My Bulletproof BTL Property Investment Strategy

I was just interested in the opinions regarding international property. I have been doing a lot of research have become very interested in the location & development of Latin America especially Panama. I found a multi listing page, www.real-estate.com.pa in particular, found a one year old apartment, close to all ameities including a John Hopkins Hospital & the ocean which is fully furnished at around £155k & rented for £900 per month. The property has no tax for 19 years & the only direct expense is insurance & building maintenance which includes a gym & pool which is around £50 per month. With the canal expansion & they use US$. I have never bought outside of the country, but to me this country seems to have a lot on the plus side, does anyone have any experience?

Interesting Strategy - It seems to be working well for you. I think that method would produce slightly less return on investment but it helps you keep on top of your monthly budgeting.

I would love to be able to adopt a similar strategy but I would need to save for a while to be able to come up with a 30% deposit for each property i buy. I prefer to put in less money from the outset lets say 15% to buy a property, i would then most likely have a situation where there will be a shortfall in the money in -rent and money out -mortgage. Like you said i would have to put in money every month for a few years- but i prefer that because it means i only put 15% of my own money at risk and still have that additional 15% sitting in my bank account. It means less exposure for me.

I feel fairly safe with 15% equity because i know that historic data on the property prices have only shown a drop in prices of about 17%.

I agree that having a long term strategy for property investment is key. Even if there was a fall in prices by 15% or even 20% - I will not sell. Every property i buy i always make sure i can afford to keep that property going, so i always cashflow (put money aside for all potential costs) my property for at least 2 years.

Thanks for your feedack, much appreciated.

There has only been one property bubble to speak of, ever in the UK. The late 1980s. Do people take into account, that in some parts of the country property prices actually did lose well over half their value over a number of years.

I keep hearing that, "well, over time they go back to the original level and beyond." This, historically is the case, however we are now in a situation where food prices are rising 20% PLUS p.a. oil is without doubt going to rise above $100 a barrel or more permanently. So to combat this continious rise, the Bank of England may have to allow interest rates rise significantly to soften these inflation levels. They cannot do it now because of the unbelieveable banking crises.

Then one gets to a point where, it is impossible to pay off the mortgage with rent alone. Causing negative equiety, for people who could pay thier mortgage and bankruptcy for people who could not.

Comments please.....

Hi,

you have an interesting strategy and I agree its low risk, however doesn't it leave you with a rather large tax bill every year as you can only offset mortgage interest payemetns against rent.

This is one of the main reasons main investors (including myself) put in a lower deposit. I don't want to make income on these properties that gets taxed at 40p in the pouond, I think that I am better off focusing on paying off my own house where I live as there are no tax advantages to having an outstanding debt on it.

Interstingly in Australia there is a very advantageous tax regime for the propoerty investor and you can offset losses on rental properties against your personal income tax, this was one of the main things that drove the recent property boom in Australia.

Hi, l have lived in Spain for the past 13yrs, but next year, l plan to sell up here and move back to England. l will have something like 150.000pounds to do a bit of property developing. l'm 51, almost divorced, no debts, no kids. l'd like to ask you, what would you do with the money l will have.ie, do l only use the money l have. l think l would make a good landlord, and just know once l get going, l will make a success of being a property developer. l wondered about buying a two bed house at auction to let, and a house for me to do up and resell. l have looked extensively at the part of the north west l'd like to be, and there are quite a lot of small terraced houses selling for about 60.000pounds. What would you do if you were me. Thanks for your helpful advise. Greetings from beautiful Moraira, Costa Blanca

It all sounds straight forward and something I have been thinking about doing for quite some time. However, surely with capital gains tax most of your profit is unobtainable, ever. It worries me that I could end up with a large wedge of cash in properties that I can't have. What's your thought on that or ways around it?

HI there, I have been searching the internet with regards to properties and buy to lets and have come across your site. I am interested in your property stratery but wanted to know just one thing, how did you raise the inital deposit for your 1st buy to let investment ?

How is your strategy fairing now with the recession? If you are still doing ok, (which judging by your post I would think you are, just perhaps not quite as profitable as 2008) it would be great to hear any revisions you have made to the strategy itself and why.

Personally, I would always look for the exit on any investment, taking more of the medium term. If there is a definable and provable exit - great, if not, move on.

http://www.ipinglobal.com/resources/property-investment-strategies.aspx

I like your strategy. Simple and well positioned in terms of 'it works for you'.

My level of trading sounds similar -but a couple of add ons.
1) I like interest only.... I keep the cash as a reserve or future deposit. But I like your 'repayment' philosophy and need to think about that.
2) I use a similar deposit - but I only buy 'value'. I walk away from a dozen deals a year - only discounted properties work for me.
Value tend to be very badly presented/dirty homes - with motivated sellers. 5K spend can increase values by 40K.
I get those opportunities on things like boring 1970s bungalows.....all the Victorian Terraces have queues of developers/owner occupier purchases fighting.
3) All in my home town, I know every property, street and price.
4) I sell some (8 to date)...releasing capital for a 'value' purchase.
5) I have an honest reputation with the Agents.....so if a deal comes along (and the big players are looking at the big deals) then I get an occasional call.

I guess I am trading/developing....and holding future developments as tenanted houses.

I now have 8 buy to lets (interesting I have held the nice victorian terraces)...and expect to sell 3 to repay all my debts. But I know I will buy the odd deal in the meantime.

Thanks...reading your note made me think about what I am doing.....and I will look at whether it still is working for me.

I have been a landlord for about 30 years. And I've done exactly the same as you (following my dad's advice, as it happens). So now I have an 11% LTV. But looking back, I'm not so sure I was right. And now I may gear up some more.

Governments rely on enormous borrowing. Then they can either default on the loan (unlikely), or let inflation chip away at its real value. This hits savers hard, but helps borrowers. It is not an accident, it is policy.

This pdf, which I stumbled across recently, illustrates the effect of inflation as something that - in effect - transfers wealth (which I'm sure you already know).

http://miamioh.edu/University_Advancement/MiamiAlum/WinterCollege2013Presentations/Savers-vs-borrowers-powerpoint.pdf

That £100 worth of debt you pay back today will probably only be worth £74 (in terms of purchasing power) if you wait and pay it back in 10 years' time (assuming 3% annual inflation).

To look at it another way, if instead of repaying debt, you invest your £100 in property in the meantime, say at 75% LTV, then assuming the same rate of inflation, it will be worth £222 in 10 years. (you borrowed £300, total asset value is £522). All figures approximate.

So if your rents are comfortably covering your interest payments (factoring in the significant rate rises that are likely to kick in soon) you have no need to worry. Over time, rents will increase.

Then there's the issue of tax, of course, as someone else mentioned above. A low amount of borrowing means you won't get much tax relief on mortgage interest.

In the UK we have a dire shortage of housing stock. Houses will stay expensive. Graduates have a huge amount of debt from their student loans. So more and more people will be renting, pushing up rents.

All of this means that BTL landlords will continue buying steadily, pushing up prices further (though 'Help To Buy'will probably cause a bubble in the short term).

Minimise voids, keep your tenants happy (they are your customers, in effect) and you won't have too many problems, even when expanding.

As per my post in February and the David's note re inflation...I think that is why interest only borrowing has worked for me. The value of the loans is effectively falling in real terms and rents cover the payments.

We now have 12 units with a bungalow and a block of 3 flats in a nice central victorian townhouse bought this year. A 6 month sabbatical helped me focus. But other than swapping/trading my 12 is more than enough.

My strategy begins to change as I begin to reduce debts and as mentioned before sell around 4 or 5 to be debt free.

I have recently started buying houses in the North West on an interest only basis. I own 2 at the moment, looking for my third and hoping to increase my portfolio to 5 by 2016.

The strategy I am using is to save the profit from the rent of the 2 houses soon to be 3 and add my own cold hard earned cash from my current job as a mechanic and save for 25-30% deposits each year and try to buy one a year.

Once I have got the magical 5 houses I am hoping to either carry on buying more houses or save the rent up using rent and work income and pay lump sums off the portfolio.

I chose to have the properties on an interest only basis because 'if shit happens' I can still afford to pay the interest only payments using saved up rental/work income, if I have a vacant period of all the properties 'worst case scenario.'
But on the other hand, If one or 2 of the properties is vacant then the rental from the other properties will cover this and pay the mortgage as the interest only payments are low and the rental profit is good.

I wouldn't be able to do this if I had all 5 properties on repayment as if worst case scenario they are all vacant, I would be left with a bill for over 2k a month or if one or 2 of the properties is vacant then the rent from other rentals simply wouldn't be able to cover them.

Long term goal is I would like to either keep them until I retire then sell up, get my deposits back or more if the value goes up on them, happy days. But ideally I want to get off the spanners and have the rental income as a wage but I don't think I could get rich doing this until I have double figure property portfolio so I have to carry on grafting until I reach this.

Hoping this can be of use to someone and if any one has any advice I'd be very grateful as I am still only a fledgling landlord.

As others have said and as you yourself clearly point out, different approaches work best for different people according to your individual situation and attitude to risk and goals. My wife and I are in the fortunate position of having one house in west London on a repayment mortgage plus one flat near the new East London line extension in S London on an B2L, we've watched rent / asset values for both soar in the last 5 / 6 years and are now contemplating our next move. We almost invested in the cross-rail route but pulled back at the last minute as the market was going nuts and currently we live in the Far East so couldn't view / sort things out ourselves or through family and friends quickly enough and kept losing out.

As someone else has just said, your logic is sound and I think we will re-evaluate what we're doing with our current portfolio and sense-check it to see it still works. Thanks Landlord!

@The Landlord

Have you done any posts on tax efficiency on your property investment project?

Some friends of mind bought a flat for their elderly father some years ago, sadly he recently suffered a stroke and has had to be put in a care home which costs around £900 per week. The Local Authority pays up to £500 a week towards this (they have not told them the exact amount yet).

They could sell the flat but then they will pay CGT and the money will only pay for the care home for a limited time.

They can't move into the property as primary residence to avoid CGT as there are 3 of them and so they would only ever avoid a third. It may be possible to sell it at a lower price than market value due to the condition of the property.

The mortgage on the flat is paid off and they want to rent it out but they are concerned about the tax obligations.

Ideally what they would like to do is offset the care home costs against any potential tax on the rent.

Do you know if they can create a Trust (UK or Offshore) for the benefit of their father, sell the property to the Trust (at as low a price as possible to reduce CGT) then have the Trust have an income of the rent of the Flat but expenses of paying for the care home and thus avoiding any tax obligation on the rent (the rent will never be more than half the cost of the net care home cost).

Any other ideas welcome?

Other David, my thoughts on reading the above: Your friends need a professional Accountant / Adviser who really knows UK tax and whom is paid to be extremely familiar with their personal situation(s).

I have a reasonably modest story but have a 10-15yr plan in my mind of how I’d like things to pan out for me going forward.

I’m now a landlord of 2 properties, 1 a terraced house earning £635/mth on a £425 mortgage and a 1 bed flat earning £500/mth on a £200 mortgage. Both mortgages are interest only.

There is obviously quite a difference in the style of these properties, 1 makes £200 a month and the other £300 a month but the main difference here is the house is a much better area and, looking at figures from the last 5 years, has an average increase of between 1.5%-5% whereas the flat has been consistent of between 1%-2%. Therefore I view this that the house (currently at 65% LTV) is a good long term investment assuming price increase continue at the similar rate, whereas the flat (currently at 80% LTV) is a good short term investment in earning me a quick and worthwhile cash flow.

Also, for those wondering why I don’t just reinvest the £500 back into the B2L mortgages or transfer at least one to a Repayment mortgage, is that I have a very awkward ex and despite buying her out for £30k 5 years ago (She paid in £10k when we purchased the house 2 years previous but stupidly we didn’t sign anything regarding shares so she walked away with about £15k of my money) she will do whatever she can to get money from me, despite me also paying her £350 a month in maintenance for my 2 kids, and therefore I need to keep all equity and assets under a £65k barrier otherwise she stands to be legible to gain access to this, but this doesn’t include my main residential property.

As a result of this, my long term plan is to chip away at my residential mortgage using some of the £500 / month, while also using it towards holiday, car expenses, day to day living, etc, for another 10 years (I'll be 45 at this point), and both my kids will be out of full time education so child maintenance, and more importantly the £65k barrier, will be a gladly forgotten burden, and at this time I will have approx. 15years left on my mortgage which has always been calculated to be paid off by the time I hit 60 but should be considerably left due to overpayments mentioned above, aswell as an occasional lump sum as I’m about to detail.

Assuming the house prices do gradually increase over the next 10 years, or even remain at the same rate for a period of time, I’d expect that I may approach the £65k barrier so again would re-mortgage when required to put towards my residential mortgage which in turn would hopefully put me in my early 50’s with regards to paying off the residential mortgage and at this time I would hope to either be in the position to buy another B2L property outright, or even build on the side of my current B2L house as I own a large portion of land to the side and having received afew ‘rough estimates’ I could possibly build a £175k house for £75k-£100k and by that time, could possibly be funded outright therefore giving me the new rental income / investment I’ve been planning for. And that’s not even mentioning the cash that will be freed up if I was to mortgage it.

That is the plan for my next 10 years and then the 5 after that will all be a result of how things pan out, if I was to succeed with the above I would even look to purchase another 1 or 2 properties to have a respectable 5 by the time I hit 50, 1 of which could be a self built house and in addition could possibly be mortgage free in terms of my residential property.

The thing about interest-only mortgages and interest is you can pay more interest for longer (bad?) but that just gets written off against tax anyway (good!) so you can use the excess money for something else, say more properties, or more hands-off investments such as paying off your car or chucking it Goldman-Sachs' way.

Hello all. I find reading these posts interesting and helpful. Thank you.
@The Landlord, how is your portfolio looking now 7yrs on please?
@Phil Landlord and @Alex I am looking at similar plans to you. Can you please give me some more advice! @Alex how are you doing with your plan? Thanks :)

The easiest bit is buying the house...so take your time, buy what you know and buy good value. Not necessarily something to do up...but value. This allows you to sell if need be.
£150k terrace plus £30k spend is not worth a £10k discount. Just go to ones done @£190k and if you try enough times you will get one done up for £175k. Or a messy one with nasty carpets for £165k....but know the difference and be able to recognise between a £5k tidy job and a full renovation.
Then something that rents well and makes a profit.

Hi all, some good advice, outlook, suggestions and options on here.

I have a few propertied between myself and my brother - 2 BTL joint ventures and we each owns a residential property each.

So we are in a good spot as for the long term investment drive as the products are on repayment terms.

My query is regarding short term pursuit of residential houses/flats to gain equity by development and then resale, what do you guys think is the best approach to obtain a property and then SELL? I have been offered a BTL product at a good rate, with portable conditions, which could mean that i could source a house with some cash that we have available, do it up and then gain about 15k profit (minus sale fees, tax etc) on sale. purchase price is under 100k

We are new to development, unsure of the following:

- How easy is it to transfer the product to another property on sale agreed (lender issues?
- How does the difference is money (in my favour) then appear in my account
- Do we need to have a new property lined up to port to (creating a chain)?

Any help much appreciated.

my plan is to buy property to renovate and sell on for small profit and then buy another to do same.
I own a house outright valued at 325k and have investments behind me. I am early 50s and want to remortgage my house to start my new venture,( was thinking 150k but like you would want to repay in a couple of years with no penalties- leaving me with my profit!) but because i only earn a small wage, they will only lend me next to nothing on my wage even though it will be secured on my property, and i have money invested what would you suggest?

@Dee

Why would you give yourself this hassle for a small return.

Buy to let cars pay 11%, no tenants, car is secured by GPS and immobilised if they do not keep up payments.

Go watch any of those programmes on the TV like Grand Designs and they all go over budget.

You are mortgage free, be grateful for that, you could become ill or have any kind of crisis and your security would be GONE.

If you move, keep your home and rent it, otherwise forget this crazy idea!

Some real rumblings on the budget changes - and I will add more detail to the forum once I receive my email of membership. It hits leveraged LLs who had interest only loans, borrowed for each deposit and no plan to repay debt.

I just wanted to thank you for this post. I added my first comment in 2012 and the first point was 'repayment mortgages' - okay, I stuck to interest only....but I listenedto your point and every penny I did not pay off debt is sat in the bank. I also had a strategy to repay debts fast.

In total (due to a bit of buying and selling too) I am leveraged at 20%. Not smug - but happy I read your note 3 years ago.

Again - THANK YOU.

To confirm...10% repaid from my all mortgages today and transferred to repayment.

They are fixed so a further another 10% will be paid off them each year for next 3 years.

I can see the day when interest only mortgages and mortgage equity release for deposits are no longer available.

Thx again Mr Landlord.

I have a similar strategy, though sometimes I feel I am daft for not being more aggressive, especially with yield, but the portfolio is secure, and provides a secured income;

3 BTL properties in the UK with 1 mortgage - Brought and paid for over the last 15 years. Value is about 1.25 million and mortgage debt is 148,000. pays a rental of 46,800 PA split between myself and my wife.

Am I missing a trick, should I take some equity for debt and be more aggressive?

Andrew - my position is differs - but comparable.

My epiphany was realising I am 47 and working out if I divide my assets over the next 20 years - then I have enough. More than enough. And in the meantime I am generating rent etc.

So the knly trick you may be missing is knowing how much you need - ensuring you have it - then making surf you enjoy every single minute of the rest of our short time on the planet.

So in 2 years I stop working, I take in adventures (mountains, amazon, marathons, works cup finals, Taj Mahal, safari,) and I absolutely hope the last cheque I write bounces.

I could write pages and pages but its a real challenge to make sure we do this. 3 years ago an old lady died who I knew who lived in a nice flat but was basically frugally poor. It transpired she had 12 huge houses in our town - the money was split up between cousins etc when she died and spent. Probably £6m.

I wish she had enjoyed it more. It's important to feel safe - but it's a balance.

Ps if you are 30 with kids then your perspective will differ and I get that completely. But if your 55 - get it spent. I never wanted assets. I want time and treasured memories.

Ps I ain't judging - there is no right and wrong and you can do what you please. Sound like you are doing fine on your own at the moment. :)

Hi all
I have stuck to interest only payments too I but I have selected mortgages where I am free to make overpayments too.
I saw this as a win-win - reduce mortgage debt, BUT this is at my own discretion so I have no obligation to make repayments/overpayments. When I have the money, I pay in monthly or in lump sums or if I have a void or things get tighter I pull up the drawbridge and stick to my interest only payments. That has kept my options open.

Thanks for the blog, it's given me lots of food for thought. I'm thinking of renting out my house (I currently own 25%, with £115k left to pay) and was intrigued to read that you would recommend a repayment mortgage as the safest option. My fear is that the property may not rent for a month or two, and I'd be landed with large mortgage bills. If I choose an interest only, then it'd only be £250 per month for me to pay if the property was ever empty (or the tenant wasn't paying up for whatever reason). That feels like a less risky strategy, especially if I can over-pay gradually when times are good? I appreciate that it's highly unlikely I'd ever own the property outright but surely it's less risk? I'm no expert, so please correct me if this is a foolish strategy!

Jack - Don't worry, you're quite right. Interest-only all the way, just be disciplined to pay the lump sum down when times are good rather than blow the cash on something else!

Hi

I am looking for some guidance for a relative who is considering property investing after cashing out on an investment worth £500k odd. They have asked me to manage it.

Whilst buying in London seems attractive because value increases more rapidly, the price of properties means taking a stamp duty hit that is eye watering.

So it got me thinking, there must be a sweet spot as you move north where the price of property under £125k can still get a decent rent (and tenant)? Anyone got any suggestions?

Also it has been suggested to form a company to buy the property, possibly in Ireland?? Any ideas on this?

Finally, does it make more sense to use the money to buy 4 x £125k properties or to use it to buy 8 with some sort of property investor mortgage?? Recommendations please?

Appreciate your help and love the site, very funny and very useful.

Hi Landlord

Just re-reading this again, my plan identical to yours and started in 2002 with 20 year repayment mortgages. I have 5 years left till the properties are paid for and have already been able to retire on an income of about £1300. This bodes well for you as I estimate you only have another 8 or so years to go to reach the mortgage free payoff. Is the income inough from your properties to retire on once they are mortgage free? I say retired but I do all my own maintenance on 5 houses from gas plumbing to making my own roof trusses :). Could you sell one property for enough to retire your other mortgages and live on the resulting rents?

Really interesting reading this. I’ve got 2 btl properties both in London value of £230k each at 75% ltv. Rental profits are good after mortgages taxes are paid.

I’m in my early 30’s just starting a family. I’m wondering if I should start looking at repayment of one of the properties or trying to save for another btl in the north as i’ve recently moved to the north.

Also looking at cutting back my hours to go kart time to spend more time with family. Another btl could help subsidising my income

Hi Landlord,

I have several interest free mortgages (at about 65%LTV), and I am currently standing at a junction where I could remortgage to 75% and take some tax free capital gain winnings, or continue to reduce the LTV down to zero and live debt free off rental income. I have been undecided for a long time but as of late (possibly because of the new legislation that has come in) , I am now starting to bias and sway towards aggressively starting to pay them down. They are all in my own name and I am a 40% tax payer.

However, the main thing holding me back is the tax situation. The way i see it is what ever rental I am able to achieve after paying all my debt off , I will have to account for the fact that almost half will go away in tax (probably 45% in fact as I should get over the threshold when my personal job income is taken into account)

It’s a hard pill to swallow but I guess the comfort of debt free cash flow coming in is that it is a very safe income. A true relatively guaranteed pension income that will cover all my costs and fun times come what may. I guess this secure and confident feeling will eventually make me just rationalise the huge number in tax I will be paying compared to my fellow 75% LTV constant-remortgage-investors.

Is this huge ‘Tax-payment-Thing’ just something you have accepted or do you have any tax cutting tips up your sleeve you would be happy to share? If not, I guess we are trading off the significant extra tax we pay, for the absence of having to worry about the multiple “what-if-shit-happens” scenarios that could arise ! :-)

Your views would be appreciated and gratefully received :-)

Dan