Building a property portfolio

lalman

I have been on this forum quite a while now, but mainly in the savings area.


Here is my current porfolio and how i want to develop it... if you are not interested in giving me advise then please don't troll.


With my savings i have been trying to develop a property porfolio that will eventually make me financially independent. I.e. generate me enough income so i won't have to work as CA anymore but rather develop and manage a porfolio.


So when did it start? I was born at an unopportunistic time and nearly bought in 2006 when the bank offered me at the age of 21 a 125% mortgage but thought 'prices are too high'.... and luckily held off for abit to save up some cash and eventually by 2013 (after a redundancy, a career change and saving up 25% deposit for a BTL deposit) i bought a 2 bed for £108k that had tenants in and still has the same ones... The property has been revalued at £130k and i am in the process of remortgaging to 40% equity to debt at 2.39%... keeping repayments high and reducing the term down to 17 years... with the thought process of reducing the debt burden on it whilst i don't need the cashflow and releasing equity when i hit 50% equity to buy another flat which is in a similar price range...


I am now in the process of buying a second flat, slightly better location for 115k (2 bed). Its been pre-let for £550pcm till September 2016 - but again there are 3 properties in the local area for sale for £150k, £155k and £155k. This property was on the market for £130k (got the vendor down by 15k) if i was willing to complete after April 6... for capital gains purposes.... the mortgage i got was 3.39% and 25% deposit... hopefully the market won't tank in the next 2 years, and if it doesn't... i will hopefully get the place revalued at 145k or something close and do the same thing as i have with my first flat in 2-4 years.


I can save up around 20-30k a year (which is only a recent situation... before it was 7-9k) so thinking of repeating this strategy till i get 10 places and then do everything i can to pay them off as quickly as possible... i am a buy and hold investor, and maintain the properties well.


I buy in high demand areas only, that are close to city centre.


If i see interest rates rise/ likely to rise then i won't be releasing the equity and rather just pay accelerate the debt repayment and reduce risk in the porfolio.


I have 6 months money spare just incase i lose my job...


The hardest part of my strategy is getting the deposits together... is anyone in a similar situation or been in similar situations? got advice?


For me its about managing risk, cashflow management and making sure the properties are in a good state of repairs... i get my tenants from a company that i pay... they do full screenings...

pyueck

Hi good luck. I think that if you are struggling to get deposits together think indicates your idea has significant leverage and therefore risk.

Have you done a cash flow analysis of your cash requirements if interest rates rise when you remortgage? If not then your whole idea could come crashing down to earth pretty quickly, especially if prices fall.

My advice would be to slow down with the buying of new properties as taking on more and more debt is just adding risk to the plan. For me I think a good level is to hold a 40% plus equity in the entire portfolio, it sounds like your's is a lot less.

lalman

Thanks for the comment. My current property has 38% equity and will be 40% when I remortgage and the new property is 25% equity...

I think it's a fair point that you make regarding risk management and it's something I'm conscious off...

I have done a cash flow but what I decided to do was reduce the number of years my mortgage is over for now.... Just to reduce the amount of debt and thus increase equity. So for my first flat the mortgage term was 22 years left, but I decided to remortgage it for 17 years... Yes a hit to the cash I get from her property but means it reduces risk and debt... So better for me in the long term

pyueck

lalman wrote: »

Thanks for the comment. My current property has 38% equity and will be 40% when I remortgage and the new property is 25% equity...

I think it's a fair point that you make regarding risk management and it's something I'm conscious off...

I have done a cash flow but what I decided to do was reduce the number of years my mortgage is over for now.... Just to reduce the amount of debt and thus increase equity. So for my first flat the mortgage term was 22 years left, but I decided to remortgage it for 17 years... Yes a hit to the cash I get from her property but means it reduces risk and debt... So better for me in the long term

Reducing the debt is great, but you should not be stretched on cash flow to meet debt repayments. If you do the sums and you would struggle to pay the mortgages if interest rates on your loans (big difference from base rates, especially if FLS ends) at 6% then I would suggest you should concentrate on improving cash flow rather than taking on more debt.

silvercar

Where do you live? rent or bought?

If you live with family that reduces your outgoings and enable you to save.

lalman

Pyueck my cash flow is fine regarding rate rises, I could easily handle a 8% interest rate and cash neutral position at 6-6.5%. However I am looking to reduce debts on property whilst also extending portfolio as I save more money.

I live in the north of England silvercar, I live with my folks (who don't charge me rent)- hence why I can save between 20-30k a year and my outgoings on non-investments is relatively low (20-30% of my net salary).

anselld

You are struggling to find deposits because you are putting all your spare cash into repayment of equity. If you know you are planning to need more deposit money it would be cheaper to be on interest only for existing debt any save for deposits rather than keep paying down equity and then having to remortgage to release money for deposits.

lalman

I think it's just a balance I'll need to get myself... I want to reduce debt as well as increase my portfolio and if it takes me 7-10 years to reach 10 properties so be it.

silvercar

I think reducing debt is a good idea. The risk is remortgaging may be difficult as I think very few lenders now do BTL for those that don't own their own home. I would also comment that property is only one part of a balanced investment strategy. Although it is one that has done very well in recent years.

Tassotti

As mentioned above, if you are wishing to build your portfolio, it makes no sense to pay down the current mortgages.

Just stress test your cash flow on current portfolio and use the money you would have paid down to save for new deposits. And try and keep a healthy cash fund.

You could also buy properties that need refurbing, add value and remortgage 6 months down the line to pull out some of the cash.

Once you get the portfolio to the level you desire, then pay down the mortgages.

Speak to a broker just to confirm you are still eligible for btl mortggaes first.

lalman

Although I'm not eligible for all lenders, because I have a btl already - I am still eligible for btl mortgages with certain companies.... But again it's a v good point, thanks guys.

Santander for example require someone having there own home :-)