In our last post, we discussed how we found and funded our first rental property. In this post, we will talk about how we began to build our portfolio and purchase our second rental property.
Property 2
Once we purchased our first rental property in 2016, we began to review the rental property price we paid USD 260,000 (GBP 215,000) versus the rent received USD 1375 per month (GBP 1125), which equates to a gross rental yield of approximately 6% (GBP 13,500 rental income per year divided by the property purchase price of GBP 215,000). This calculation then allowed us to start comparing the the return on different type of properties in different areas.
How we found it
In 2017, we started analysing particular areas across the country to look at where we could buy a rental property which would provide a better return than the 6% above. For example, we looked at the area in the south east of England (in Surrey), in which we purchased property 1 and generally saw the gross rental yield was between 5%-6%. However, based on our review, we saw that when we looked at other areas around England, a gross rental yield of 7-8% was achievable. The second property we purchased, in 2017, was also a two bedroom apartment (same as our first), but in the midlands of England. We purchased the property for GBP 99,000 (USD 124,000) and the property currently rents for GBP 740 per month (USD 900 approx). Based on the calculation above, this gives a gross annual yield of 8.9%, which is higher than property 1 (6%).
Again, similar to property 1, we deliberately looked for a property with an existing tenant in, in order to minimise the potential for lost rental income.
How we funded it
Similar to property 1, we had no cash savings of our own to put towards the down payment of 25%. However, unlike for property one, we had built up a small amount of cash profit from property 1 which we could put towards property 2. However, given it had been less than 12 months since the completion of property 1, the cash profit saved was only a relatively small at that time (a few thousand dollars approximately). So in addition to this, we went back to the same bank we used to release equity to purchase property 1 and looked to see if we could release more. As approximately one year had passed since our last equity release, they revalued our home and allowed us to borrow GBP 20000 (USD 25,000 approx) against this house. This just about provided us with the cash needed to purchase property 2.
Since we have purchased this property in 2017, it has fortunately not been empty for a single month and required overall minimal maintenance. See photos below!
In our next post we will be talking about how our portfolio strategy took a dramatic turn which has since allowed us scale our portfolio.
