates so low the monthly rents are 4-5x what the mortgage is- clear this could change but you make hay while the sun shines.

jpfamps

benmurray85 said:

In all honesty I'd be happy with a business that broke even - 

That really doesn't look a good business strategy to me............

benmurray85

It's not about running a successful business - Alan sugar style. 

Its about out building something for the future. If it turned a profit then yes that would be absolutely brilliant. But I can honestly say I'd be equally as happy knowing I had some tangible assets that could be used later in life. 

JohnnyPlectrum

benmurray85 said:

Anyways Im just mithering on it - would appreciate any advice from anyone who's done it from scratch.

My simplified route went like this:
Stretched myself to buy first house, scrimped, saved, took lodgers to pay bills.
Bought a plot of land, built a house, effectively built some equity, struggled to pay mortgage.
Remortgaged to release equity and used equity for 25% deposits on six houses, remaining 75% on interest only buy to let mortgages.
Once 25% was paid off, remortgaged at reduced balance on interest only.
Hopefully, at retirement will own main residence plus 6 rentals to provide future income.

I can't say it's been easy...

jpfamps

benmurray85 said:

It's not about running a successful business - Alan sugar style. 

Its about out building something for the future. If it turned a profit then yes that would be absolutely brilliant. But I can honestly say I'd be equally as happy knowing I had some tangible assets that could be used later in life. 

You still need to be making money; if you are not making money you don't have much of a business.

fretmeister

Find elderly relative. Make sure they have insurance to pay off any remaining mortgage on the house at point of death.

The don't sell it. Keep it and rent it out. If there is an inheritance tax bill, get a mortgage on the property to pay it. 

jpfamps

TTony said:

Not saying that it can't be done, but it depends heavily on the right conditions in the housing market.

Assuming that you buy equivalent houses each time, but that the value changes through time as the market moves up ...

You buy property #1 today for £100k, maybe with an £80k mortgage.
You then rent it out (to cover the mortgage cost, plus a bit of profit for you) whilst waiting for it to appreciate in value.
When it's worth £150k, you can remortgage, thereby freeing up some capital (lets say £40k) to plough into the next one.
Next one you buy at £150k (because the market has moved up), with a £110k mortgage and the £40k capital that you freed from the first one, and rent out #2 to cover the mortgage cost.
When the market has moved up again, lets say both properties are now worth £200k, you've got mortgage debt of 2 x £110k = £220k and thus "profit" of £180k.
There are a number of caveats;

• You need to have good enough credit rating or security to get the mortgages.
• Mortgage interest rates need to stay low enough such that your property income exceeds your costs.  If you're renting them out, you also need to take into consideration the costs of doing the places up and on-going maintenance, plus the tax on your profits.
• You need reliable tenants and not houses standing empty for 6mths/yr.
• It's all based on ever-upwards house market values.  If, instead of increasing, the housing market falls, you end up with property worth less than your mortgage debt.  Which is not a good place to be.
• You'll be competing with everyone else who's watched the same TV programmes and think that it's a good way of making some extra dosh.

Not saying that it can't be done (plenty have done it in the past), but there are pitfalls.

That model not only relies on ever increasing house prices (no guarantee of that by any means. In fact the massive increase in house prices of the past 15 years make it less likely that they will incrase in the future), but also the very favourable tax treatment of mortgage interest, which is now being withdrawn my the Govt.

octatonic

jpfamps said:

That model not only relies on ever increasing house prices (no guarantee of that by any means. In fact the massive increase in house prices of the past 15 years make it less likely that they will incrase in the future), but also the very favourable tax treatment of mortgage interest, which is now being withdrawn my the Govt.

Yes, you are right here to a degree.
It is less advantageous than it was.
Consequently rents were raised to absorb some of the cost.

As far as house prices going up, in the short term I think they will fall as Brexit looms, which is potentially good for the OP.

fretmeister

Watch "Kind Hearts and Coronets" and get ideas.

Roland

Unless you have the money to be a property developer, which the TV programmes like to show, then this is a long term business. You need to find a location where rents will cover the mortgage repayments, insurance, and repair costs, and remember that the Inland Revenue will tax you on any profits. You also need a 25% deposit, and an income which will give a mortgage company confidence in your ability to repay in the event that there's a hiccup in rental income, eg between tenants or major repair. In small towns around Nottingham you can find two and three bed houses for around £80,000. So if you can raise £20,000 in cash, for example from savings and remortgaging your own house, then you can get the other 75% on a commercial mortgage. Rents at this end of the market are dependent on what Housing Benefit and other social payment will cover. As @octatonic said, received wisdom is that you need a portfolio of 6 or more properties to provide a stable income.

When property prices were rising many landlords worked on a breakeven budget, and remortgaged every couple of years, as the property value increased, to provide a deposit for the next property. Many kept doing this so that they didn't have any profit, and hence tax, increasing the value of their investment rather than milking it for income. That isn't happening any longer, except in a limited number of locations, because property price rises have slowed. Most people going into property rental are using it as an alternative to savings. Over the last couple of years I've been seeing about 5% return, compared with less than 2% from other investments, and less than 1% from savings accounts.

ToneControl

do you  have a house you own that you can raise money on by re-mortgaging? Ideally to raise £60k cash
or savings of £15k+ to use as a deposit?  

I buy houses in the North West, averaging £40k-£60k refurbished, but normally they are all bought at auction,  rarely one turns up that is mortgageable and sold outside an auction

The rent is about  £400-£525 pcm
fees are 12%
a 75% mortgage on one of these is about £100-£115 a month
council tax about £100 pcm when the are empty
You can't fill them in one day, it's not London,  6-8 weeks average, and £200-£250 fee

benmurray85

Have a wis @ToneControl for possibly the most useful, applicable comment ever posted on here!

DLM

I use one of these, usually:

http://we022868g.homepage.t-online.de/Ebay/Artikelbilder/Stanley Fubar 3-0.jpg