How do people build a portfolio of properties to rent out?

[merrynelly]

Sorry for being dim and asking what is probably a very basic question. I understand that you can put a deposit down on a property, get a BTL mortgage and rent it out. But how do people get more than one BTL mortgage to the point where they have amassed nearly double (some triple) figures in properties?

Most people started years ago when property values were far less in proportion to wages.
People could earn £10k per year and buy a house for £20k. There’s virtually nothing now where people can earn £50k and then buy a normal house for £100k.

Others often start as a mixture of two people buying flats separately before marriage, then property prices rising. Then they only have to sell one to move elsewhere etc, keeping the additional.

Family background - either inheritance or family help or both.

The thread will be bombed shortly by posters claiming they’ve bought 200 flats in Piccadilly Circus by saving money eating grass.

I’ve never met or heard of anyone who built a portfolio from a salary. Even way back 30 years ago when in theory it was possible.

@Supersimkin2

Family background - either inheritance or family help or both.

The thread will be bombed shortly by posters claiming they’ve bought 200 flats in Piccadilly Circus by saving money eating grass.

I’ve never met or heard of anyone who built a portfolio from a salary. Even way back 30 years ago when in theory it was possible.

But even if you have inheritance/family help etc, I imagine you'd have to purchase the houses in cash in full because I don't see how you'd get mortgages on several properties? And I can't understand why aside from diversifying funds, if you had substantial money, why you would put so much into houses to rent out when other investments can outperform and are less stress?

A B2L mortgage requires a deposit usually minimum 25% of property value, but is based on the rental value rather than income (except perhaps requiring a minimum income for eligibility), but this hopefully answers how people can have many B2L mortgages- basically just by having many deposits... easier said than done!

So theoretically if you had 100k inheritance, you wouldn’t have to purchase one house @ 100k for cash to rent it out, you could buy 4 or 5 houses each @ 100k with a 20-25% deposit on each property and thus a portfolio is born.

@Amelia666

A B2L mortgage requires a deposit usually minimum 25% of property value, but is based on the rental value rather than income (except perhaps requiring a minimum income for eligibility), but this hopefully answers how people can have many B2L mortgages- basically just by having many deposits... easier said than done!

I think this is what I'm looking for. I wasn't aware of this. So for the most part, providing you have the deposits for multiple properties, and a basic income I guess for eligibility, you can have many BTL mortgages? I thought it was like a standard mortgage based on your income. That makes more sense now.

@Amelia666

So theoretically if you had 100k inheritance, you wouldn’t have to purchase one house @ 100k for cash to rent it out, you could buy 4 or 5 houses each @ 100k with a 20-25% deposit on each property and thus a portfolio is born.

That makes sense. I was confused as to how people were getting mortgages on the 75-80% for 4 properties when they have a joint income of say £60k? But as per above, I didn't realise your income is somewhat irrelevant

You buy one property and overpay on the mortgage to pay it off, you then buy another one and do the same and repeat until you have your portfolio. Each time you do it you have the rent from more then one property to pay the mortgage on another.

There's also Interest Only mortgages. Risky long term if you can't raise the capital to pay off the bank, but the only result would be having to sell the property, which is likely to have gone up on price, so you have a lump sum of money left as well. Meanwhile, you have an income you could use to fun another house...

I will probably get flamed for this but my DH bought his council house years & years ago under right to buy so it was extremely cheap to buy .
Imagine 30k under RTB and normal value say 60k ( not sure of exact figures as it was a long time ago and he bought it before we met )
As the prices went up he remortgaged it for the BTL deposit on the next place that he bought . When his mum died he got some money as an inheritance and use that to pay off several mortgages that he had .
He also moved in with me when we got married and rented it out so the money he was getting for the rent covered the mortgage and allowed him to overpay .
This was a long time ago and I don’t know if what he was able to do at that time he could do now .

Also mortgages were a lot easier to get than now

You can amass property by continually leveraging.
Example - save £20k. Buy £100k BTL
BTL worth £120k in a year, remortgage at higher LTV, extract capital, buy another BTL.
Rinse repeat.
In a rising market you can see how easy it is for this to exponentially expand.

Obviously dampened a bit now by 2nd home+ stamp duty charges, rental yield being totally out of whack with property prices over much of the UK, & also because the market just isn't rising.

Also increased tenant rights/delayed evictions make it less appealing, & Landlords are now seen as scum of the earth & ripe for persecution/heavy taxation. I certainly wouldn't want to be a landord right now :)

Most people I know with large portfolios bought in cash. So one house, that made them some money, then they were able to get a second and so on

A friend of mine saved every penny and lived at home until he was 36, though paid his share of council tax, food & gas/electric. He stayed single and worked long contract jobs, 70 hour weeks.

In 2015 he then bought 3 properties outright, rented them out, quit work and travelled the world for a year.

When he was 40 he met a lovely woman, got married and they're now selling 2 of the houses (at a decent profit) to buy a dream house for them both, keeping 1 as a rental.

They don't want kids and love travelling, and both work part time doing jobs they enjoy. So no inheritance or lottery win but I don't know if I could have done that. I couldn't

@merrynelly

"...And I can't understand why aside from diversifying funds, if you had substantial money, why you would put so much into houses to rent out when other investments can outperform and are less stress?"

I agree about the stress, but what investments can outperform property, financially speaking? (Genuine question, not snark!)

@SadAboutSD: Over time, shares usually outperform property in the UK. They are also more tax efficient and flexible.

www.woodruff-fp.co.uk/property-vs-investment-portfolios/
www.moneynest.co.uk/property-vs-shares/

Property investment is easier to understand and can give a more stable income.

A lot of the bigger portfolios will be done as a limited company, so the BTL mortgage gets some security from the others

So my mate:

Overseas teacher couple - she & her family are able to live comfortably here on one tax free salary, so they invest the other £40k a year in rental properties.

They now own half a dozen b2b terraces in northern England, & a couple of holiday lets in the country where we live.

The idea is to sell them as necessary to fund dc's university costs & their own retirement, but in the meantime they each bring in a modest rental profit, & are acquiring equity.

Covid has walloped the returns on the holiday flats - they're having to rely on renting to locals not tourists, & the locals, if they're well off enough to be having seaside holidays, generally have access to extended family beachside properties to stay at for cheaper if not for free.

But overall, they're doing quite nicely.

Those with large numbers are often using leveraging as described earlier upthread.

As values rise, people re-Mortgage against that increased value and use the loan to buy more property. In a rising market, they have rising equity and can borrow more and more against that. There have been LLs who have built portfolios of over 100 properties this way.

It is not so easy or even possible to do on this scale when property prices are small or when it’s hard to get mortgages. The end of tax relief in mortgages has also made this much less possible now.

Another way some people grow their portfolio is flipping properties. They buy wrecks cheap and do them up and sell on for much inflated prices. This can also find a buy to let empire and the profit from flipped properties pays the deposit for further properties.

It is a business. They treat it like a business. In the same way as someone can start any business and succeed or fail, but you generally only hear from the successful ones. So you will hear all about Jim who bought a BTL and now has 50 if them, but not about John who bought a BTL then another, the market crashed, John lost his job and then they were repossessed. As the first poster said, with the current relationship between wages and property prices, you won't do it on the average industrial wage any more. But in the 1970's it was very common where I live for a policeman to have a portfolio of BTL's.

Now the only people I know who do this are from very wealthy families.

@cunningplan101
Thanks, interesting links.

So a BTL owned outright (no mortgage)would bring immediate income but over time shares would still do better?
As you said, certainly simpler to understand!