X

Sign Up

or

By signing up I agree to Property Tribes Terms and Conditions


Already a PT member? Log In

Sign Up

Sign Up With Facebook, Twitter, or Google

or


By signing up, I agree to Property Tribes Terms and Conditions


Already a PT member? Log In

Log In

or


Don't have an account? Sign Up

Forgot Password

To reset your password just enter the email address you registered with and we'll send you a link to access a new password.


Already a PT member? Log In

Don't have an account? Sign Up

  • Property-a-holics

    Are the first three houses the hardest?



    I saw something recently that struck a chord with me where a property investor said that any business doesn’t rely solely on just one customer and that multiple properties provide more of a safety net. 
     
    In the past I have only ever had one rental property due to my fear of scaling up but looking back I had to pay for void periods out of my own pocket.  

    I envisage the first year will be all about trying to scale up to three buy to let’s and I know it will be a stretch financially on me but I’m hoping it will be worth it and that the properties will give me a cushion should one of them have a void period.

    Interested to hear other people’s views on this. Are the first few properties the most difficult?
    0
    0

    Hi Paul,

    Having multiple properties is known as "hedging" or spreading risk.  As you indicate, the theory is that, if one is void, the income from the others will support it.

    However, what if two of them are void?!

    When starting out in business, the first stages are always the most challenging, as you are learning, making mistakes, and honing your landlord acumen.  Lack of experience and knowledge heightens that risk further as the mistakes are greater, and the current market conditions are not as forgiving as they were even five years ago.

    Scaling up quickly while on a learning curve is a high risk strategy and I would certainly advise you against stretching yourself financially in the current uncertain market conditions.

    Slow and steady is the way to go imho.  So don't set a timeframe on acquiring three properties.  Get each property up and running with the tenant paying the rent on time before you move onto the next one.  Keep your loan to values below 60% to minimise your risk.

    Build your support team around you while doing this - a reputable mortgage broker, tax advisor, and letting agent - and utilise their knowledge to support your growth, while also learning from Property Tribes and other low cost resources.

    I hope that helps for starters?

    P.S.  In case you missed it, this would be very useful to you:



    Monday -  Taking responsibility for your financial future and how to do that

    Tuesday -  Get educated!

    Wednesday - Create your "income engine" and then turbo charge it!

    Thursday -  Build your "wealth pyramid" to future-proof your wealth.

    Friday - Protect your assets within a "wealth fortress".

    1
    0

    Thanks Vanessa, that’s helpful. Hoping to pick your brain on the point you make about 60% LTV. I’ve seen it mentioned before but never quite understood this entirely as I would have thought 75% LTV would be a decent enough buffer? If house prices crash I would just hold and ride out the storm (hopefully) so I’m keen to understand why 60% is so important.
    0
    0

    I believe the theory on the buffer is that if you have a mortgage at 75% LTV and prices had crashed 15% when you came to remortgage, you would need to top up the mortgage t get back to 75%.  If you are at 60% LTV, after the same fall, you would be left at 75% LTV and able to remortgage without additional funds needing to be put in.

    0
    0

    Thanks Chef - I plan on fixing for five years to give me breathing space and would hope in that time that I would have set aside a percentage of rental profit each month to pay down the mortgage should the worst happen. Not sure if that’s a solid strategy. Be good to hear thoughts on it.
    0
    0

    This is why I like HMOs so much as the risk is spread across multiple tenancies.
    0
    0

    Rooms In Cardiff info@highyield.property | Guaranteed RentSingle Let Management £50/month |Cardiff HMO Management | Cardiff Letting Agents & Property Managers | Delivering Double Digit Net Returns

    Rent Smart Wales Agent Licence Number: LR-37010-29907

    The Property Ombudsman: E1405 

    ICO: #ZA276375

    We operate Client Money Protection

    I don’t agree with the 60%. If you have the cash hold the cash don’t give it to a bank. You have nothing left to negotiate with. Agree with the rest of vanessa’s points. Resist the urge to go to quick, buy good properties that attract good tenants and ensure they cover voids. You’ll keep them forever. No point buying duds.
    1
    0

    60% LTV is so you can benefit from the best mortgage rates.

    Each situation is different of course but if you find yourself with extra money in your bank account and you are on a 75% LTV it could make more financially sense to pay down some of the loan to get onto a better rate which would also be better for S24. 

    0
    0

    I dont understand why a lower ltv helps with s24, s24 is about paying tax on profit so lower ltv increases profit.
    Could you explain rational?
    0
    0

    Slowly working towards financial freedom


    Errr really sorry. But that is not the case it’s a tax on revenue.
    0
    0

    No it's a tax on profit, as you can still offset a portion of mortgage via a tax credit and you  an still offset certain expenses. So reducing your LTV reduces mtg interest this reduces your offsetting allowance and thus increases profit and tax regardless of s24 or not.
    0
    0

    Slowly working towards financial freedom