Retirement funded by BTL - Reality after 1 year.

[drainbrain]

AMDBSTony said:

I do agree that diversification is very important. Properties and other items were simply a by product of tax paid earnings from my business which was my main source of income by far. Fortunately i have no debt whatsoever so thats why BTL works well for me, probably less so if there were associated loans.

I also enjoy returns from many other sources, including financial instruments, that are looked after for me by Agents.

A good investment i find is on classic cars which have both appreciated and given me fun along the way.

As i said, no right or wrong and i agree, PH is a bit of fun that i really don't take seriously, unlike others seem to!

At the end though all these things need to be converted to cash, unless you intend to leave to the kids. I have a plan to convert if i ever needed to, except for the properties that will be left to my kids, but that's another story

Yep that's the same start for many, self included. Where the surplus from a primary business gets invested in the portfolio. I'm also down to a tiny stump of debt, BUT I have rarely had more business fun and probably never made more money than the days of "partnership" with the corporate office of RBS and the 'hunting licence' and colossal overdraft and literally endless funding! At the peak, which was also near the end, I'd started getting figures and making plans for a mid-range jet! (one of the 'gang' had burgeoning property interests in Germany and Egypt so we decided we'd need one that could do Egypt without stopping to refuel).

I've tried with other investment income sources but nothing that ever felt 'sexy' other than other business ventures. The financial instruments never did it for me nor did the agent with 'the magic touch' materialise though god knows I've met a million of them. Even owned a financial firm once back in the days when it really was a joke, but nope. Wasn't ever my destiny.

Same with cars. Spent (squandered) fortunes on them including stuff that would now be worth many times what I paid, but never kept one in a garage to accumulate value. Again, my lot was to spend on motors not make on them. LOL! Same with a lot of other things too!

The End Game's interesting. My "kid" certainly won't need anything, and if he got it he'd probably stick it all on a horse or into a tramp's cup anyway. So the wife gets it, the system manages it, and then it goes to charity as it is proper to do. I think it was Carnegie who said "the man who dies wealthy dies in disgrace'. Kinda think I agree. But one thing's for certain sure. It won't be getting stolen by an annuity firm/scam.

[drainbrain]

AMDBSTony said:

We are just ordinary people with old fashion outlooks. We took the approach with property as we saw it as a fairly safe way to invest and one that provided good returns overall in terms of capital appreciation and rental income. Having made £2500 in 10 months on one house way back in 1985 was the start of this thought pattern. We have never lost on a property since, the exact opposite in fact.

Fast forward, our business served us really well and it just made sense to buy property throughout the years with surplus funds that we had.

Wouldn't think that debt would be good on domestic BTL in the near future, especially as the tax rules are changing re offsetting interest on income. May be a good opportunity though to add to the portfolio as there will probably be some cheap properties available?

There was no science around what we have done and count ourselves as being very fortunate to be able to have done what we have and be in the financially secure position we are in. Disclaimer to that would be if the bottom was to fall out of property market.......even so we would still be ok as we are very well spread in terms of investments and also property could never fall that low - i hope

Parts of my story are pretty similar. First two paras are like my experiences from '76 to '89. But I'm not with you on the debt thing. Whilst there's a margin of owners who're going to find the tax changes hard impact there's a much larger number who aren't. Especially the ones who don't have any debt. Obviously it's not going to affect them at all. But I'm sure I was hearing the other day that the MAJORITY of rented property isn't indebted. It's looking like I'll be running 5%LTV possibly increasing to 10%. So personally I'm not exactly shaking with fear around the interest tax issue.

But then you're going strange on me. "if the bottom was to fall out of the property market" ???? I mean we ARE still talking btl here are we not? So as far as I know the market FOR btl property is the army of people who rent it. In what circumstances do you see that demand (or 'market') for tenancies causing the bottom to fall out of itself? You think it's possible there's going to be huge demand drop for resis to rent? Which same circumstance would be the only likely way rent levels could drop too? Goodness. That's a bit contrarian to the popular myth of a huge huge housing shortage. Which, if anything, the tax changes might increase if they increase demand by forcing btlers out of the market lowering the supply side even further. Hmmmm

I want to ask you a cheeky question which obviously you don't have to answer if it's uncomfortable. APART from btl, and apart from any businesses you may be running, what specifically amongst your 'spread of investments' justified your faith in diversification during the latest deep recession which to some is still going on? Did ANYTHING equal the strength of btl? Gold, maybe? Because from where I stand the rush to btl really began in earnest after 2008. For example there are 10 times at least the number of letting agents now as pre-recession. I got whacked a few different ways by recession. For example, a quite outstanding business brokering secured loans collapsed when the Daft Ones stopped providing the capital. But the letting side went from strength to strength. That was one of the reasons why I could not figure out why the 'financial experts' in the banks weren't much keener on financing it. Let's face it, letting property was arguably the strongest survivor during recession. And RBS could certainly have made a few million out of me alone if they'd been prepared to keep the tap open. Anyway I'd be grateful if you would say what investments you found recession proof, because I'm not altogether convinced that the 2007 one is really over and my antennae are telling me there's another bank-centred super nightmare just hovering on the horizon.

Edited by drainbrain on Sunday 30th October 22:13

[drainbrain]

richardxjr said:

I can't see Groak's Law working in any part of the South of England. Bottom rung HB into otherwise unsaleable units. £350pm from £25k seemed the norm in Glasgow. Perhaps students too. I remember mates at Wolverhampton sharing houses owned by bus drivers (going back a bit I'll admit). Also little shops with 100% rates relief that aren't liable to big voids, somehow.

IMO you are right. My strategy applies to my area and any similar (of which there is no shortage around the UK). In London/SE I'd use a different strategy - as London property people do. BUT. As anyone in London knows, you don't have to be either from or even in London to run a btl portfolio there. Likewise, many people from London run portfolios of property in other areas. A close associate operates a chunky portfolio in Berlin. It does well. The only reason he ever goes there is because the portfolio gives him a good excuse for a jaunt.

[drainbrain]

DonkeyApple said:

Glasgow also has the unique benefit that DSS tenants always pay their rent unlike anywhere else in the U.K. where there is a pretty regular % for payment defaults and the cost of enforcement is high. That gives a huge advantage when buying the bottom end of the market, to be immune from the financial issues of the people at that end of the spectrum.

Not really DA. DSS defaulters (afaik UK-wide) get to do it for 8 weeks then the LL applies to the LA for the rent to be sent direct to the LL instead. It's called 'safeguarding' on the grounds of the tenant's failure to handle the rent responsibly thereby putting themselves at risk of homelessness. In practice, even after the 1st default (4 weeks) the LA is requested to suspend the payment until the complaint (of non-payment) is investigated.

Actually for the pro rent default's not a major issue. It's a certainty to occur at some point but try to see it like owning a car that needs a service now and then or a set of tyres. The odd default's just part of the normality of the operation. Over a lengthy period you can actually project it with some accuracy.

[drainbrain]

DonkeyApple said:

But that 8 week wait and work is exactly why it's prudent to run less leveraged books as they are more able to finance the hurdle.

If I was to tell you that an agency operating 100's of DSS tenancies had a rent default rate for DSS tenants over a 3-year period of just over 1% would you see why the issue isn't overbearingly concerning?

The default rate's a bit higher for private tenants for which there are many reasons. But the recovery rate of the defaults can be almost 100% depending on the cause.

[drainbrain]

trowelhead said:

Not quite as good, but plenty of stock in Manchester / Liverpool / Leeds that costs 50-60k and rents 400-500pcm

http://www.rightmove.co.uk/commercial-property-for-sale/property-56435725.html

Well that took 3.5 minutes to find. Wonder what you could dig up if you spent a couple of weeks looking. Hmmm. Wonder how much the tasty flat upstairs went for?

[drainbrain]

trowelhead said:

Serious question then. If you had 100k to invest - would you buy 4 of those shops or use as 4 x 25k deposits on 100k houses / flats in more upmarket areas? (Assuming you could get the finance)

Let's assume the ROI on the shops is 10% and ROI after leverage is also 10%

Either.

My instinct right now would be the former. I LOVE those little commercial places.

Buying it would be interesting. If it has to go to the floor, assuming it hammers, the underbid is the exact accurate value. So you'd have a very good idea of what it would get at LEAST if you had to re-sell it. Personally I'd phone the auction house with a bid of 20. If that's a knock back then up it 2. I'd probably go to 25 if I had to, but I think it'll end up going for slightly less. 23. I'd also bet there's a buyer's premium. Poss 1 likely 1.5. Then there's sorting it. Max 5 but then it'd be a 'palace'. Then there's a lawyer. 1 max. Then there's an agent. 5%+vat. There'll be no 3% add-on coz it's under £40k. And there'll be no rates either. Nor, I'd say, is it likely the building's factored/managed. So that's it really. Bought paid for and renovated 30. Rent? If it was here it'd be £300 a month. Probably the same in L'pool. So there's your 10% per annum.


Here's my latest one: "Spectrum". Cost 20. Gutted and rebuilt 5. legals £632. rent:275pcm. Last owner did cheque cashing for a living from it for 20+ years. Didn't spend tuppence on it so it needed the Full Bhoona. Lovely guy. Retired to Portugal to drive his motorbike around.



https://www.google.co.uk/maps/place/22+Hamilton+Rd...

Edited by drainbrain on Monday 31st October 22:33

[drainbrain]

Revisitph said:

You'd not get a lockup garage within half a mile of the town centre here for that - and the return would be <half!

Bet the salmon fishing's ste as well!

[drainbrain]

trowelhead said:

Very interesting. Would you make a bid without viewing it? Do you just move on if they are not doing viewings?

What stuff do these type of units usually need internally? Replaster rewire and new floor coverings?

Certainly would. But they all do viewings.

As to what they need, they need a spectrum from nothing to everything. Or even everything xxl. lol! A single unit like that has a wc and whb and somewhere as discreetly as possible a worktop with a sink, fridge and cupboard below it and a couple of sockets above it. The rest is a clean box with gyproc walls lots of sockets a good wall mounted heater and a sound floor. If you want to go mental (or just for the sake of it) remove and replace the shopfront, and install a full length electric shutter. Add £2.5k.

If buying unseen then assume everything needs done. you MIGHT get a real nasty shock = major main drainage fault but it's highly unlikely. You might get a real nice surprise and hardly anything needs done. But I'd assume a "standard" gut out and refurb. For sure 5 grand'll cover it though if you like South African multicoloured slate floors and exciting lighting you can spend what you like.

A key "skill" in these ones is getting the right tenant, unless you don't care and are happy enough to see a procession in and out until it settles down with a longtermer. Which is ok too. That's the bit you're best to DIY unless you really do have the right kind of agent. Then if you want to do NOTHING get an agent to ensure BI's getting paid and rent's being handled responsibly.

Then do another one.

Ad absurdum.

[drainbrain]

richardxjr said:

Dundee?

1bed flats from 40k, max HB just over 10%

Too much?

http://www.rightmove.co.uk/commercial-property-for...

LOL!

Y'know if that was in Glasgow I've got exactly the tenant for it. And I know the Future Auction dudes real real well. They just sold one for me (sold prior). And I'm putting a tiny land parcel thru them next month. Very very little sells in their rooms. But a lot sells pre and post.

bOZo the Clown's done enough 'research' on it to tell it's anybody's for 15.

My Glasgow tenant would have been a lawyer who needs just such a place to store paper so he can move it from the premises where it's currently stored that he'd like to sell me for a very generous sum. I'd have rented it to him for £100pcm and forgotten about it.

Usual story. Masses of people need little cheap non-resi places for innumerable different things. And at that cheapest end storage is v v hi-demand these days. Street looked ok too.

Doubtless some Dundonian will have it by the weekend.

[drainbrain]

richardxjr said:

How do you rent these little shops out? Licence or proper lease?

Personally, back of a fag packet lease. Largely meaningless and legally worthless. But useful for me and the tenant. From my perspective it's merely a witnessed 'document' verifying occupancy and period of same. Utility companies hold occupants rather than owners liable during periods of occupancy.

Obviously in more serious commercials more serious paper is involved, including farming the whole thing out to proper agents.

But nobody 'likes' the 'proper' commercial lease experience which can be overpowering and seem exploitative for many a tenant.

Actually the last premises I rented as a tenant (taxi base) there was no lease at all. Nor any issues arising from that over all the years I rented it from him.

[drainbrain]

Shnozz said:

For the uninitiated among us, what are you actually buying with some of these commercial properties. Seems to be plenty of bars/cafes for sale @ circa £100k but presumably many of these are leasehold? Are you actually purchasing the real estate or simply paying for the existing business and the lease on the premises for a period? The prices look far too low to be "real" bricks and mortar.

Freehold for me Shnozz. The b&m.

Lol….you CAN buy expensive ones too y'know.

[drainbrain]

trowelhead said:

Thanks for this. Great stuff. Does most of this type of stock end up going through auction houses?

You're welcome. I'd think in most cases stuff that ends up at auction does so for a reason (or for 1 of 50 reasons) and it doesn't really have anything particular to do with them being small or cheap or even dismal etc etc etc. And of course an awful lot (probably most) of auction stuff doesn't 'sell in the room' but goes prior or post the actual auction.

And for your amusement, I spent the early evening with the owner of "Jesus Loves You" and FINALLY after, oh, 10 years, he's starting to agree to sell it:

https://www.google.co.uk/maps/place/7+Aberfoyle+St...

There's a great story behind it. He and I were partners 25 years ago and built a portfolio together. This was one of the properties bought in a deal HE closed that was so hard-nosed that I was actually embarrassed. When we split it became his. I got the one opposite it in the split:

https://www.google.co.uk/maps/place/10+Aberfoyle+S...

If you can guess the business currently occupying it, I'll give you it!! I've got a planning permit to demolish it and build out the gap from the ground to roof level, but can't be assed just now not least because I like the tenant very much and don't want to disrupt his usage. I'll do the build if/when he goes.

These little horror-commercials are ALWAYS fun. And pound for pound they are also by far the best earners.

[drainbrain]

trowelhead said:

drainbrain said:

If you can guess the business currently occupying it, I'll give you it!!

Hmm ok... my guess is someone uses it as storage? Hot or Cold?

Nope. Well, actually, sort of. It's used by Tartan Snakes. They keep and breed snakes and reptiles and bugs in there. Amazing things. Monster yellow snakes (10-15 feet long) that have dinner (a rabbit) once a month and spend the rest of the month sleeping. And other-worldly lizards. HUGE insects too. Some of the things are bred as food for the other things. They're sort of a business and sort of a club, plus they do stuff with schools. Gathers quite an audience of local kids if they're in at the weekend. One of the most interesting tenants I've ever had.

Oh and on the subject of beasties, that Future Auction one that bOZo was mocking above is being sold with the occupancy of what I think is a nationwide grooming chain at £2kpa. Tbh I'm having to persuade myself not to buy it. 18 + premium + legal = 20. Think I'll phone the tenant and ask if they plan staying forever.

ETA: Nope its a sole trader with a 25 year trading history who's started to think about retiring. Would've thought there's something there worth trying to sell to a subsequent operator.

Just think what a happy investment that's been for the owner! Probably cost £5k back in 1990. 10 times your investment in income, plus another 3.5 times in cap gain.

THERE's yer dinner!!!

Edited by drainbrain on Wednesday 2nd November 11:31

[drainbrain]

richardxjr said:

The Dundee one. I'm the one that put the link up as a suggestion, certainly wasn't mocking it. What's with the 'bOZo' insult?

I'd spotted the tenant in place, that's why I put it up there

Edited by richardxjr on Wednesday 2nd November 14:52

Not you rxjr the joker who commented on it in the next post after yours using the wrong right move link. Obviously you don't speak Idiot. I do. Years of practice. You have to untangle their confusing communications but his wasn't difficult to unravel.

b 'OZ' o….get it now?

[drainbrain]

Ginge R said:

... Look forward to meeting up one day soon.

Careful what you wish for!!!!

Seriously. Wholly mutual.

[drainbrain]

andyb said:

Drainbrain, if its not a personal question, where does Romania fit in?

You are extending the property empire there? BTL or holiday home in the mountains / on the coast?

I ask as have spent some time there and mildly interested in buying there...

It is entirely fictitious. Neither am I there nor have I ever been there nor am I ever likely to be there. I think I may change it.

eta: and just did.

Edited by drainbrain on Friday 4th November 22:01

[drainbrain]

princeperch said:

I've very much enjoyed reading this thread today and look forward to it continuing...

I must admit I have thought about buying a small dungeon or two, but think groak must have had a hell of a lot of luck not to get any crackheads or professional debtors renting his little flats. Or maybe he knows how to appeal to their better nature :-)

So here's a little list of current issues as we go into November

a) Small flat recently abandoned after a 2 year DSS tenancy netting £350pcm with little or no expenditure. Apparently ex-tenant demanded immediate entry although the flat needed a few tweaks. Now 2 years on, decided to spend 3 grand restoring it. 2 week process. Back to rentability end of this coming week.

b) Flat returned 3 weeks ago after almost 11 years DSS tenancy. 4 grand spent restoring it. New tenant in this week.

c) Flat abandoned last week with minimum damage by working alky after 3 months inc. 2 of non-payment. Workplace and family home known. Legal pursuit of rent underway. Flat cleaned and back to market this week.

d) Burnout flat…well actually fire brigade destroyed whilst dealing with burnout in flat 2 floors above in building. Very serious fire. Happened in March 16. Million pound restoration not starting till Jan '17. Fully insured including rent insurance which has been paid up till Dec. 16 already.

e) Very small flat returned last week following end of 6 month lease. Being remarketed

f) Small flat with DSS tenant busted by cops recently and tenant remanded in prison. 2 key of smack found bang to rights so he won't be back for some time. Probably storing it for one mob or another. Technically could keep claim going whilst he's on remand and prior to conviction and sentencing. Can't be assed. Flat in good order. Being remarketed.

g) Another burnout tho not near as serious as the one above. However, well in hand, insurance repair approved and claim for loss of rent awaiting process and payment.

And so it goes and so it goes and so it goes. That's this week's empties and problems tho' in fairness the burnouts aren't losing any rent and in a weird way
end up better than they started. So…..5 non-producers totalling £2k grosspcm, none of which will be any prob. to refill. Nothing unusual and nothing unexpected. Just another typical scenario. Ho Hum. What's on the TV?

[drainbrain]

Simpo Two said:

If that is retirement I sincerely hope I manage to avoid it!

Well that's the whole point of 'retirement' isn't it? It's the management that lets you avoid it. The problems don't stop when you retire. It's just you don't deal with them anymore. tbh I've only overseen the management for years, 'tho' I used to enjoy 'hands-on'. No big deal in that list. Totally routine. And what's 100% certain is when that faceful of wrinkles is botoxed away there'll be another set to replace it. Actually on the odd occasion it hits zero issues but all that means is there's a ststorm coming round the corner.

[drainbrain]

R11ysf said:

So to sum up the entire thread, man "retires" by doing job he has always done whilst working? You have more there in your list of things in "retirement" than I have in my working life. My current list stands at book restaurant for Thursday and book hotel in Bali. If I didn't know better the lists for working man and retired man should be the other way round!

"Man funds retirement by owning the same portfolio he owned when working" would be a more accurate summary. I suppose 'owning a portfolio' is a job, but it's not a 'doing' job it's a 'passive job'. If you think I deal hands-on with all the issues or indeed any of the issues the portfolio requires for its day to day running then no, I don't. Did so for years, then directed management company which did the hands-on for further years. Then oversaw the management company as its principal shareholder for several years from an adjacent office and was available if required. Then, finally, sold the shares, cleared the office and am only there for the current boss if he needs me. Having said that, at least once a week I drop in to the agency. Me and the new boss who bought me out have worked together and have been good friends for 20 years. He makes a great coffee. We have many things and people in common to chat about. And in the hour I impose myself on his busy day I may well ask him 'how's the stlist for my props just now"? And he will tell me. And of course if anything major happens he will tell me. And sometimes he even needs something signed by me. BUT:

Inadvertently you raise a very interesting point. IF I ever feel I'd like to get involved in anything to do with the hands-on management I certainly can. And tbh if there's something of interest to me I do. It is something to do. That isn't the same as being so bored or boring that I can't find anything to do in retirement. It is about occasionally wanting to get involved in something and usually in the company of people who I like. I always enjoyed the agency day. And I liked all the people in the working environment almost without exception. I feel lucky to be able to keep contact with them. And to have the involvement option. I hear lots of tales about people who can't settle in retirement and for whom work was everything and what gave them self worth. I don't feel like that at all. But I think one of the advantages of funding retirement with a MANAGED btl portfolio is that it gives you the opportunity to do or NOT do as much or as little as you please. Have to say I do seriously little. But that's possibly because I'm very confident in the management as well as being physically incapable of much of it.

Can I also say that regularly eating restaurant food and staying in hotels in Asia aren't exactly high on my retirement wish list either. Or are most of the retirement 'standards' like cruising, ex-pat Med villa-dwelling, garden-pottering or annoying younger relatives.