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  • Mortgages & Finance

    Question of the Week 6: What does it take to give up your day job?

    One of the main goals of investors seems to be to get themselves into a position where they create enough income through property to be able to give up their day job.
    Only a minority of investors seem to have a job which not only they enjoy, but also earns them a very good income. The majority seems to want to get out of the "rat race" and enjoy "financial freedom".
    The question is: How can you get there and when is it safe to give up the job?

    Angela
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    Angela,
    I thought this was such a great question that I have made it Question of the Week. I hope you don't mind?!
    Thank you for inspiring such a great question.
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    Not always Nick - I was in the rat race – left and successfully run my own business for a couple of years – rejoined the rat race as an opportunity to live abroad and supposedly not have to travel every week (well that was a lie) – now sick fed up of it and want out again.
    Also to get into property or any business you need some money - hence people work for some years to save capital or create a war chest/funds to invest in property.
    My question to Angela or others is how much capital do you think people require to invest to be self sufficient and how do you maximize its return from that initial investment.
    The only way I can see of doing it currently is development opportunities – buy to let will give good long term returns but not provide enough to live off with out either significant capital funds initially or capital appreciation e.g. I have worked out if I was to invest 300k and leverage that to say 715k (i.e. borrow 415k) in year 1 – I could make a return of just over 30k after interest, repairs etc – I think that return is okay but it is not enough 2 live off and doesn’t allow you 2 pay down any of your debt.
    My current thoughts are that I will look to split savings between buy to let and property development focus on this for say 12 months and then have to go back to the rat race to save for another war chest until the business could at least produce 60/70k cash flow a year which would be sufficient for financial freedom……

    Nick Parkin said:
    The people who can cope with being self employed are very special. I suspect that anyone who got into the rat race can't get out.
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    To understand when you can give up work, you need to have a very detailed picture of your financial situation and what it costs you to live in the style to which you want to continue living, after you have left the rat race.
    My advice would be to create a spreadsheet of your living expenses. It might look something like this:
    Monthly outgoings:
    Home mortgage £1000
    Groceries £500
    Utilties £300
    Entertainment £150
    Credit card payments £600
    Loans £150.00
    etc etc.
    When you have the total figure, that is the passive income you need to generate. You could create a number of income streams as it would hedge risk to rely on more than one income stream:
    BTL properties net rental income
    A property related business
    MLM scheme like Utility Warehouse
    Sourcing props for others
    Affiliate commissions
    Let's say you need £2.5K per month to cover your expenses. That could be five multilets giving you £500 net cash flow a month. But that also means you need 25% deposits for each property, which could be a hefty chunk of money.
    I have been in this game for six years and (unfortunately) I am still a fair way off from reclining in abject luxury on a beach somewhere!
    There is the added conundrum too now that most lenders will not accept rental income as "income" for mortgage application purposes. Therefore, if you are a full time property investor, how are you going to get financing, other than looking at commerical products?
    Property is not get rich quick, and in the current market conditions, is probably "get rich slower than ever before" IMHO.
    But if you invest for cash flow and take a long term view you won't go too far wrong either.
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    Great question Angela. I often ask clients what their property goals are, as I need to understand these to provide better advice. There are so many ways of making money in property, so it is important to align your property strategy with your goals. I have to say that most clients say that they are looking to build a pension i.e. long term capital appreciation, rather than replace the day job.
    Totally agree with Vanessa that it is important to define what figure is needed to be able to ditch the day job. This gives a precise target to aim for and makes things seem more achievable. You can then decide at what level you could resign the job ... maybe lose the sports car / holidays to Dubai & Florida / gym membership ....... etc. Ask yourself, how much do I really want this?
    Regarding "multiple streams of income", I have to say that of the financially very successful clients I have, they tend to do one thing ... but very well. Generally, concentration, not diversification, is the way to serious money. Note I said "financially very successful clients" ... there are plenty who make only a modest living, but are clearly "successful" i.e. happy.
    You can give up the day job when you have your expenses under control, a wedge of cash to support you in the early days, and either a great new product, or an old one that is better. The first two are easy to define. Only the individual can judge the third. The more success and experience you can achieve before going it alone, the better the chances of long term self employment.
    Personally, I built up a few clients alongside my day job, then once I had a years income in the bank, it was time to fly. If you really want it, you will work hard in that first year to achieve your goals, and of course to prove all your friends and family wrong!
    Stephen Fay ACA
    Fylde Tax Accountants
    Tel: 01253 350 123
    Email: stephenfay@fyldetaxaccountants.co.uk
    Web: fyldetaxaccountants.co.uk
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    Stephen Fay FCA
    www.fyldetaxaccountants.co.uk
    'The Property Tax Specialists'
    Spooky! This was very similar to the Q&A I answered for a reader this month for YPN though it doesn't appear till Novembers edition.
    In brief the basis was can they give up the day job through buy to let; most of us start out thinkng this is easily achievable in a few short years but the reality is very different. Rents have remained pretty static for as long as I've been in property - 10 years! I made no predictions for that nor did I ever expect properties to cost so much to maintain, manage and rent. Let alone voids, arrears, etc.
    Over the years I've become all the more convinced that a portfolio must be about the growth, your retirement (whenever that is and it isn't necessarily 65!)
    It is however perfectly possible to earn a very good living from property and there's loads of suggestions to do so however in reality you're only replacing one job with another. Not that I'd change a thing or go back to my day job and mine was about as exciting as they get!
    I only know a very small number of people who live off their portfolio and I mean genuinely not just to sell courses! They have usually been in the business for many years, manage all their properties themselves, often do muti let's and live an extremely frugal lifestyle!
    Again is that really giving up the day job? And is that how you imagined your retirement?
    Studying others especially those who have been in property at least 20 years was one of the big factors that made me certain my exit will be to sell up completely, stick the money in the bank and then decide what I will do next! How much? The million dollar question - it's got to be at least £5million by my estimates and even that if you don't earn again isn't a lot but I'd be happy to live off the interest!
    I get so frustrated, no I'll be honest and say angry when I see talk of getting into property and living like a millionaire! It's rubbish! Comparisons to those on the Rich List really get my goat! Those in property either run property based businesses or made their money in something else first - that is not the same! As I said before even the Wilsons were wealthy prior to getting into buy to let and look at ex property Rich Lister Simon Morris! And as for the remortgage forever and live off debt strategy well...!
    I am a huge advocate of buying property - be daft not to be but people need to understand the real wealth is in long term buy and hold and to have the patience to allow inflation to take it's course! For even the average person this can still be wealth beyond your wildest dreams and a very early retirement. If you want to get rich any quicker do the lottery!
    KR, Lisa
    https://www.keys-mortgages.com
    https://www.pipaforum.com/blog
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com

    Not sure I answered your question there Angela or maybe I did from my own perspective and how I reached my personal conclusions!
    Anyway, great question and one so little asked by those who should be asking it the most!
    KR, Lisa
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com

    Angela,
    I think it requires determination and a plan. I have created a passive income stream which means I no longer have to work. It also meant I had enough money to start businesses [which I did because I like and also to make a bit more money]. I started with 15k, 5 years ago. It is possible to quit the day job on buy-to-let but you have to actually buy the right properties - numbers are everything. Don't get me wrong I have made plenty of mistakes [still do] but the critical thing is doing for today rather than tomorrow. Most people I know buy for a pension - me I want to live my life now while my knees are [luckily] still working Smile. If you focus on what you are going to achieve today, to live today I believe it creates a very different mindset that is focussed on NOW not just tomorrow.
    Thanks
    Sam
    https://www.VirtualLetz.com @VirtualLetz
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    Some great posts here and I agree with many points made.
    I personally don't have a day job for many years and made property my 'new job'. We invested in HMO's from the outset and I can see how our income (from a property unrelated business) could be gradually replaced by +cashflow. For us that is just 'nice to know' and I feel we are in a very fortunate position to be able keep all our property profits whitin the property business.
    However, I have calculated what size of portfolio and yields we have to achieve in order to live exclusively of the cashflow whilst maintaining our current life style. And not to forget, income tax has to form part of this calculation.
    The main reason why I raised the question here was to highlight the importance of doing this calculations and having a plan. I think it can be an eye opener for many. Also, as Vanessa pointed out, there are many ways to achieve your financial goals often, as Lisa highlighted, by swapping one job for another.

    Angela
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    Angela,
    Great post.
    For me this has been the most difficult question I’ve ever had to answer and one that’s hounded me over the last two years.
    In the last few months I've made a really big effort to fully and comprehensively understand my finances. So as well as having an accountant I now have a bookkeeper who's task it is to break my activities down into tangible numbers.
    Like Rich Dad Poor Dad I'm trying to build up investments (non-property related) that amount of more than 1k of net income per month. This has to be COMPLETELY hands off investment - so shares or investment funds.
    If I can achieve this then I know that no matter what happens to me I'll at least be able to eat and drink every month.
    Once I’ve done this I can quit my job. I know it sounds crazy as 1k pm is not a lot, but if I add this to the property income and some other stuff I’ve been doing (imports) then I should be financially stable for at least 12 months. Also I will only quit if I have the equivalent of 1 years salary (after tax) in my bank account – however this can be done via a loan.
    When I quit I’m going to focus on continuing to educate myself about property, join my friends development projects in order to increase my knowledge and try to build a prolific and transparent property investment team.
    The reason I’ve not quit yet is that whilst I have a decent income (from job & property) I re-invest almost all of it into my continued property/investment education and personal development & networking.
    I don’t think it’s a simple case of quitting your job if you’ve got the money to do so. You also need to consider whether you as a person are developed enough to survive on your own. Also do you have a plan? People don’t plan to fail but fail to plan.
    I see many who simply quite work, become self-employed and still work 35hrs per week to survive– so effectively they’ve just replaced one job with another. I do not want to do this. I want to work smart not just hard.
    Passive income and leveraging time & forming strong trusted relationships are key IMHO.
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