The half a million people in this bracket tend to fit into one of two categories – they’re either an oligarch or businessman who likes buying exclusive properties, or they’re a shrewd operator with one gem that was purchased in the right location decades ago, primed to feast on rising house prices.
For the rest of us, who aspire to be rich property owners with a strong portfolio, neither of these might be possible. The latter of these two types is largely dependent on external factors, as well as choosing a home in the right location in the first place of course. The former is dependant on business acumen, some talent and luck, and contacts.
However, with a little long-term work it is possible to construct a portfolio of properties that can bring in a steady or perhaps even impressive income for years.
The usual first step is to pay-off the initial mortgage early on the house in which you live. This can be beneficial for a number of reasons; it will save you paying interest, and lenders are more likely to give you a mortgage for a second home.
Therefore, after getting rid of a first mortgage the next step is to follow that with an investment in another property to be rented. Tenants will pay that rent (and therefore the mortgage), and the process eventually continues.
That’s the common first step, but some still do things differently. Controversial landlords Fergus and Judith Wilson established a gigantic empire in Kent, at one point owning around 700 homes and paying multiple mortgages simultaneously. In 2010 the couple admitted that monthly payments to one provider alone were more than £350,000.
Theirs’ is a long complex story, built on experience, trial and error, as well as luck – the latter played a part in rescuing them from the brink when Lehmans collapsed, leading to the Bank of England slashing its interest rates and in turn allowing them to refinance. The couple, who are now selling many of their homes, had tips for those looking to establish an empire which can be found here.
There are two main functions of stepping into the buy-to-let market, and the intended aim is the same from both: making money. The first is making money through rent from regular tenants, while the second is through appreciation in the house price itself. A buy-to-let buyer should be looking for homes that will rise in price for a spell of time until they are sold on in several years, with enough enticements to find and keep tenants installed.
Finding a home that is likely to appreciate will take plenty of research, and not just about the property market. Studying demographics, local business trends and local infrastructure will help, but any conclusions should not be set in stone (or bricks and mortar). Who would have predicted the US housing slump of 2007, for example? It’s easy to look back in hindsight and pinpoint sub-prime mortgages and lax regulations as causes, but nothing was done at the time.
In this Simon Lambert piece for Thisismoney.com, he states that despite prices falling in London for the sixth month in a row the likelihood is that London homes will rise over the next five years by as much as 30%. Meanwhile home ownership has been steadily falling since 2003 in England – will this pick up? Could external forces from across the world conspire to plunge the market into crisis for a year or longer? If pure financial growth is the aim over several years, then could an ISA be a better option? Do you have a plan B if your idea foundations crumble?
The first tip for building the portfolio is simply: take it seriously. Unless you’re rolling in money and see acquiring homes as a plaything – and you probably won’t be rolling in money if you have that attitude towards it anyway – then choosing the right properties and the right people to live inside are both crucial aspects. It’s a similar story if you’re buying a home as a holiday property, or an empty shell to renovate. Don’t rush in.
Make sure you budget so that you are not stretching yourself too thin. Paying off an existing mortgage will increase the likelihood of being approved for a new one. Look for a property in a good stable, location that immediately presents itself as liveable with only a small amount of initial work/fittings/repairs to be completed upon purchase. According to Moneyunder30.com, ignoring ‘buying the best home in the neighbourhood’ and extras such as swimming pools are both wise moves.
A good online agent such as HouseSimple will be able to help with letting a property, finding a wide range of potential tenants across several hundred property portals. It’s worth seeking advice on specific locations and areas that seem to be popular for specific types of renters, such as students, young professionals, and families. Buying a home tailored for a specific market rather than a more utilitarian one that needs work will save time and money. Use Zoopla house prices and values to consider what a property should cost, and how easily it sells, before making an offer.
You’ll probably need a specific buy-to-let mortgage, which will require a higher deposit (probably 25% of the home value as a minimum) and charge a higher interest rate. Many buy-to-let mortgages tend to be interest-only, as the interest is deductible from rental income for tax. A lender will analyse your intended rent charge before making a decision.
Once the home is up and running you need to find tenants. Estate agents will help if you wish, and there are certain preferences and restrictions you can request (although you cannot discriminate on the basis of race, gender, disability, sexuality or religion) such as a limit on the number of children accepted. Try and be flexible with arrangement of viewings, so that you can meet tenants and answer any questions – you might have a different view of what makes a good tenant to your estate agent. An agent will also arrange rental agreements and tenancy deposit schemes.
At some point, assuming everything goes well, you’ll be ready to buy your next property. You’ll have learned lessons on what, who and where works well, and why, and that should influence your next decision. An HMO (House of Multiple Occupancy) will usually need licensing from the local authority, depending on the number of ‘households’ living in the property. However the newest and most controversial tactic of snapping up multiple homes is the ‘multi-unit freehold block’ – essentially slicing up a large home into smaller flats, or buying a block itself. According to the Telegraph this can yield a gross return of 9.3%.
You’ll be monitoring local news for trends of migration and the types of people moving into properties. You’ll know what new jobs are coming to the city and buy properties suitable for professionals. You’ll keep an eye on social media and contact people moving nearby to tell them of your vacancies. Above all, you’ll take advice and take your time – until the time and properties are right. And then you move onto the next one.