My buy to let business the beginning

[Buy2Let PJ]

My buy to let business the beginning

In the back of my mind I had wanted to explore the possibility of buy to lets for a while and about two years ago I really started to look into the possibility with some intent. I bought my first buy to let in November 2019 and I’m going to document my journey with some figures and pictures and then update as things progress.

I was actually in a position to move on a property in April 2019 but got a bit paralysed on what direction to go in. Anybody who has, or is looking into this seriously will know there are many immediate decisions you have to make. “Vanilla”, HMO, cash flow v capital appreciation, area, type of property, tenant profile, doer upper and this is naming only a few of the decisions before you can really make a decisions on buying a property.

Anyway, after much head scratching I decided on the following:
Straight forward single let properties.
One or two bedroom properties.
Mix of houses and flats
£100k or less purchase price.
No more than 1 hour from my current home.
Concentrate on properties that had been on the market for six months +
Look at properties needing light refurbishment (carpets and a repaint).
Only buy a property that I would or would have been prepared to live in myself.

Reflecting back now the aforementioned is a little naive but I think it was a good premise to start with and I have moved away from some of those parameters. I also planned to work with an agent local to each property and find a use the same mortgage broker and solicitor.
I’d also decided that credibility with estate agents was really important to get a good deal so I created a bit of back story about developing property and being an experienced landlord and looking at moving into ‘their’ area.

In November 2019 it finally happened and I purchased the first one the details are below.

Property Number one
One bedroom flat
£87,000 asking price

Agreed the deal at £81,000 and then renegotiated down to £80,000 after the survey condemned the combi boiler in the kitchen.

£80,000 final price
£28,000 deposit (35%)
£3,622 fees
£2,000 refurb (boiler and associated costs with painting which I did myself)

Tennanted within 6 weeks and rented monthly for £550

Rent £550pm
Mortgage £123pm
Agent’s fees £52.80pm
GR / SC £55pm

£319pm Net (11.4% ROI)

• I know the above net figure does not take into consideration voids, maintenance etc

From taking the keys to getting it let was reasonably straight forward, there were some issues with pre pay electricity metre and obviously a new boiler but in the main it was quite painless. Unfortunately the letting agent did see me coming and while I was busy negotiating the monthly fee down he was adding stuff to the setup charges and I didn’t realise what was going on. It’s fair to say in that negotiation I definitely came second.
Property number two to follow

[Buy2Let PJ]

Dick Dastardly said:

bogie said:

Dont you pay any tax on profits ?

Whenever I consider BTL I always assumed that I would be paying 40% on any profits as im a higher rate tax payer and it would be my 2nd income. I guess if you are structured as a Limited Company it would be less.

You used to pay tax on the profits but now you pay tax on the income. It's a crazy law that only applies to BTL and no other asset classes that came in over the past couple of years. It is the main one of many reasons why I'm currently selling all my BTLs.

So in the OPs case, he'd be taxed 40% of the £550 rent, not the £320 profit. Meaning he's left with closer to £150 at the end of the month (assuming he's a higher rate tax payer). So the net yield is tiny.

I'm not a higher rate tax payer but I thought you just couldn't offset the mortgage costs now but other cost you could.

[Buy2Let PJ]

randlemarcus said:

Buy2Let PJ said:

Unfortunately the letting agent did see me coming and while I was busy negotiating the monthly fee down he was adding stuff to the setup charges and I didn’t realise what was going on.

Well, you created your backstory about being an experienced landlord B2B can be harsh when compared to the nice fluffy world of B2C.

Interesting though. Out of curiousity, why Buy to Let, and not stocks and shares? I would have thought the easy money left the market a while back?

Edited by randlemarcus on Tuesday 15th September 07:51

I don't mind it bit of graft. I've put a little in shares but not done very well. I will add some pictures of property number two as I did some light refurb work on it and I can feel I can add value.

[Buy2Let PJ]

Property 2

A small one bedroom property with a nice garden in need of some attention. It was running in the background while I was purchasing the previous property.

After the getting done over a bit by the previous agent I decided I was going to rent this one myself. I had some time while doing the refurb to find a tenant so chanced my arm a bit and advertised it.

I was contacted by an agent and after some discussion about my plans to grow the business I decided to market the property with them. I negotiated an actual good deal this time and the agent has demonstrated themselves to be a real asset. More about the agent in later posts.

I used the same broker for the mortgage and also the same solicitor. I liked the solicitor, they were responsive and efficient, the mortgage broke not so much but they did come highly recommended.

It’s funny I ended up really liking this little place.

£95,000 asking price
Agreed the deal at £87,000
£30,450 deposit (35%)
£3,825 fees
£5,000 refurb (driveway, kitchen, emersion heater flooring )

Tennanted after 3 months and rented monthly for £510

Rent £510pm
Mortgage £132pm
Agent’s fees £37pm

£341pm Net (10.5% ROI)

Some pictures of the refurb.

[Buy2Let PJ]

Property Number three
This is a two bedroom house and ticked all the boxes, good area, good transport links. It was slightly further away but this was offset by the fact that it needed no work at all.
The seller was a landlord and had it fully painted and cleaned and was really motivated to move it on. It’s worth saying this deal was done during the COVID lockdown as such I have only been in the house the day I viewed it everything else has been done remotely .
This is also where I ran into significant agent difficulties which I will write a separate post about.

£93,000 asking price
Agreed the deal at £85,000
£21,250 deposit (25%)
£3,520 fees
£0 refurb

Tennanted after 2 months and rented monthly for £610

Rent £610pm
Mortgage £139pm
Agent’s fees £44.pm

£427pm Net (26% ROI)


Recap on the current position, three properties in
Total spent so far £96,767
Monthly rent total £1,087 (13.5%)

[Buy2Let PJ]

fesuvious said:

OP,
Would you mind sharing the mortgage details?
Term, interest etc.

Sure,
Interest only
5 year fixed
The rates vary as the products change as do the fees. The fees I have put in the fees section already and the rates are around 2.5%

[Buy2Let PJ]

Property Number three

This is strange one as I didn’t really fancy it and still don’t really like it. A two bedroom flat that looked like it had been decorated by someone on LSD in 1992. In all seriousness who honestly steps back from that and is pleased?
It was advertised at £70k so I put in an offer of £59k and expected to get told unpleasantly to not waste everyone’s time. To my surprise the seller had a think about it over the weekend and countered. We finally settled on £62k which was just too good a deal to turn down. There was quite a lot of work required to get it to a position where it was rentable but the tenants paid a full 6 months up front which was nice.

Rents for £525

It’s in an odd little village where people seem very proud to tell you they have lived there all their life and when I bought a sandwich from the local shop the woman knew who I was and had an opinion on everything.

Cash flow so far
Property 1 = £319pm
Property 2 = £341pm
Property 3 = £427pm
Property 4 = £335pm
Total = £1422pm

[Buy2Let PJ]

Phunk said:

Really interesting thread, I currently have one BTL which I self manage and have had the same people in it for the past 7 years.

Perfect tenant, but I picked a poor property which I've ended up having to re roof, install a new boiler and replace most of the panels in the double glazing.

The property is worth around £90k and I have about £50k paid off on a repayment mortgage. Renting out at £550/month

My plans now are to take out that equity, change the mortgage to interest only and purchase another similar property in the area (that is a better state of repair!)

What's the minimum % deposit typically required on a interest only BTL mortgage?

25% but sometimes you get better rates at 35%.

You can get creative with ways to finance deposits and there are lots of "no money down" or "no money" in course but they feel a bit smoke and mirrors to me.

[Buy2Let PJ]

• Update

Property Number Five

I was actually looking for a house but had seen a one bedroom flat which didn’t need any work at what I thought was a good price. I looked around it and made an offer that got declined. It actually sold for a bizarrely high price.

The agent then tipped me off to a property around the corner where a quick sale was needed. It’s a two bedroom flat that needed a lot of work. It was on for £105k and after some haggling we agreed £93k.

I was busy at my ‘normal’ job so the thought of evenings and weekends for the next three months was not that appealing. It’s also worth noting that buying something from a couple who have split up proved not to be straight forward, with them being difficult to each other and trying to use the property sale to irritate each other.

New kitchen, full repaint and carpets throughout. There was quite a bit wrong with the place that was hidden and the electrical cert was quite painful to bring things up to standard.














Rent £675pm
Mortgage £132
GR/SC £85
Cash flow £458

Cash Flow so far
Property 1 = £319pm
Property 2 = £341pm
Property 3 = £427pm
Property 4 = £335pm
Property 5 = £458pm

Total = £1880pm

[Buy2Let PJ]

Hoofy said:

Well done on building the portfolio!

Thanks, two more in the pipeline at the moment.

It's getting to the point where it's difficult to manage doing the properties and working full time. Once they are up and running the odd question/problem is fine but searching/viewing/buying/fixing is quite difficult while doing a full time job.

I'd be better leaving work so can dedicate more time to working on the portfolio but if I do that I can get a mortgage.

My solution is to buy properties with tenants in situ, the problem being I can't find a way to add value like I do when I refurb them.

[Buy2Let PJ]

ElectricSoup said:

Hi OP, loving your work here. Out of curiosity, what general area of the country are you operating in?

Lincolnshire, but the properties are quite spread out, if I could find what I wanted in the same area that would be preferable but I can't and in the current market I am struggling to find anything.

[Buy2Let PJ]

rodgie said:

Great progress! Out of interest, how do you find the deposits? Is it simply a case of saving for the next property or do you use some other means?

I did three things.

Took a job I didn't like or want but it paid more and I didn't increase living expenses so saved the extra money.

Had a good hard look at my spending and stopped buying rubbish and change utilities etc

started to doing a bit of selling on Ebay and then started doing a bit of buying to do some more selling. its very much small time but the profit adds to the pot.

After the buying the first one it's so much easier as that add to the savings for the next one. It's actually getting to the point now where I am struggling to locate them quick enough as the pots builds up.

I have two in the pipeline and after that I'm going to look for some diversification away from property and then give up working.

[Buy2Let PJ]

FastNLoud said:

Great work. You have grown your portfolio very quickly. Are you willing to say how much money you started this endeavour with? (I understand if you don't want to share this) just would be interesting for fellow wannabe moguls

I decided at some point in late 2016 this was what I wanted to do. I spent a couple of years with not enough money for a deposit reading everything I could and listening to podcasts about property. Early 2019 I had enough for a deposit but got a bit of stage fright and got stuck looking for the 'perfect' deal. In the end I talked myself into a 'good' deal just to get going and i'm please I did as it certainly snowballs after you get past the first one.

I didn't have a pot of money, some modest rainy day savings of about £8k in 2016 and then just saved and worked harder to get the first one over the line and then kept working at it. It helped as I wanted 3 beds semis and then went for 1 and 2 beds so the deposit stretched for the first two before the cash flow really started to move on.

[Buy2Let PJ]

LooneyTunes said:

Buy2Let PJ said:

I have two in the pipeline and after that I'm going to look for some diversification away from property and then give up working.

Certainly looks like you’ve been having fun doing it so far. Out of interest, did you go Ltd when buying these?

Looking at the mortgage figures you posted are they interest only? If so, and you’re aiming to give up working, living off the income from these would mean that the capital doesn’t get repaid so curious about what, your repayment/exit strategy looks like (hope for some price appreciation and then sell one to clear the mortgage on a couple?)?

It's an interesting question. I am backing inflation to erode the debt over the next 20 years and then sell some to cover the debt or sell them all and spend the remaining money.

for example
8 properties with an average purchase price of £100k

£160k in deposits
£640k of mortgage

If we say properties rise by 50%

the portfolio value has risen from £800k to 1.2million

Sell half and then keep half debt free.

50% sounds like a lot but its actually quite conservative when house prices on average double every 10-20 years, but obviously we don't know for sure where we are in the cycle although I think I have a pretty good idea.

The question really now is when to stop work, when does it become pointless to continue.








My attitude to money and time is different now

[Buy2Let PJ]

loughran said:

I was chatting with my neighbour last night and we got onto exchanging horror stories of mortgage rates we have known.

The best I could offer was 15% in the 80s/90s but he recalled mortgage rates of 20% and more in the 70s.

I do remember those radical changes in lending rates had a profound effect on my disposable income and my plans for the future.

There is much talk of a correction, does your plan accommodate an increase in bank base rates that some feel is inevitable ?

Edited by loughran on Saturday 29th May 20:05

The problem with the question is, if you predict an apocalypses for long enough you will be proved right at some point. (I know you are not predicting it and are just posing the question). However it is possible to make money before that and then mitigate your losses in a recession.

In answer to your question though i'm doing the following;
Spreading the risk by having more less expensive properties rather than few higher priced ones.
Taking out a fixed mortgage products
Buying properties that I think are under priced and then adding value by refurbishing.
Keeping an eye on what 'cash' reserve I have in comparison to my leveraged position on mortgage debt.

When you consider the property I first bought at £82k in late 2019, a very similar property came onto the market a couple of weeks ago for £105k. When you consider my mortgage is only £52k we are now at the point for that property that we would need to see house prices drop 50% for me to be in negative equity.

For the same property the rates could rise to 8.5% before I was looking at putting my own money in, subject to me getting rid of the agent, it being tenanted and there was limited maintenance.

[Buy2Let PJ]

Sadly the latest purchase has just fallen through due to issues around the septic tank.

It was a property with a tenant in situ with a comparatively low rent. The plan was to continue with this tenant and then undertake some refurbishment work when this tenant moved out and then re advertise a higher rent.

I wasn’t aware it wasn’t on the main sewer until I had the survey so it’s going on my list of questions to ask during the viewing now!
Anyway it turned out the rules changed in Jan 2020 and septic tanks have to comply with new regulations which unfortunately this one didn’t.

The seller wanted to work with me but it was the hassle factor was the thing that put me off.

The quote for the remedial work was 10k and the seller’s position was the following;
He would knock 5k off the asking price and as the tank is shared by another property I would initially have to pay the other 5k and could “claim” that back from the neighboring property as it would be 50/50. He maintained that I would be the beneficiary of the work and theoretically was not contributing anything financially.

My position was the following:
The work should have been completed over 18 months ago
The septic tank is actually on a different neighbors’ property, meaning that there was negotiation needed between two separate neighbors, there was the tenant to navigate and then it needed power which again was another headache. And also my first meeting with the immediate next door neighbors would be handing them a bill of 5k.

I suggested he completes the work in an agreed timeframe, he can claim the money back from the neighbor and we can proceed. He came back with he doesn’t have 10k so can’t, which is fair enough and I withdrew.

On to the next one but the market is a bit mad at the moment with stuff moving very quickly.

[Buy2Let PJ]

maxwellwd said:

Great thread OP. Can you recommend any good podcasts? I saw earlier on that you mentioned you listen to some to become more informed.

The property podcast by Rob and Rob. The complete back catalogue is on there and is worth listening too. They have just started another called any other business which is good but is aimed at growing a business.

[Buy2Let PJ]

Groat said:

BoRED S2upid said:

What’s the situation with LA up in Scotland? Does the fee go straight to the landlord or to the tenant then to you?

Are you asking how Housing Benefit rent is administered?

The tenant can opt to have it sent direct to agent/landlord, and most do.

If they don't and default then it's subsequently sent direct to the agent/landlord and if it's via UC the default is repaid via instalment sanction on income benefits which continues till it's paid off or the tenant leaves.

Groat

Is it also true that if the tenant is found to be claiming wrongly they come after the person they have paid the money to? So if you take direct payments from universal credit you could be on the hook if it turns out they were blagging it?

[Buy2Let PJ]

I have completed on what I have decided will be my penultimate property for the foreseeable future. The situation with the housing market and the rental market at the moment made me look beyond what was my ‘normal’ type of property to buy and I happened across this one almost by accident. I was actually viewing other properties and tagged this one on the end as I had some time available.

£200,000 asking price dealt at £195,000 for a quick sale.

3 bed detached with nice landscaped garden, separate garage and plenty of off street parking.
The guy had owned the place for 20+ years, it had been his primary residence and then he had retained it as a buy to let. He was in-between tenants and decided to roll the dice on selling it. He had used an online agency (three of them and you are out in Baseball) and as far as I can tell he listed it for free, but had to or choose to use their solicitors.

I think he undervalued the property; it’s an area I know quite well and have properties in the area already so feel reasonably confident it was worth 10% more. This is always the risk with going with a DIY agent.

The agency is basically an introduction service and then you communicate directly with the seller via there messaging service. Which, at first, was really helpful but actually turned into a nightmare towards the end. Things started off well booking the viewing and negotiating directly without an agent. After agreeing the deal things started to go a bit wrong.

First off he started writing long rambling messages about his handshake being his word and how he had never broken a contract in his life. He then asked for assurances wanted a date agreed. When I didn’t respond immediately he would send short messages saying either “hello” or just “?”

The messages then turned a bit threatening with dates to achieve certain things with passive aggressive threats to withdraw the property from the market, put a tenant in or start charging me his expenses.

In the end I settled on the position he is a retired guy with not much to do and potentially some sort of problem as some of the late night messages didn’t make much sense. We agreed I would update him twice a week on the progress of where we were and that if either of us were concerned we would schedule a telephone call.

Being honest, working full time and having to deal with him was exhausting at times as well as trying to push stuff through with the solicitor on his unilaterally decided really short timescale. But six weeks to the day after viewing it, he was handing me the keys along with 2 files of paperwork and 1 file of how to guides he had produced for me. He had also been round and label printed the majority of switches and valves, which is surprisingly helpful.

I completed on the Friday.
It was listed Saturday morning
Tuesday after work I showed 6 prospective tenants around
Wednesday the let was agree at £900 and they move in this week.

Cash Flow so far
Property 1 = £319pm
Property 2 = £341pm
Property 3 = £427pm
Property 4 = £335pm
Property 5 = £458pm
Property 6 = £560pm

Total = £2440pm

[Buy2Let PJ]

BoRED S2upid said:

Nice update. So 7 in total then sit back and let them tick along?

I presume from those figures they are all on IO mortgages rather than repayment?

yes one more and then I'm packing up employment, certainly in the short term.