Updating post from Reddit.
I have recently finished university and have started a job as a junior engineer making a decent salary for the start of my career (think 20 to 35 K) and want to start a property portfolio either with multiple rental properties or flipping houses. Would you guys be able to point me to some good resources to start looking to decide what is best for my situation? I really would like to consider this as an option for me but I'm not sure how.
Thank you!!
My first property was a BTL. I had no credit history, no experience as a landlord, my job at the time paid less than 25k and I didn't have my own residential property. I could only get 1 mortgage company to lend from but had to put a 30% deposit down so I did that and it all worked out good.
Best resource is probably YouTube honestly just to get an idea of what to look for, then get viewing.
Edit: To add I was 22 at the time which lenders didn't seem to like being it was a BTL
Save up, buy your own home first, build credit, and don't worry about a property portfolio for another 5 years.
Why? Let him start buying if that's what he wants to do. He has time. We don't. No harm in him having a few under his belt by 30 years old.
First House/property you get make sure you have at least 1 spare bedroom to rent if you are going to live in it. Avoid flats.
Enjoy.
I did it young and regret it from mistakes. If op wants to do it please read my findings:
Buy in a limited company!!!: reason being that I was a student and forgot that student loan repayments also are liable on the rental income. In a limited company the business has the money so no student loan repayments (only on the portion you take out of the account). Also if you become a higher rate taxpayer then the property in a ltd company would allow the pot to grow rather than paying 40% personal tax on it you will just have the relevant corporate taxes etc.
However to my knowledge, Buying into a ltd company admin will be far more expensive as I think you are limiting mortgage offers and have to use an accountant.
Make sure you have enough income to cover the costs for no income for at least 6-12 months - a non paying tenant can be a very costlyand lengthy process.
Everyone is against you - really do you want to be a landlord when the laws are changing and not in your favour.
Maintenance bill and liabilities - this could be costly depending on what is wrong. You are on call 100% of your time unless you use agents.
Agents are mostly crappy and expensive byebye 10%.
As for flipping property...
The cost!!! Everything is so expensive now there is barely any meat left on the bone when finished if at all. Remember your time costs money and lots of flippers forget this part yeah a £10k profit spunds good but what if it took you a year to renovate then its really poor investment.
Other points to note...
Throwing away ftb benefits
Buying a home to live in after is a nightmare unless you drastically improve your income as mortgage lenders will only cover price of property not the added tax from 2nd home ownership which could add a lot to your purchase price. Also its 4.5x your salary but take away the portion of your btl or property purchase then it becomes far less. I wonder if this is another pro to buying in a ltd company as it probably will not affect your personal mortgages (someone might need to clarify this)
I could probably go on but op should look at it from all sorts of areas rather than easy money as it is really not and tends just to add stress. Please avoid these rent to rent schemes too and do not pay anyone to tell you how they make you rich and where to start as no property owner will want to deal with you and the many thousands being scammed and missold this lifestyle.
Sounds like it wasn't for you. Grown from £1.5million in 2011 to £5million plus today. Self managed. Self maintained too, but now in a position to outsource everything. I just deal with emergency issues hands on.
Like any business, you need to add value, what value did you add? Hard to do if you are paying retail prices for everything. My dad was a chartered structural engineer so did all the plans and building regs drawings for all extensions on all houses.
Me I'm qualified electrics and nearly gas safe, can do everything apart from plastering. I project managed renovations, which includes design of electrics and plumbing etc.
I converted all the houses into hmos. Have over 25 bedroons now and take just over 200k a year rent. Return is closer to 9%. Buy to let model is too basic now with interest rates at just under 5%. Hmo is the way.
Hmo was the way but isn't the rent reform about to kill that market (no short term contracts) along with clampdown on landlords squeezing 2-3 bedrooms into each room. Not saying there isnt money in property just the op is young and has around £35k in savings you need hell of a decent day job to get mortgages to even get started. People that come from money or in the building trade will do a lot better then some person who just watches homes under the hammer and only looks at money.
Your last sentence hits the nail on the head. But it's also not to say you can't learn if keen, to pick up on the trades.
Hmo works well in the right location I guess. It's not about putting 2 to 3 people in a bedroom though (if that's what you were saying). It's about adding bedrooms by way of conversions and extensions. (Done 2 loft conversions which added 4 bedrooms to each house for example).
A 3 bed semi with space on the side can be made in 8 bedrooms for eg. 4 large, 4 small rooms.
I'm going for 8 to 10 bed hmos. Sui generis.
This was really clever of you. More people should consider being born to rich, lucratively skilled parents who are prepared to work for cost/free.
Weren't born rich.
He asked for advice, that's my advice. As for why? Because it's the easier and low risk route. He's making ~27.5k now and would need to save up for 25% deposit + legal fees whilst renting (I'm assuming he's not living with parents). Not having his own residential property restricts the pool of lenders and he may well be required to put up an even higher deposit. He'll also lose his first time buyer status when/if eventually decides to buy a property to live in.
You should be a tenant not a landlord.
Why? What does that even mean?
He's a junior engineer. Engineers do well in life, I have many of them as tenants and seen them all excel. If he is a structural or civil engineer - even better.
I said you should be a tenant because the advice you are giving is that of one.
Ok, and how does him being and engineer and doing well in life come into play into this? I'm an engineer too, have been for a very long time. Do engineers not need their own home to live in? Maybe I didn't get that memo.
Depends what kind of engineer you are too. An actual engineer who can become chartered. I am assuming he is one of those. Not the ones who are just given the title without formal qualifications, like an employed gas engineer. My dad was a chartered structural engineer. Very intelligent man. With a full time job, along with my mum, they saved and invested.
And isn't that exactly my advice? To save, buy his home, and then invest? It will take him 4-8 years to get chartered, only then will he start making big money.
I've a few more years ahead of me than OP (30) and looking at doing similar within the next three years (*sigh* time is running out)
Out of interest, why avoid flats? Are flats not competitive/ able to get a decent rental yield?
I know for some - fire safety and cladding; service charges can be an issue...
You can't extend a flat, you can only develop it to a minimum level, at best you can put up a stud wall up to separate living room and kitchen. Or make 2 bedrooms from 1 large. Limited by space.
Flats gain less value than houses over time. We also now see people struggling to sell their existing flats because of cladding. But the other reason is when the lease gets closer to 72 years and below, the gain in value slows down.
Yield - nothing special with flats in london.
Flat management is harder than house management. I can go door to door easily with the houses and a car. I can load and unload items easily at a house.
As a hands on landlord with building experience, qualified electrics and nearly gas safe etc, I need the freedom to do whatever I want to a property. I understand why some go for them, no garden to maintain, less work to do usually, location, cheaper to buy. But it's all debatable. Overall consensus will always be that houses are better long term. Flat buyers get hit with buyers remorse harder later on.
Most BTL lenders need you to be a homeowner first
Ot is rather limited but options are available. In two years after ownership more doors will be open.
https://cyborg.finance/buy-to-let/criteria/first-time-buyer-landlord
I’d agree getting your own property first makes sense. Then work as hard as possible to pay down the mortgage. As your income grows you will then be able to use the equity and your wages to get additional properties.
Buy to let property market is very unstable at the moment, there have been a lot of adjustments which make this not as profitable now than it used to be 10+ years ago.
Flipping is a nice idea, what are your practical skills in doing this? Tue margins you might make on lower value property get squeezed very heavily if you have to outsource everything.
There have also been a lot of incentives for first time buyers, which you will forfeit if you don't purchase a residential property. Things like LISA, No stamp duty etc.
For your first place buy a residential, house ideally, which has a need for an improvement. By living there you save your living costs (rent etc) and can benifit from FtB perks, once you've done the property up can then determine if selling it makes sense over raising equity from the value increase.
But before you do any of this you need to draw up a proper budget and understand that of that 20-30k how much will you really have for this type of activity.
it was more attractive to buy to let than buy as a first time buyer. But you can’t use finance costs to offset your tax now.
Can’t you offset your finance costs if you’re buying through a limited company though? I know that’s probably not the most efficient way if you’re only planning to have one or two properties, but if your plan is to have a number of properties wouldn’t buying through a limited company be a better idea?
Tax situation once you have money in your hands is the same. Although in a limited you have additional costs.
I recommend the book "The Complete guide to property investment" by Rob Dix. That's the book I started with. To be fair, I already had experience working in building and refurbishment because I used to help a family member who was a property developer. However it's not rocket science and the book is a good starting point to gain some knowledge.
The hardest part for me was building good relationships with trustworthy tradesman. This will take some time. But take the plung, make mistakes and learn along the way. Good luck.
Such a difficult market at the moment - there are still profits to be made but much harder and I’d be surprised if you’ve got the right skills, experience and competitive advantage at your age to find them (cash buyer, builder/trades person to do the renovations yourself, part of a bigger portfolio for economies of scale etc etc)
Go on Amazon and search for buy to let books.
Absolutely do not pay for any training.
Where are you and where are you looking at buying? There are plenty of people out there who will pass their knowledge on for free.
Hi, I will reply to this message with all the answers you guys have asked for so hopefully people read this. Firstly thanks for having those conversations it'd been very enlightening to read them all. I live in the north east not too far from Newcastle. At the moment I do live with my parents and pay a relatively insignificant amount of rent to them, as it is only a 20 mins drive to work from there. At the moment I would think sticking to looking in the north east is my best option, because I will be closer to potential properties. I have been watching some YouTube videos from someone called Jamie York and very slowly learning the language and gaining some knowledge about my options. I mean ideally I could find someone to speak to in person about these sorts of things and have it explained a little more but I will be looking at reading material to take home and study. No courses!!
Any more questions please feel free to ask and I will try to answer as best I can :)
Do not do it.