258: Five years to £5,000 – a roadmap to escaping the 9-5 with property investing

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On Monday, it’s four years since we started the Inside Property Investing Podcast. To celebrate this milestone, we’ve spoken to a number of our most popular past guests and asked them the same question: if you were starting out again today, what would you do? But before we hear from them, we thought we’d recap how in just five years we were able to leave behind our 9-5s through property investing. And how you can do something similar.

Listen to this episode below:

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Resources

Before we get started, you need to think about the things that you have at your disposal: money, time and knowledge. If you’re unsure about this, it’s worth listening back to our recent podcast on this exact topic to work out where you stand.

For this article, we’re going to assume that as a minimum you have some knowledge (but no hands-on experience), a little time outside your day job and limited cash. In other words, exactly where I found myself when I first started out.

There are three elements that will help you reach a position where you can leave your job in five years: positioning, financing and strategy.

Positioning

Whether you want to be an insta-famous property celebrity or simply earn an income that allows you to shut out the world and spend time with your family, you’re going to need some support from external parties. Having some sort of positioning in your local market will help you do that.

Don’t worry, i’m not saying you need to set up your own podcast or media brand to succeed, what I’m suggesting is becoming a known expert in your area. That could be through attending local networking events and speaking at them. It could be through running a local property investment blog or by running a local property meet-up. We found our first joint venture partners through small meet-ups we arranged, where we shared market updates with local investors who were just getting started.

Developing strong relationships with local agents is also essential. We used to go into a local agent and chat with one of its staff members about what we were looking for. Taking the time to build this relationship with her paid off and soon she started sending us through good deals.

It takes time to gain traction, but if you start working on your positioning today you’ll be in a far better place to get deals in the years to come.

Financing

Whilst it’s sensible to start thinking of ways to grow your sources of finance from day one, you don’t need hundreds of thousands of pounds in the bank to get started.

The first thing to do is to consider where you can borrow money from. We covered some of these options in our 10 sources of finance for your next property project podcast. If money is your limiting factor, it’s definitely worth checking out.

After you’ve thought about borrowing money, the next think to consider is where you can make money. This might for example be through flipping houses. Making and borrowing money can come in tandem through saving up some cash, putting development and renovation works on credit cards and flipping your own home a few times. That’s exactly how I and Victoria got started.

Raising money through investors is the final thing to consider. If you’re starting out, I would only ever consider borrowing money from family or very close friends. Make sure they know what’s at stake and what the consequences are if it all goes wrong. As you develop, after say five years, you should have enough expertise to be in the position to seek funds from other investors.

You don’t need huge sums of money to get started, but you need to find a way to get £30,000-£40,000. Even today doing a search on Rightmove in Manchester, there are tonnes of houses available at less than £80,000. Granted, they might not all be in areas you want to live, but equally they’re not all going to be off the cards.

Strategy

Almost without exception, the best place to start is with your own home and investing in it. It’s the most tax efficient and cost-effective way to invest. You will be able to get a higher LTV mortgage on your own home than you will on any other type of investment property. As it’s your primary residence, you will not pay any capital gains tax when you sell it. All the profits will go straight into your pocket. You’re also able to get a 90-95% mortgage with your own home, meaning that the deposit amount you need is going to be significantly less.

If you’ve got a family, flipping your own home might not be the most practical option. If that’s the case then your next best bets are simple investment strategies like flipping other houses, single-lets and BRR (buy, refurbish, refinance). These all involve buying relatively cheap properties, doing a little work to spruce them up and then flipping them on for a quick profit or refinancing them and sticking them into the low-risk single-let market.

After you’ve built experience with these low risk strategies, you can start looking at high cash-flow options such as HMOs and serviced accommodation. You can also look at creating single-lets, by this I mean I converting – for example – a commercial building into six flats. Returns on projects like this where you create single-lets can be just as lucrative as things like HMOs and serviced accommodation, but without the daily headaches of dealing with multiple tenants’ problems or having to check guests in and out each day. In other words it’s low-risk but high-return.

Eventually, you can begin looking at the bigger development projects. They’re great for raising your cash pot, but typically they’re quite slow and you’ll need plenty of money to get started at them. Any lenders you want to borrow from will require a track-record of past projects and realistically developments aren’t consistent enough to provide the stability to give you the income to leave your day-job in five years.

Schedule

If you’re unsure about what you should be doing at each stage of your plan, here’s an outline of what you might consider doing in each year.

Year one

When I and Victoria started out, we completed a small number of simple projects involving renovating our own home. We made a reasonable amount of money and were focused on growing our cash pot during this year. 

Year two

Now, is the ideal opportunity to do something like a BRR, as well as possibly adding a couple of single-lets into your portfolio. Doing a flip as well as a couple of single-lets in a year is unlikely to cause you too much stress, especially if you have a few tradespeople you can rely on from previously flipping your own home.

Year three

This is about the time you should consider buying your first higher cash-flow project like an HMO. At this point, we decided to do an HMO and a couple of flips on the side. The HMO should provide a huge cash boost: ours still gives us £1200 a month.

Year four & five

You’ve now got a track-record of successful projects and if you’ve been working on your positioning in the last three years, you should be in a situation where you are able to attract investors.

In year four, you could think about picking up your second HMO with investor funds or through working with a joint venture partner. Add a couple of single-lets to that and you should be up to £2500-£3000 per month profit.

Then imagine adding one or two HMOs more in year five and you’d be up to £5,000 a month profit. You could replace HMOs with serviced accommodation or with commercial conversion to single-let projects and you would be in a similar position.

In the end of the day, it all comes down to the same principles: starting out with something that makes your money work hard, then building your experience and finally scaling-up with the help of other people.

Now that you’ve heard our recommendations for starting out, find out what some of our most popular past guests say they’d do if they were embarking on their property journey again today.

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