Which is better? Lots of Property for rent or no mortgage?

MissKJ

Hi folks. I thought I would just canvass your opinions and experience on this one, so here goes.

My plan for some time has been to own property worth £1 Million pounds by the time I am 40 years old (18 months away). I don't care how much the mortgages are, so long as the rental income covers the mortgages, with the exception of my home, which I pay for from my earnings.

I reckon that in any 8 to 10 year period, the property prices will have at least doubled (sometimes tripled), which will give me my one million equity for retirement at 50.

However, there are risks, ie rental. I am planning better now, and actively seeking to clear debts, budget, market my first holiday rental property etc, but it us a very steep learning curve, and also a dream. I am close to my target, my home and rental property combined are worth around £750 to £800 thousand pounds. I will hopefully buy another cheaper property to spread my risk a little in a year to 18 months when I have a proven rental income. Worst case senario, I can always sell.

But is this madness? Should I sell up and buy a smaller home and be mortgage free soonish? Enjoy my income and forget trying to have more? is wanting more addictive? Do we ever really feel happy with our achievements? If I invested my income in shares instead of mortgages, would I still make as much?

And what price a smaller home, not big enough for my growing kids to have sleep overs, play loud music and eat my food etc (which I love)?:undecided

JonnyBravo

MissKJ wrote: »

I reckon that in any 8 to 10 year period, the property prices will have at least doubled (sometimes tripled), which will give me my one million equity for retirement at 50.

Really? Any 10 year period? How about 1989 - 1999?
What if you're now buying at an equivalent time to 1989?
http://www.housepricecrash.co.uk/

Have a look at the graph and think carefully.

I'm far from one of the permanent band crying for a crash but a correction is going to happen at some point. I tend to agree that it is already starting but time will tell.

I see from your sig on other pages you already owe £79k presumably of unsecured debt?

How much equity do you have in your 800k?

whats your income?

how much can you cover if you cant rent a house?

MissKJ wrote: »

Worst case senario, I can always sell.

Are you sure? What if you're in £50k of negative equity? How about 100k? 200k?

MissKJ wrote: »

But is this madness? Should I sell up and buy a smaller home and be mortgage free soonish? Enjoy my income and forget trying to have more? is wanting more addictive? Do we ever really feel happy with our achievements? If I invested my income in shares instead of mortgages, would I still make as much?

And what price a smaller home, not big enough for my growing kids to have sleep overs, play loud music and eat my food etc (which I love)?:undecided

Who knows? No one has a crystal ball. How much risk are you happy with? I could go on but suffice to say without more info its impossible to advise accurately but I've seen enough to be worried!

Think very carefully and best of luck in whatever you decide.

wymondham

I'm certainly no expert, but I'd guess this is the worst time to be considering this?

gallygirl

MissKJ wrote: »

My plan for some time has been to own property worth £1 Million pounds by the time I am 40 years old (18 months away).

Best way to achieve this is probably to own property worth about £1.5 million today .

Thios is NOT the time to speculate. Pay off your debts then reconsider. And remember, life is what happens while you're sitting making plans. I'm not saying live for today, but you need to be realistic about what you want to achieve, why, and what you're prepared to sacrifice for it.

jamesd

First considerations:

1. How long can you pay the mortgages for if you have no tenant (or lose a fair percentage of them if you have many properties)?
2. Can you afford the remortgages and can you qualify for them if the maximum loan to value is 75% and rental cover requirement 30%?

If you can handle those events then 2008 may be a good time to buy from motivated sellers.

MissKJ

Oh heck, I just typed a long post and lost it.:o

A summary is as follows:

Yes I have unsecured debt, which I am planning for and paying off. I have cash in another account enough to cover about a years mortgage without any rent. So any rent will extend those funds and means if I have to sell, I can hopefully time it as best as I can.

I have equity in both properties, which means the mortgages are currently both less than 75% LTV.

My finances apart, so long as I can afford the mortgage payments, will I double my money in ten years? And if not, how long will it take?

I appreciate there was a crash in the 80's, I bought my first property at the worst time, but I didn't lose money, even though I sold it at a bad time, because I improved it, and broke even. So it can be done. I don't think we are heading for a crash on that scale. There is still demand for houses. So long as we look to the medium to longer term and not short term quick gains, which won't happen.

In short, sure I could sell, pay off, and buy smaller, but what would I do instead that would improve my future prospects for (possible) early retirement, and a secure future?

angelavdavis

MissKJ wrote: »

Yes I have unsecured debt, which I am planning for and paying off. I have cash in another account enough to cover about a years mortgage without any rent. So any rent will extend those funds and means if I have to sell, I can hopefully time it as best as I can.

If you are paying higher interest on your debts than you are getting on your savings - you are mad keeping your debt - you should be concentrating on paying off your debts before getting yourself into more debt through buying property.

MissKJ wrote: »

My finances apart, so long as I can afford the mortgage payments, will I double my money in ten years? And if not, how long will it take?

With respect, I don't think anyone on here are in a position to tell you whether you will double your money in 10 years or more/less.

It depends on many factors: what markets are you buying into? which geographic? what type of property? what is the market for that property? how much are you intending on spending? etc etc.

MissKJ wrote: »

I appreciate there was a crash in the 80's, I bought my first property at the worst time, but I didn't lose money, even though I sold it at a bad time, because I improved it, and broke even. So it can be done. I don't think we are heading for a crash on that scale. There is still demand for houses. So long as we look to the medium to longer term and not short term quick gains, which won't happen.

In short, sure I could sell, pay off, and buy smaller, but what would I do instead that would improve my future prospects for (possible) early retirement, and a secure future?

My suggestion would be:

• To not put your eggs in one basket
• Use your ISA allowances to best effect
• Don't spend more than you earn
• Investigate the risks thoroughly before investing
• If necessary visit an IFA (although even their expertise is not guaranteed)
• Be prepared to move your money around to get the best deal
• Know your property markets
• Be prepared to lose money as well as earn
• Educate yourself in financial matters
• Ensure you have the equivalent of three months salary (and no debt) in the bank as a safety cushion should things go wrong

Many people on here can provide good advice, but to my knowledge, none of us have crystal balls!!!:D

jamesd

angeladavis, you are wrong about it being better to pay off the debt with the cash reserve. Cash flow is a major concern for a business and MissKJ could be forced to sell at a major loss if she ran out of cash due to a lack of tenants and inability to pay the mortgage. MissKJ needs to estimate how much cash she prudently needs available but one year's cash seems well within the reasonable range. It does cost money to have this cash reserve available but that's the price you pay for protection from a very bad alternative situation.

MissKJ

Thank you all for your comments. Fact is I have made these decisions, and every day I question them. I will not be buying any more property until I have a proven track record in managing the property I have. I will focus all my attentions on managing the budgets, maximising my rental income, and keeping a close eye on property prices. If there seems to be a good time and opportunity to sell, I will consider it then. But I would prefer to make a success of renting so long as the payments are covered sufficiently.

I don't anticipate spending any more money on the property, except for general maintanence at the moment, it is perfect and fully furnished.
If I get to the point of rental income exceeding the mortgage, then I will reconsider all my finances

By the way AngelaDavis, I have done all of this through an IFA.

Thank you for all your comments, but it seems that I have to just sit tight with my convictions. Some people are just more prepared to take risks than others.

angelavdavis

jamesd wrote: »

angeladavis, you are wrong about it being better to pay off the debt with the cash reserve.

James, I was referring to her non-mortgage debt. I was discouraging the OP from getting into more (albeit mortgage) debt when she hasn't paid off her existing non-mortgage debt!

MissKJ

I think the point James is making Angela, is that although it is sensible to pay off debts with any extra cash available to avoid interest payments etc., if I don't keep a reserve of cash to pay the mortgage, I could be forced to sell at less than market value, or worse reposessed if I don't keep cash flow in reserve. This would be worse.