Full-time or part-time investor …

Being a full-time property investor is many investors’ dream, but few consider the adverse effect it has on their ability to raise a mortgage. This nirvana of being full-time in property is frequently encouraged on property courses and at meetings.  It is held up as the definitive status symbol, to be worn almost as a badge of honour.  Property speakers often spit out the term ‘wage slave’ as a form of derision.

While it can be tempting to throw off the shackles of an unrewarding and unfulfilling job it’s wise to slow down and think carefully first.  What happens when you realise that your portfolio expanding ambitions may have just ground to a halt – simply because you don’t have an ‘employed’ income?

My advice is to take your time reaching that pivotal moment when mortgages are less critical to your property investment.

No provable salary can result in almost all Buy-to-Let lenders being unwilling to deal with you.  The last thing these lenders want is full-time investors. 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
•  Has good earnings to cover their mortgage payment in the event of any rental voids (for most lenders, that’s 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, so 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. They know that investors look after a property more diligently when they have their own cash tied up in the property

Most problems – from the lender’s perspective – is when 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 common for lenders to ask for not only proof of deposit, but also 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.

Instead of jumping into being a full-time investor it’s wise to plan that transition more strategically so that, when you finally make that move, you are much less reliant on getting future mortgages from Buy-to-Let lenders.

You need to work out just how many properties will give you the cash flow needed to replace your employed income.  Also to know how you will continue to be able to raise mortgages on any future additions to your portfolio when you no longer meet BTL lenders criteria.  Don’t wait until after you’ve quit your reliable income generating employment to do your homework.

When you leave the BTL 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.  But it is still possible to get an interest-only mortgage, although there will be a reduced choice of lenders.  Some single lets may not generate a positive monthly cash flow from a repayment deal, but cash flow is much stronger with HMOs and multi-lets, so some landlords still make good positive cash flow even though they are on a repayment deal.

My advice is to stick to the day job for as long as you need to get more BTL mortgages; however unpleasant and demotivating it may be.  When you’ve built an investment profile that is attractive to commercial lenders you can then quit full-time employment with peace of mind.

You can learn more here:

• Contact Kevin Wright over on his Facebook page.
• Browse the Recycle Your Cash online training library by clicking here.
• Attend an upcoming 1-Day Property Finance Masterclass event - Book in here.