In this post, I will share how we got started and purchased our first rental property. In subsequent posts we will share how we then built, property by property, our portfolio
As it stands today, we have a total of 12 rental properties. The rental portfolio is valued at approximately 1.8m USD (1.5m GBP) and generates 6 figures per year in rent. All the real estate we own is residential (i.e rented to individuals). I share this only to provide you with context of where we have reached in our journey (we are still on our journey :))
Property 1
The beginning of our journey started in 2016 when we purchased our first rental property - my husband and I were around 29 years old at the time. Our first rental property was a 2 bedroom first floor apartment which we purchased for USD 260,000 (GBP 215000). The apartment has been fully rented since we we purchased (with the exception of 2 months whilst renovating in 2019). The apartment rents for USD 1375 per month (GBP 1125). As of today, this property generates a return of 6.2% per year (GBP 1125 per month, GBP 13500 per year as a percentage of the purchase price is 6.2%)
How we found it
The apartment is located a mile from where we were living at the time. At the time of purchasing, we had no plan to build a portfolio, we were simply looking to purchase a property to grow our money long term to provide a bit of financial security. Given we were new to investing in property, we purchased this property as it was close to where we were living at the time and this gave us the confidence that we were able to manage in case there were any issues. We used Rightmove (a popular property search portal in the UK - others are available) to find and arrange viewings. We arranged all viewings over a weekend and viewing a total of 5 properties, after which we selected one.
We deliberately looked for a property which already had a tenant in. This ensured that the property would immediately be generating income and also allowed us to negotiate with the seller (as many potential purchasers of the property as a home would require the tenant to vacate, which we did not)
How we funded it
We had no cash savings at the time of purchasing and required a 25% deposit at the time. Plus an additional 5% for legal fees and taxes. At the time of purchasing we had the following options to fund:
Wait and save up the money - this was not an option for us as we did no have the disposable income through our jobs to save the money required (Approximately USD 75000!)
Take a loan - This is high risk strategy in our view and we did not feel comfortable at this time doing this given we did not have the disposable income to purchase. Plus getting a loan of this size would not be affordable for us
Borrow money from family - This was not an option for us
Release equity/take a secured loan/second mortgage from our existing we were currently living in - This is the option we chose which was a learning experience for us. My husband and I were living in our own house we had purchased one year earlier (I will share how we raised money to buy this in a separate post!). We spoke to the bank who gave us the loan to buy this house and explained we were looking to buy our first rental property. Given we had been living in this house for one year, we had reduced the mortgage balance since the time we purchased it. The bank looked at the balance of the mortgage and also the value of the house (which had increased slightly since the time we purchased) and agreed to lend us 90% of our residential house value. Our current loan was for 75% of the house value and hence the new loan would allow us to release 15% of the house's equity in cash - this provided us the cash we needed for the deposit for the apartment (our existing bank paid the additional funds into our bank account and this was then used to purchase the new apartment). Now, at the time of doing this, the monthly cost for taking the additional 15% mortgage was significantly lower than taking a personal loan and hence was (just about) affordable.
After purchasing the property we did no major renovation work except for changing the windows and the property, as I mentioned above, has been rented pretty much fully since we purchased it 7 years ago (at the time of writing)
In the next blog we will go through how we funded and purchased our second property!
Thank you for reading
See more pictures below
