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Going full time in property too quickly can spell trouble

strategic planning Mar 05, 2015

“I am full time in property” is a pronouncement heard frequently at property meetings. My question is, are too many people in too much of a rush to get to this nirvana like state, without fully realising the adverse effect it has on their ability to raise mortgages? Would they not be better to slow down and take their time reaching that pivotal moment in their lives until the ability to raise Buy To Let mortgages in particular was much less relevant?

Being full time in property is one of the most commonly voiced goals in property circles. To be able to create enough passive income from property to be able to give up the day job and become a ‘full time property investor’. It is frequently taught and encouraged on property courses and at meetings. It is held up as the definitive status symbol, to be worn almost as a badge of honour. Speakers will spit out the term ‘wage slave’ as a form of derision almost.

There is undoubtedly great merit in finally being able to throw off the shackles of an unrewarding and unfulfilling job. Rightly there is a huge sense of achievement in bringing about such a momentous life change. A celebration of the greater freedom of how you spend your time going forward is well deserved.

However, is it tempered by the realisation that your portfolio expanding ambitions may have just ground to a halt?

No one can argue that it is not a most laudable and achievable goal but it’s very achievement will bring the investors into conflict with almost all Buy To Let lenders. The last thing these lenders want is full time investors.

The type of Buy To Let investor that the lenders (commercial lenders aside) want to lend to now would look like this

  1. has a full time job unrelated to property with good earnings to cover their mortgage payment in the event of any rental voids
  2. With most Buy To Let lenders, such earnings will need to be in excess of £25,000 per annum
  3. has a few but not too many properties; each lender has a view on what ‘too many’ is. Lenders fear that the more properties a landlord has to look after, the worse job they do, thus the property’s value can suffer
  4. has a nice wedge of their own (not anyone else’s) cash that can be put down as a deposit. They know that investors look after a property more diligently when they have their own cash tied up in the property. Conversely, most of the problems have arisen where the borrower has refinanced all his cash out of the property and is ambivalent to making the mortgage payments on time, maintaining the property properly etc….It is getting more common to ask for not only proof of deposit but an audit trail of where that deposit has come from in the preceding 12 months. This has now been extended to post completion random audits one or two years down the line, instructing the borrower to provide the audit trail of the deposit

It is therefore prudent not to rush headlong into a full time property career but plan it more strategically so that, when you finally make that move, you are much less reliant on getting future mortgages from Buy To Let lenders.

Get clarity on just how many properties will give you the cash flow needed to replace your employed income. Just as important, get clarity on how you will continue to be able to raise mortgages on any future additions to your portfolio when you now no longer meet Buy to Let lenders criteria. This is a realisation that often only hits home once the notice has been handed in, the leaving presents received and you go to finance your first property deal as a full time investor.

When you leave the realms of the Buy To Let world behind, or more accurately, those lenders leave you behind, you naturally enter the world of the commercial lenders.

Commercial lenders embrace full time landlords, or at least they embrace those that are experienced, profitable, organised and professional about their business. A massive portfolio is not necessary, neither is a portfolio of just commercial property.

It is tougher to get interest only mortgages with commercial lenders as repayment mortgages are their norm. That said it is still possible to get an interest only mortgage, you just have a reduced choice of lenders. If you are single letting, it is a pre-requisite to get interest only, as it is highly unlikely that there will a positive monthly cash flow from a repayment deal.  However cash flows are much stronger with HMO’s and multi-lets, so some landlords still make good positive cash flow even though they are on a repayment deal.

So the lesson really is to stick the day job for as long as you need to get more Buy To Let mortgages; however unpleasant and demotivating it may be. Quit the job when your profile is desirable to commercial lenders. Then you can enjoy your new-found freedom with greater peace of mind.

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