With the success of my Amazon business I’m wondering what the next stage is, I’m already investing in the development of a SaaS platform which will be an interesting side project to run but property has been at the forefront of my mind for a long time. I was considering saving up and buying a property 100% out right, with no mortgage, for it’s rental income, but this book might have changed my mind!
The book details a scheme, or series of steps, where by you by a property for below market rates, e.g. a £150,000 property for £100,000. You then get a mortgage for 75% of the sale value, e.g. £75,000 and put down a deposit of £25,000. You then remortgage the property for 75% of it’s actual value, £112,500 netting you £37,500 cash in hand!
Using the book’s approximate rule of every £20,000 borrowed means £100 of interest repayment a month, you’re then paying £750 a month on the mortgage interest, but that’s ok as in theory if you’ve done your due diligence and bought the property in a sort after with reasonable rates, you should be able to rent out the property for maybe £1250 a month covering the mortgage and giving you a bit of cash in hand!
You then have the £37,500 in cash to put down for the mortgage deposit on another property .. rinse and repeat buying 1 property a month until you have 12 properties, with a net worth of £1,000,000, a rental profit of £50,000 a month after everything is paid off, but £750,000 in debt..
The book also posits a theory that property doubles in price every 10 years though. So in 10 years time when your £1,000,000 property portfolio doubles in price to £2,000,000 you can just sell half of it, i.e. £1,000,000 worth letting you easily pay off that £750,000 debt you’ve accrued. This then means your monthly profits from the rent sky rockets as you no longer have interest to pay off, and also leaves you with an extra £250,000 in your pocket to do with as you wish.
A solid strategy as long as you have the balls to go £750,000 in debt and capital saved to cover any emergencies and worst case scenarios.
Whilst I was reading the book I couldn’t help but remember the documentary The Queen of Versailles, where the Siegel family did essentially the exact same scheme but investing in new build hotels. Their property empire crumbled due to the economy shifting, mismanagement of funds and an overly ambitious attempt to build the largest and 4th most expensive house in the USA. Wikipedia says they’re back on the up and up now but I have the feeling they were too rich to fail to a certain extent.
My initial plan was to try and save up £90,000 and buy a 2 bed flat, out right, that I could then rent out for £800pm. Using Simon’s method if I buy a £90,000 flat for £60,000 with a £45,000 mortgage and £15,000 deposit, I could then remortgage it for £67,500 returning £7,500 in cash to me. Using the £20,000 rule that would mean interest repayments of £337.50 a month, but with £800pm rent, extras aside that’s £462.50 profit. 3 flats like this and I’d be doing, an optimistic, £1200pm profit. In reality it would be less as I’d get property managers involved, but those 3 flats would only require £45,000 deposit and after the remortgage I’d get £22,500 back anyway that I could put in a standard savings account and keep aside in case of emergency, e.g. if one or some of the properties didn’t have renters in for a while. With interest repayments of roughly £1,000 a month across all 3 properties that £22,500 would cover 22 months worth of all 3 properties being empty, which if chosen correctly would be very unlikely1
It’s a very interesting idea, but I want to read a few more books on property investing first before I try anything like this. Also it will be difficult to buy UK property whilst I’m abroad I think.