Buying outright would mean you don't have to go through the hoops of obtaining mortgages, but if you needed money in a hurry, all your savings may have been used in doing so. On the other hand, if you had problems with your tenants not paying you would not have to find additional money to continue mortgage repayments. Also, although programmes like "Homes under the Hammer" perhaps portray an optimistic view of BTL, they rarely show its pitfalls... ie. damage to property by tenants, non payment of rent, the aggro of court procedures to get your property back etc. Could you live with the stress and worry if your BTL did not turn out well ? Obviously check the ROI v what you could obtain by putting money on deposit.

I think that you may need to change your thinking on prospective tenants---If you take out a buy to let mortgage there is usually an exclusion on letting the property to those on benefits.
The other problem that you may encounter if you decided to eliminate the above exclusion and just buy the 2 properties outright and still let to "DSS people" is that of payment. If the tenant is on benefits he/she is likely to be on a very tight budget and you may find that your rental payment loses out to paying for food or heating.
If you opted to have the rent paid directly to you to avoid this risk you might hit an even more dangerous situation. If the benefits claim was later found to be invalid for any reason the authorities would look to reclaim the payments from whomsoever had received them i.e.YOU.
If you buy in poor areas the capital appreciation on your purchases is likely to be minimal but the income better. If you buy in a better area your capital appreciation should be larger but as you have paid more for the asset the return on capital as income might well be lower.
Please,please,please go and find a reputable Independent Financial Adviser to help you avoid these pitfalls

I agree, test the waters with one property, if you really want to get into it because many medium-size landlords with approx 10 properties consider it a full-time job.
I have 6 properties and juggle holding down a different full time job. Fortunately I am quite flexible with my normal job, so can deal with issues to do with the properties as and when the arise.
Distance is another massive issue. If you have an insurance claim, void period, repairs, redecoration, broken bed, you name it, if you have to travel 100-200miles to deal with it, it will cause you problems. Best to keep your BTL nearby. Worse is if you have high gearing on them - then you have to worry about covering the mortgage with the rents. DSS may change so I would be cautious with relying on the status quo legislation, and can change with political decision makers.
House prices are not going to boom any time soon, and could fall a bit further, so gearing to the max is not recommended at all. In your case I would make life easy and get one BTL in London and keep at least £15k in the bank (after initial repairs/upgrade) to cover any repairs or eventuality. London rents are on the rise, and is the location of greatest business transactions in the country so there will be no end of high quality tenants.
I would only recommend someone with experience in property management and lettings to jump in 'the deep end' and suddenly acquire 4 properties, especially with high gearing and at distance. Even I would not do it, and I have 15 years experience.
It can look easier on paper than in reality, so venture into it cautiously, and once you have had a few years experience, and if it is still your cup of tea, expand. My best property is in London - which I aim to keep for all my life to provide income throughout and a good retirement income with minimal hassle.

We have a nice detached house next door in a rural village, it is owned by someone abroad who hasn't been back here for some years. It has been let out for the last 15 years to "quality" people but the last incumbents have made a real mess of the place even though they were known to the owner. The agents proved useless and refused to get involved even when old cars and bikes piled up in the garden plus general rubbish everywhere. The house now needs serious money spending on it. It's a salutaory lesson that people do not look after other people's property like their own. Be warned.

Hi,
Having read the responses I'd say you have some good advice here. I have four buy to lets in what could be termed a "cheap" area - I got into the market around 7 years ago so I'm still sitting on some good capital gains. It feels like now is a good time to buy as there are definitely some reasonably priced properties in the area where I let that will make good yields (7% plus and if you leverage with a mortgage clearly a lot more). However, I'm not tempted to add any more locally because it isn't easy money - you will have tenant problems and the more in your portfolio obviously the higher the risk of these problems (well described in other responses). You need to be prepared to put time into managing the properties.
The ideal tenant is one that treats the property as their home not just a roof over their head - if you go into the cheaper end of the market where I am then at the risk of sounding judgemental you will find it harder to find good, long term tenants; it may take some churn before you get what you need for sustainable income with only minimal "wear and tear" on the property. I can't be bothered with the hassle of finding another good tenant so I'm sticking at four, locally at least.

Like a number of other responders I am buying in London - my "gut feel" is that the captial appreciation there will be stronger over the next 10 years - and I'm buying "up-market" because I think my tenant risk will be less.

Whatever you decide to do take on board the point that it will not be easy money. And if you do take the plunge buy near to where you live so you can manage it or at the very least have somebody you trust nearby who can do this for you (forget outsourcing this to an agent you will just be giving your margin away - and yes that is a judgmental comment from bitter experience 20 years ago!).

Good luck with whatever you decide.

Thanks for everyone's responses. I wasn't expecting it to be an instant money making thing, but you have certainly made me more aware of the issues. The estate agents, predictably, didn't bother to tell me any of this!

Hello,
welcome to the world of 'excess capital and what to do with it'.

firstly, I offer no opinion, just facts that I have gleaned from years of investing ;-).

First mistake to avoid - procrastination. It's the biggest killer if infant investors, especially where property is.

Second mistake to avoid - relying on others 'opinions'. Do your own research, then you only have yourself to blame. Do good research and you are already at an advantage to most 'advisors'. Remember that if anything is really special, from an investment perspective, no-one is going to shout about it until they have taken their share of the action, and often by then, it is too late. This applies to property and paper investments.

Third mistake to avoid - ignoring the tax issue. Do have your profits in mind from the start. Make sure you plan to avoid (not evade) as much tax as you can. Don't fall for the 'I must pay full tax' ethical stance. No government has put a person's money to better use than that person if they are investing it wisely. There will come a day when you end up paying much more tax than you'd ever have done, had you not avoided it in the early days. This is due to the compound interest effect over time.

Basic tactics:
1. get on with it.
2. research only the numbers - do not worry about what type of house/location etc. The numbers will tell you what is going on in reality.
3. Numbers to research;
a. RICS value of property.
b. Rental rate for identical properties (or as similar as you can find in same location). Use internet and ask local letting agents. They will know.
c. Mortgage rate
d. Non mortgage ongoing costs for the property (insurance, service charges, certificate costs, agents fees, void periods (allow 2 weeks - if you have bought well, and you are proactive in checking if tenants are staying or leaving and marketing it widely at earliest opportunity, then you will have less voids than this), sinking fund (estimated maintenance charge over life if investment, divided into monthly figure - allow 2% to 10% of property value per annum, according to condition of property).
4. Borrow as much as you can on Buy-to-let mortgages. This is the wisest move for tax perspective and also from a gearing perspective. However, caveat is that you should be sure that the mortgages are covered by at least 150% by the rental returns, even allowing for all the costs. Do not fear, these figures will be attainable if you do your own research & buy carefully.
5. Don't rent to DSS. They are only hassle in the main. It is a mindset thing. Yes, there are some wonderful DSS tenants (I have one who has refitted the kitchen and bathroom at their own cost and are there for the long term), however, statistically, (remember tactic '3.b' above - the numbers) you will have problem tenants and painful legal costs and non-payment rent issues, as well as higher maintenance. Moreover, there is no-one to chase for your rightful damages/costs. After all, who is going to sue someone who cannot even pay for their roof over their head out of their own cash? No-one with any sense.
6. Buy 'Below Market Value' wherever you can ("BMV"). This is according to RICS qualified surveyor, preferably one on all the lenders panels (try using 'esurv' - they seem to be ubiquitous nowadays). I cannot stress how important this one element is. It will mean that you are able to re-mortgage out your deposit in 6 months time, allowing you to buy another property with that deposit. This is key to you growing your portfolio successfully.
7. Set a minimum 'formula' that you will not deviate from. I use: Min 70% Loan to Value (LTV); min 150% cover of mortgage from net rental receipts; net rental receipts of £150 pcm; BMV at least 30%. Again, I cannot stress how important this point is. Set your boundaries and stick to them, even if it means saying goodbye to what looks like a really attractive deal. Be patient young Padawan (sic), there will be more deals even more attractive.
8. Spread the love, in terms of mortgage providers. Use as many different lenders as you can. Most of them have restrictions on the number of mortgages they will give you anyway. Go with the ones that restrict your total number of mortgages first. That way, they will lend to you. Once you have mortgages with them, go to other lenders, who do not care about the total numbers you have.
9. Keep a close eye on your credit file. Do check all three before you do anything, (experian, equifac, callcredit). Make sure the following is done/in place re these:
a. You are registered on the electoral roll at your home address
b. You are not behind with any payments - set all up on DD and make sure they are paid
c. You are not linked to anyone else (including your spouse). If you are, close down the account that links you, even if it is your home mortgage account. Above all else, try to remain separate, financially, as this will allow you both to borrow to your own limits, rather than you have the same 'household' limits. Quite often, it is a rather innocuous 'joint current account' (used for paying bills and suchlike) that links people. If so, remove yourself from this account. The bank will then take 2-6 weeks to notify the credit reference agencies that you are no longer a part of that account. Once this happens, you must then send in a 'certificate of dis-association' to each of the credit reference agencies; their websites will show you how. Once they receive these, they will de-link you. Now, focus on your credit cards. Close down every account you do not use. drop the limit as low as possible on any you pay off monthly. Pay off any small 'residual' loan amounts outstanding. All this will imporove your rating and also lower the amount you have showing on your file as 'available credit'. The lenders use this figure negatively, so the higher it is, the worse it is. It is much better to have no credit card than one with £5000 credit, which is not being used. Again, I cannot stress how important it is to have as clean an 'unlinked' credit file as you can. You will have access to more lenders at lower rates. Finally, keep the number of searches on your file to the absolute minimum. If you have a partner, get one of you to apply for all non-property investment items (such as mobile phones, utilities, insurances etc). This is because most of these activities will leave an imprint on your credit file. Each search imprint weakens your score and pushes up your borrowing costs. You should have no more than 2 searches every 6 months. Tips to avoid searches; get as many utilities and phone accounts through a Ltd Co. That way the company is holding these liabilities and not you/your credit file. Do NOT use AVIVA or any other company that insists on carrying out a full (TYPE 1) search on your credit file. AVIVIA only disclose this in the smallest of prints so beware. Most sensible organisations will carry out a TYPE 2 search at quotation stage and a TYPE 1 search at acceptance stage. Basically, don't switch utilities/insurance/phone/other suppliers until you have carried out your mortgage applications. Then, do them immediately afterwards, and all at once so that in 6 months time, they have dropped off your file. Again, I cannot stress how important this point is. Get it wrong and it will cost you £'000 in higher mortgage payments or lost deals because you could not get a mortgage in any 6 month period.
10. Further to point 9, Always bear in mind your re-mortgaging schedule, as you don't want to find that you cannot remortgage out your deposit if your credit file is carrying a number of searches less than 6 months old.
11. Final tip that is probably more important than all the others. Don't be fooled into buying for 'captial growth'. Nowadays, the key is to cover the mortgage & costs of the property from rentals. Get that right and you don't have to worry about which way house prices are going, because you will never need to sell. If you see prices dip, just buy some more. If you see prices improve, take out cash by remortgaging, so long as your set criteria on the numbers is not breached. That cash from remortgaging is tax free as it is a loan. It will also reduce your income tax bill as it will reduce your annual profits. Anyone selling you a property promising 'capital growth' is a liar currently. yes, prime London has been going up and up but that will stop, and when it does, there will be a correction. Do not be the last one in (the last 'bigger fool'). There will surely be a time for captial growth in the future but that is not this decade (and possible a big part of the next one if central bankers carry on as they are). Invest for income and sit back

I hope this helps. If you execute your property investment process wisely and smoothly, you should end up with 2-4 properties per £100,000 of capital every 12 or so months. Each property should add at least £1800 pa income (so £3600-£7200 net income pcm). oh, and good research (I don't like the term 'luck' - it should have little to do with it).

Bang on Morpheus - you are a true pro. Probably one of the best private and professional Landlords in the country. Your knowledge and skill is great in this maze of mortgages, credit, house market, and I take my hat off to you. I agree capital growth is out of the window now, so rental income is the way to make money in this market.

I live in London and my partner and I became accidental landlords when we bought a home together and let out our respective properties.

We wanted to invest for our pensions and had equity in our home, so extended our mortgage to fund additional BTLs. We had the cash and good jobs, but not the time to manage our BTLs, so we trusted that bunch of crooks, IAP, to help us. It was the worst mistake of our lives. We stepped outside our local areas and bought up North (Yorkshire). We paid over the odds and probably won't see capital growth for as long as I live, and whilst we make an overall profit across our properties, the flats in Yorkshire have been nothing but hassle and simply serve to reduce the tax due on our other places. Also, 200 miles is a long way to drive to sort things out, and although we have decent agents, it is a constant battle to find and keep decent tenants e.g. people who can turn on the heating without asking for help!

My flat is in London and I've never had a problem finding decent tenants. I have reasonable equity, and the yield is pretty good largely because I can manage it myself and don't have a money-grabbing landlord trying to charge extortionate fees. Please try to find something local to you.

Good luck.

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