Hello it’s Dr Ro here.
One of the questions I’ve been receiving a lot lately is whether someone should purchase a Buy to Let property if they’re a First Time Buyer.
“I’m a First Time Buyer, and I want to get on the property ladder. But at the same time, I also want to get my first Buy to Let property. How does it work? Should I do that, or should I just go get my own home first?”
That’s a cracking question.
I would recommend tackling this question by turning it back around and asking yourself questions about your goals and direction.
Are you currently working in a job that you expect to stay in for the rest of your life? Do you love that job enough to want to stay there and climb the corporate ladder? And are you not really concerned about finding any additional income? Do you trust that your current corporate salary is going to provide you with the life you aim to achieve? You’re currently content with your time outside of work, and you’re focussed on getting your career right?
If you answered yes to some or most of these questions, then now may not be the right time for you to buy an investment property, or a Buy to Let property. It sounds like ultimately, that purchasing a personal home may be the best choice for you. You could be content in a first home for a while while building your career instead.
On the other hand, if you said to me, actually Dr Ro I like my job and I can see myself staying here for a few years. But, in a few years time, I’d like to be in a position where I have choices. Maybe I’m making £1000, £2000, or £3000 per month of passive income from a property portfolio that I’ve built
And I really want to be able to have choices because it might be that I don’t decide to stay in that career. It might be that I realise there’s a recession ahead and it might be that the company is going to downsize, or there’s a potential risk for me to lose my job so I want more security.
If this scenario sounds familiar to you, it might be worth you considering, after seeking professional advice, to delay the purchase of your first home. Instead, the path towards your first Buy to Let property may be right for you.
If you were to go find yourself a relatively low value Buy to Let property, somewhere in the £50-£60,000 in the low end, allowing up to £80-£90,000, that kind sweet spot range. And you got yourself on the first-time buyer’s ladder as a property investor. If you do that, that will probably start helping you produce your passive income. You could potentially gain between £200-300, in some cases even £400 per month in cash flow, depending on the area.
Now if you’re in your job, and you’ve suddenly got an extra £300 per month coming in, that’s £3,600 extra per year. Certainly speak to an independent broker about this, but typically after six months of owning your first Buy to Let property, you’re classified as a professional landlord .This opens up the market to you for additional types of mortgages. And now you can start building your property portfolio. Then you could begin buying properties at a discount. And after some time, you can have one or several of these properties revalued, reappraised, and the value is higher than when you bought it. You now have the potential to refinance the property, which can get you a better interest rate. But you could also pull some of your equity out of the property and use that to go and purchase your first home to live in.
Or you might say well actually you know what this is only six months down the line, I’m happy to stay renting at the moment, why don’t I go do the same thing again? I’ve saved up some money, let me go buy a second property. And it might be that in 12 months’ time, you’re sat on two of these making you a total of six, £700 a month or more.
That’s a life changing situation now. Now you’ve now got seven grand per year coming in. And here you are in a career which you enjoy doing, and you’re happy because your career is climbing up. But you’re building history as a landlord. And then you might decide each year you want to add one or two more properties to that portfolio, and before you know it, four or five years down the line, you might have seven or eight properties that are all cash flowing.
And now you’re presented with options. You entered your career in the first place because you like the career, but at the same time you’re also open to the fact you might change career, or possibly have some freedom back to yourself as well. And actually, once you’ve bought your first few buy to let properties, you might be able to expand your portfolio.
You could start to look at some more sophisticated strategies like houses of multiple occupation, small room let properties, up to say four rooms. Or going up to look at seven, eight, nine, 10-bedroom properties where you could be looking at incomes per unit, per property of £700, £1000, £1500 or more, per month.
Which in some cases two of those could replace completely your salary.
So, going back to the start the question, should I purchase a Buy to Let property first or should I go and buy my home first?
It comes down to your personal circumstances. If you could delay for a year, that might potentially put you in a position where you get a couple of Buy to Lets under your belt. It gives you some choices, you then can go and buy your own home, and on top of that you can add to your portfolio as well.
If you’re going to buy your own Buy to Let property first before you buy your own home, be aware that mortgage requirements will be more stringent as a rule, but again, seek professional advice on this. Go to an independent financial adviser and they will give you advice on what the appropriate mortgage is for you. And once you’ve got that property under your belt, you’ll generally find it will start to get a little bit easier.
If you asked me what to take away from this blog post, I would say sit down with a piece of paper and answer the following questions.
Question number one:
Do you love your career and could you see yourself staying in that location, in that career for the next five years? Do you see yourself growing in that career?
And if that’s the case, then that will probably steer you towards potentially buying your own home.
If you’re staying in that career for say, five years, is it important to you that you own a house, or is it important to you to have an income passively?
And the two are different. If you’re in a house, you won’t have an income coming in passively. If you own an investment, in other words you own an income, you get a passive income. That’s the second question.
And the third question is this:
Would you like to have a passive income? Would you like to have a small portfolio, have two or three properties or more, over the next five years? Or more properties if you want, so that in five years’ time, you have the choice to step away from that career or go part-time.
I think those three questions will pretty much steer you in one direction or the other. Of course, if you look out for the other videos that I do, that will start to give you some tools to bolt in place to help with if for example, you’re going to build a portfolio. What are some of the steps that you can do next?
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