Profit is not just a waiting game

THE QUESTION

I plan to purchase four BTL properties over the next 12-18 months, with a value circa £200,000 each, all on 75% mortgages through my limited company.

Rental income for each will only be around £850 per month, less interest payments and maintenance cost net £500 - £600 max.  I intend to leave the rental income in the company as taking it would push me into an unreasonable tax bracket. 

Property prices in the area I live have doubled within the last 10 years, and will probably do the same over the next 10 years, so using that equation purchase price of 4 = £800,000

Potential value after 10 years = £1.6m

Would you work it differently?

THE ANSWER

Rental income of £850 on a £150k mortgage just about scrapes the required rent to borrow 75%, so it ticks that box.

If you just want 'minimal effort, sit back and let it happen' type of investing and four properties satisfies your landlord portfolio needs, then buying four ready-to-rent £200k properties and parking your £200k cash in them fits the bill.

With £200k cash available, someone with greater ambition would see a far greater opportunity to build more significant wealth, BUT it would take a lot more effort.

That someone would see that they could buy a wreck of a property and renovate it with their £200k cash, adding exponential value and then refinancing it at the uplifted value to pull most, possibly all, of their cash back out.  This leaves them with a £200k property, on a 75% mortgage BUT with their £200k back in their bank account. They repeat as often as they wanted to or found suitable properties (they are around).

This more intensive leverage of capital relies less on passive market value increases over a decade or longer and more aggressively forcibly appreciates capital growth irrespective of market value increases; those are the icing on the cake.

Property doesn't routinely double in value EVERY 10 years, you may only get half of that in the coming decade and you are the passive bystander to that, unable to influence it.

To be clear, paying £800,000 for 4 properties and seeing their value double to £1.6m does not generate a £1.6m profit of course - £800k is the profit.

You may not have the time nor inclination to follow the more intensive strategy outlined above. Neither approach is wrong or right, it’s personal choice.

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