Buy to let, multiple houses- live off income?

dave_100

I am 24, live with my parents in Reading, and have £130,000 in the bank.

I'm planning to move into my own place within a couple of years, almost buying a place almost outright.

One alternative idea has struck me recently, and I can't see the downside,

If I were instead to buy-to-let say, 4 houses, worth £150,000 each, laying down a £30k deposit on each and live off the interest, is this viable?

I'm thinking the monthly payments would be, say £500, and the rent I would get from each would be, say £800, say it would generate £1200 a month which to me is a liveable wage

Are these figures wildly wrong? what am I missing here? Is this a reasonable/ sensible option?

This would set me up for life and then in the future I could sell the houses as a retirement fund.

Any advice appreciate, I am new to this and just bouncing ideas around in my head.

Thanks

Thrugelmir

dave_100 wrote: »

I'm thinking the monthly payments would be, say £500, and the rent I would get from each would be, say £800, say it would generate £1200 a month which to me is a liveable wage

Are these figures wildly wrong? what am I missing here? Is this a reasonable/ sensible option?

At the most basic of levels you would pay tax on the profit.

Other than that, your plan is far too simplistic. Suggest you learn about running a business before committing to borrowing the best part of £500k. Start with something smaller.

wnoktnwbr

Theoretically sound in a vacuum, in practice there are a few issues:

1. You probably won't get 4 mortgages at 24, even with a reasonable deposit

2. You would be in an incredibly difficult financial position assuming you didn't have a job. Let's assume that the entire £130k is spent on acquiring the houses and making them rentable what happens when inevitably you can't find a tenant on 2 houses for a few months? What happens if there's a problem tenant that you need to evict and has caused damage? You can easily end up sinking a lot of money into that.

3. What happens if the agent you use is a problem and you need to switch?

It's not a terrible plan, it just wouldn't work when you account for the intricacies of letting.

If I was in your situation I'd purchase a cheap place outright to live in (as your fallback for in case something goes wrong: you'd only need money for bills), then I'd purchase another property with a mortgage and let that out, then over time learn about how letting works and build equity, then once you understand letting re-consider this plan and sell your original purchase house and the letted property. (while working of course)

There's no way you can make £130k enough to live off for the rest of your life.

real1314

dave_100 wrote: »

I am 24, live with my parents in Reading, and have £130,000 in the bank.

I'm planning to move into my own place within a couple of years, almost buying a place almost outright.

One alternative idea has struck me recently, and I can't see the downside,

If I were instead to buy-to-let say, 4 houses, worth £150,000 each, laying down a £30k deposit on each and live off the interest, is this viable?

I'm thinking the monthly payments would be, say £500, and the rent I would get from each would be, say £800, say it would generate £1200 a month which to me is a liveable wage

Are these figures wildly wrong? what am I missing here? Is this a reasonable/ sensible option?

This would set me up for life and then in the future I could sell the houses as a retirement fund.

Any advice appreciate, I am new to this and just bouncing ideas around in my head.

Thanks

Property Insurance, 4 x £300 = £1200 pa
Gas Inspections 4 x £60 = £240pa
Repairs? Min 4 x £100pa = £400 pa
Void periods? 1 in 12 = £3200pa

Your £1200 per month is down to £780.00

What happens when you need to replace a roof at £2k-£5k? Or a whole heating system, again £2k-£5k?

You could always start with 1 property using 50% cash/50% mortgage, although it sounds like you haven't yet considered whether you would get a mortgage deal? :cool:

brit1234

4 x £150k properties, prices continue to fall another 10%, higher interest rates as a result when remortgaged, 50% of equity wiped out

4 x £150k properties, prices continue to fall another 20%, no equity, can't remortgage, life dependant on interest, maybe no income and bankruptcy.

Don't put all your eggs in one basket. Also less properties are better than more in a falling market, opposite in a rising. 4 properties potentially increases losses by 4 times.

Just something to consider. Look at one property and maybe some other investments instead.

dave_100

wnoktnwbr wrote: »

Theoretically sound in a vacuum, in practice there are a few issues:

1. You probably won't get 4 mortgages at 24, even with a reasonable deposit

2. You would be in an incredibly difficult financial position assuming you didn't have a job. Let's assume that the entire £130k is spent on acquiring the houses and making them rentable what happens when inevitably you can't find a tenant on 2 houses for a few months? What happens if there's a problem tenant that you need to evict and has caused damage? You can easily end up sinking a lot of money into that.

3. What happens if the agent you use is a problem and you need to switch?

It's not a terrible plan, it just wouldn't work when you account for the intricacies of letting.

If I was in your situation I'd purchase a cheap place outright to live in (as your fallback for in case something goes wrong: you'd only need money for bills), then I'd purchase another property with a mortgage and let that out, then over time learn about how letting works and build equity, then once you understand letting re-consider this plan and sell your original purchase house and the letted property. (while working of course)

There's no way you can make £130k enough to live off for the rest of your life.

All great comments thank you, this one especially I thought.
Just one question- the end bit of what you said, about selling the original house and the letted property- but where would I live then?

wnoktnwbr

dave_100 wrote: »

All great comments thank you, this one especially I thought.
Just one question- the end bit of what you said, about selling the original house and the letted property- but where would I live then?

My scenarios are based on hypothetical's and I don't know where you live so it may not work if you want to live in an expensive place and there are tax things I don't account for and house price fluctuations, but I think my basic idea is understandable.

I was assuming that in your original scenario you would use the £1200 to pay rent (unless you plan on getting a 5th mortgaged property to live in) so in my scenario you would:

----

With £130,000 in the bank:

1. Purchase a cheap house outright to live in (~£75,000)

2. Purchase a second house with a mortgage using £25,000 as the deposit.

Now at this point you have roughly £20,000 left in the bank (£100,000 spent, £10,000 on fees and all the stuff associated with buying and any required insurances) and own 2 properties, 1 outright and 1 with a mortgage.

At this point you rent out the second house for as much as possible (obviously) which is hopefully roughly the mortgage payments, with say you having to spend £150/m extra to cover fees and maybe the rent not being enough.

Then for the next 3 years you continue to work and save money, your rental property is hopefully close to breaking even so the majority of your money is being saved, during this period you're building equity on the mortgaged property at relatively no cost to yourself and you're living for free (before bills) because you own your main property.

Hypothetical figures, monthly:

£500 cash saved (from working)
£600 from rental put towards mortgage
£150 spent on the rental property for fees / covering mortgage when the rent doesn't meet it

So after 3 years you have gained:

£18,000 cash saved
£21,000 in mortgage repayments

Which means in total you have:

£40,000 (£20k (+interest) from initial £130k, £18k saved over 3 years)
£75,000 home owned outright
£25,000 + £20,000 in equity on rental property

So you sell the home you own outright, you sell the rental property and that leaves you with:

£40,000 + £45,000 + £75,000 = £160,000 (a gain of £30k) and you've learned everything you need to know about letting. So at this point you take the £160k, spend £100k on 4 £25k deposits and use the remaining £60k to cover costs and your own living; once everything is set up (you own the 4 houses, letting agents are all ready etc) you then start to make enough money to cover your own costs and you have a ~£40k buffer in case it all goes wrong.

I'm making huge over simplifications, multiple assumptions and ignoring certain factors, but this is how I would do it.

Simplified list:

1. Buy house outright
2. Buy house with mortgage
3. Rent out second house
4. Save money for 3 years and learn all about letting out a property
5. Re-evaluate the plan based on what you now know
6. Sell both properties
7. Have enough cash to buy multiple new (mortgaged) properties with the knowledge to manage letting them and have enough money to support yourself and your properties through good and bad times.

For me the 3 years of learning about letting out a property are the most important. You could drop the deposit amount to £20k if you wanted and skip everything I said here, but without the experience of owning and letting property you could get yourself in a sticky situation. Also giving yourself 3 years of time to understand what you're getting into and time to think about it is worth it.

Speak to a financial advisor

ognum

And if house prices fall, what then?

abankerbutnotafatcat

Hi OP, as others have said you haven't factored in either regular costs or an contingency for major expenses. Additionally, I think your calculation of interest is a little light. As others have pointed out, if it's an interest only mortgage then your ultimate repayment source is the value of the property so your proposal is extremely risky given that house prices are vulnerable even in the home counties.

The idea in principal of leveraging off the cash in the bank is a good one though if you are happy with the risks and the responsibilities of landlordhood.

The purchase of two houses, one to live in that you'll have a repayment mortgage on, seems like a very good start. In an ideal world you could purchase properties with slightly different risk profiles so there would be a chance that they wouldn't both suffer any future house price decreases. This isn't easy though, especially as you probably want to be geographically close to your rental property. Reading is a big uni town, why not check out demand for student accomm - Savills have done some research into this which may help.

duchy

As you live in a university town the student market is worth considering. My brother bought a two bedroom property when he went to uni as a mature student. He had one bed room and let out three more rooms (1 bedroom 2 reception rooms as bedrooms). The rent more than covered his mortgage payment and even after leaving uni he found that the next couple of years were covered as friends of graduating students took their rooms. At that point he sold with almost nothing left to clear on his ten year mortgage and a nice fat profit.

I'm not suggesting you live in a student house (unless you want to) but just giving you an idea of a market that might offer you a decent return and not too many issues with finding tenents and also the added advantage that when you want to sell it's easy to gain the property back for sale at the end of an academic year.

missile

Property letting is not easy money. In the last month I have shelled out £4,254 on repairs and maintenance on one property. I could offset this against profit .......


if there was any <LMAO>