Time to quit the day job?

People get into property for a number of reasons.  They may be looking to build a nest egg for their retirement, they may have a passion for property, they may just hate their day job and are looking for a way out.

If you have main employment and your property career is a part-time - evenings and weekends - activity, it can be tempting to see how quickly you can build your property portfolio to generate enough to live on.  However, before you get excited about being a full-time property investor, take a step back and consider the additional challenges you’ll face.

Being able to throw off the shackles of an unrewarding and unfulfilling job may be right up at the top of your life goals list, and rightly there is a huge sense of achievement in bringing about such, but what if that means your portfolio expanding ambitions may have just ground to a halt?  Having no other means of income can have an adverse effect on your ability to raise mortgages. Why? The last thing most Buy-to-let lenders want is full time investors.

Jumping off the employment bandwagon needs to wait until the ability to raise Buy-to-let mortgages is much less relevant. 

The type of Buy To Let investor that the lenders (commercial lenders aside) want to lend to now would look like this

• Has a full-time job unrelated to property with good earnings to cover their mortgage payment in the event of any rental voids
• With most Buy To Let lenders, such earnings will need to be in excess of £25,000 per annum
• Has a few, but not too many properties; each lender has a view on what ‘too many’ is. Lenders fear that the more properties a landlord has to look after, the worse job they do, thus the property’s value can suffer
• Has a nice wedge of their own (not anyone else’s) cash that can be put down as a deposit. Lenders know from experience that investors look after a property more diligently when they have their own cash tied up in the property. Conversely, most of their problems have arisen where the borrower has refinanced all his cash out of the property and is ambivalent about making the mortgage payments on time, maintaining the property properly etc. It is getting more common to ask for proof of deposit and an audit trail of where that deposit has come from in the preceding 12 months. This has now been extended to post-completion random audits one or two years down the line, instructing the borrower to provide the audit trail of the deposit.

Jumping off the employment bandwagon needs to wait until the ability to raise Buy-to-let mortgages is much less relevant. 

It is prudent not to rush headlong into a full-time property career, but plan it more strategically so that, when you finally make that move, you are much less reliant on getting future mortgages from Buy-to-let lenders.

What you need to work out is just how many properties will give you the cash flow needed to replace your employed income. Just as important, get clarity on how you will continue to be able to raise mortgages on any future additions to your portfolio when you now no longer meet Buy-to-let lenders’ criteria. Don’t wait to do these calculations until after you’ve handed in your notice.

When you leave the realms of the Buy-to-let world behind, or more accurately, those lenders leave you behind, you naturally enter the world of the commercial lenders.

Commercial lenders embrace full-time landlords, or at least they embrace those that are experienced, profitable, organised and professional about their business. A massive portfolio is not necessary, neither is a portfolio of just commercial property.

It is tougher to get interest only mortgages with commercial lenders as repayment mortgages are their norm. It’s not impossible, it just means you have a reduced choice of lenders

The lesson really is to stick the day job for as long as you need to get more Buy-to-let mortgages; however unpleasant and demotivating it may be. Quit the job when your profile is desirable to commercial lenders. Then you can enjoy your new-found freedom with greater peace of mind.