Proposition for building a lifelong income stream : am I totally mad?

jojo90_2

Hi,

I'm 28 and my wife is 26, between us we take home about 4.3k each month and I match bet raking in circa £500-£2k p.c.m. (although this cannot be relied on long term).

We are thinking of purchasing a second property with a mortgage of £150k (ish) and renting our current flat with an outstanding balance of £134k.

Rough plan right now is to have the rental paying off the flat topped up with round £300 each month. In addition we plan to clear off the next mortgage with a £3k p.c.m payment leaving us with 1k to live off. We figure in about 3 years we will be in a position to purchase another property and have the second property as an income stream dedicated to paying off the first property.

We then repeat this until we own 5 properties, 1 to live in and 4 with rental income. These 4 properties then fund the mortgage on a 6th property which we then rent out.

And so on and so forth.

Am I mad?

custardy

thats buy to let
have you not seen all the news etc of people suffering from the buy to let boom going pop?
it all depends on if you can cover periods with no tenants/mortgage payments

jojo90_2

My personal view is it all depends where you buy and what links you have with the local area. As an example our current flat is in an ideal location to appeal to:
1) Anyone who needs to commute down the M3
2) Anyone who works at the local University (and we have personal links there with access to Phd. students).
3) Anyone who travels to London by train

We know the area round our old university very well, any property purchased in that area would need to be in a dire condition not to consistently be rented out all year.

Should the worst happen and we hit a non tenanted period then I guess this would just slow our progress over putting a stop to it. We would have £2k p.c.m to spread across each mortgage as appropriate.

Additionally its all about price, if we advertise at £100 less p.c.m than a comparable property then surely we would rent?

RobertoMoir

Are you seriously not aware of what's happening at the moment? Have you just arrived in a time machine from 36 months ago? I'd strongly suggest that a business like this is a poor risk at the moment. Even if your sums and your assumptions about the area are correct, good luck finding a bank that will have anything to do with it at the moment.

jojo90_2

I'm not looking to make capital gains just rental income. Its a long term lifelong game for me not some short term fix as per the past few years.

As for banks we have an agreement in principle to place the current mortgage into my wife's name and the new mortgage will go under my name. We are also allowed to rent for a certain period not under buy to let as there is a valid reason for us to do so.

So in my view the finances are sound and no luck to be had with the mortgage - we are lucky to be in jobs that pay well.

Those people suffering from the buy to let bubble going 'pop' are doing so because they made a poor choice of property. Many London landlords invested in new inner city rejuvenation developments thinking the 'trendy flat' model of London could be replicated.

Well, now these flats have gone into freefall in terms of value and many blocks sit 50% full. So yes, it has hurt some people but not those who made the right choice.

We viewed all these 'new builds' and thought they were overpriced, poky, and doomed to failure. Instead we chose a 70s build blocking a fantastic location with an established community owned holding company meaning immaculate groundkeeping. In comparison flats in our close are selling and holding their value well. These are large properties for the price.

Anyhow the point is yes, there isn't money to be made in terms of capital gains any more however I do believe that, if you view this as a long game, there is a good income stream at the end.

And something substantial to leave to the kids, not some pension scheme that disappears when you die.

Trying_to_be_good

Ultimately it's your choice (assuming someone will lend to you) - at the moment I thinkthere's a huge concern about rental yields due to the glut of properties coming onto the rental market as they won't sell, each landlord trying to undercut all the rest.

If it were me, I'd spend the next 18 months overpaying my current mortgage/saving to generate a significant deposit for any second property, and watch whilst the market continues to fall.

jojo90_2

That is a good point, and something I have been considering as well. At the moment we are planning to move in September however prices are still falling nationwide. My ideal point to purchase would be just as things start looking up and prices rise a little.

There is no point putting myself out of pocket by potentially 10-20k for no reason. Maybe rental is the way forward and 'virtually' pay off our mortgage into savings.

RosieTiger

I'm not looking to make capital gains just rental income. Its a long term lifelong game for me not some short term fix as per th
And something substantial to leave to the kids, not some pension scheme that disappears when you die

I think your on the wrong board !

Strangely enough the opening part of the quote below was mentioned by Robert Peston in his book which I was reading literally half an hour ago and was the oft used excuse of the people who bought second homes looking to make money on market growth.
Well guess what - the world has been turned on it's head and ANYONE who pursues this now is - in my personal opinion - NUTS !

Whilst i don't like the idea of my home's value falling and sympathise with those caught in negative equity- lets face it, maybe for all of our childrens sake the madness that has come over house values needs to end.

Some people who bought Homes To Let in the past maybe need to have a look in the mirror regarding their true intentions and recognise their ( albeit small ) part in what has taken place.

clearmydebts

Hi,

Just a thought. Why not concentrate on paying off the mortgage in your current property and when that is paid off, then purchase another property. That way you won't be stuck paying a mortgage on an empty property (if there is an empty period).

That is what I would be inclined to do at the moment, given that prices will probably continue to fall.