Advice - Building a BTL Portfolio

SammyS1987

I'm looking to build a passive income over the next 5 years. I have come up with the following plan, if anyone can provide advice or signpost me that would be great.

My current home is worth around 500k, I have a 225k mortgage and 275k worth of equity. I am considering selling my home and buying somewhere smaller for me to live, to do this I would use approx 55k of the proceeds from selling my home plus seek a residential mortgage for around £145k. This would leave me with 220k.

Am I correct in thinking I could split that 220k to put a 25% deposit down on four properties worth 220k each that I could then rent out to provide the passive income that I desire?

I appreciate that there is a lot of simplification in the above and I need to allow for SDLT, income tax, solicitors and agents fees, maintenance etc. But in a nutshell is that it or am I going to be stopped from buying properties at 75% LTV once I own two or three?

canaldumidi

Thread title is building a BTLportfolio. But you say:

SammyS1987 said:

I'm looking to build a passive income over the next 5 years.

You can't have it both ways.

Bluebell1000

You would need to do calculations around expected returns, your personal outgoings, and see if it might be viable even allowing for voids/ maintenance, paying mortgage if your tenants aren't paying... Also factor in additional stamp duty.

Bluebell1000

As some context, there was one year where our rental flat made £1k. For the whole year. We were able to sell shortly after.

Snookie12cat

Are you a higher rate tax payer? If so, most lenders expect an ICR of 145% at 5.5 or pay rate, it's normally 125% for lower, so the rent you can achieve needs to work with the mortgages you are taking. I imagine to easily fit in the lower tax rate bracket on 2yr fix you will need at least £900/ £1000 rent a month to get them..

Then a lot of lenders lend at 85% or 80% so you do not need 75% LTV although the rates are better if you do. 

You can definitely do it this way, just get a good broker as you are entering portfolio territory and not all lenders will lend to you when you get 3/4+.

You need to factor in 3% extra stamp duty on each purchase also. In no way is rental income passive. If you have 5 it will essentially be another job that you need to keep on top of to manage and maintain. 

propertyhunter

I'm not sure how old you are, and therefore how close you are to retirement, but I would get professional advice about other options too - could some of that money be invested in tax-efficient wrappers such as ISAs and pensions? If people actually saved regularly from a young-ish age into a pension and stocks and shares ISA, you'd be surprised about what you can accumulate after 25-35 years. 

SammyS1987

canaldumidi said:

Thread title is building a BTLportfolio. But you say:

SammyS1987 said:

I'm looking to build a passive income over the next 5 years.

You can't have it both ways.

Satire?! I'd be treating this as a second job between now and 5 years time, at which point I'd be hoping to step away and get a managment company on board.

Snookie12cat said:

Are you a higher rate tax payer? If so, most lenders expect an ICR of 145% at 5.5 or pay rate, it's normally 125% for lower, so the rent you can achieve needs to work with the mortgages you are taking. I imagine to easily fit in the lower tax rate bracket on 2yr fix you will need at least £900/ £1000 rent a month to get them..

Then a lot of lenders lend at 85% or 80% so you do not need 75% LTV although the rates are better if you do. 

You can definitely do it this way, just get a good broker as you are entering portfolio territory and not all lenders will lend to you when you get 3/4+.

You need to factor in 3% extra stamp duty on each purchase also. In no way is rental income passive. If you have 5 it will essentially be another job that you need to keep on top of to manage and maintain. 

Thankyou for your reply. I am currently a lower rate tax payer. For a property around the £220k mark the market here returns rents at around £1100pcm, IO mortgages are around £230pcm at 75% LTV.

propertyhunter said:

I'm not sure how old you are, and therefore how close you are to retirement, but I would get professional advice about other options too - could some of that money be invested in tax-efficient wrappers such as ISAs and pensions? If people actually saved regularly from a young-ish age into a pension and stocks and shares ISA, you'd be surprised about what you can accumulate after 25-35 years. 

Thanks for your reply. I'm not looking for a long term capital return but an income accessible in 5 years time - I'd be 40 then.

csgohan4

Op you need to do a business case and look at the overheads, potential yields
don't forget upcoming legal and financial aspects  as well

Why do you think a BTL will give  more money?

you want to borrow 660k which at 4.5 x is around 147k salary, do you have this amount? This does not include your residential mortgage either, so your going to be earning alot more than this be able to reach the affordability criteria

Have you considered the risks as well? maintenance, non paying tenant. 

Do you know how long it takes to evict and more importantly the costs?

Don't take it from me, these are actual Landlords

https://forums.moneysavingexpert.com/discussion/5896992/evicting-tenants-via-court-and-bailiffs

https://forums.moneysavingexpert.com/discussion/5983050/taking-tenant-to-small-claims-court

https://forums.moneysavingexpert.com/discussion/6294512/benefits-agency-told-me-tenant-they-will-only-help-her-if-the-landlord-evicts-them/p1

Snookie12cat

csgohan4 said:

Op you need to do a business case and look at the overheads, potential yields
don't forget upcoming legal and financial aspects  as well

Why do you think a BTL will give  more money?

you want to borrow 660k which at 4.5 x is around 147k salary, do you have this amount? This does not include your residential mortgage either, so your going to be earning alot more than this be able to reach the affordability criteria

Have you considered the risks as well? maintenance, non paying tenant. 

Do you know how long it takes to evict and more importantly the costs?

Don't take it from me, these are actual Landlords

https://forums.moneysavingexpert.com/discussion/5896992/evicting-tenants-via-court-and-bailiffs

https://forums.moneysavingexpert.com/discussion/5983050/taking-tenant-to-small-claims-court

https://forums.moneysavingexpert.com/discussion/6294512/benefits-agency-told-me-tenant-they-will-only-help-her-if-the-landlord-evicts-them/p1

Most BTLs are based on rental returns and not income? He doesn't need a particularly high salary to do this