We've always maintained that anyone can get started in property no matter what their financial circumstances may be. Today we look at how to build a property portfolio of 11 or more houses with a deposit pot of only £50,000. The strategy you will need to achieve this is called the 'two plus one' strategy. Read on to find out more.
1. The Two Plus One Investment Strategy
2. Selling Your Properties Strategically
3. Don't Overestimate What Is Achievable
4. Putting It All Together
The Two Plus One Investment Strategy
The most effective way of creating a portfolio of eleven houses from £50,000 is to use what is known as a two plus one strategy.
The principle behind this strategy is not so much to have a solid plan for buying properties but to have a solid plan for selling them.
The truth is anyone can build a property portfolio without needing a large amount to invest. With the right method, a lot can be done with little.
So, if you have three houses, you should always be ready to sell two and keep one, or ready to keep two and sell one.
Ultimately, the trick to this property strategy is to always have a plan for bringing money back into your pot so that you can re-invest it and grow your portfolio.
Because one of the downsides of building a property portfolio is that, if you find just one property to put (all) your money into (say, £50,000), then you will have to wait for the property to grow significantly in value before you will be able to sell or refinance the property without making a loss.
It is this waiting for growth that more-often-than-not stops investors from being able to grow their portfolios quickly. If you are waiting for your investments to grow in value, or if you are trying to save for a deposit from your rental income, it is going to take a long time.
Selling Your Properties Strategically
Selling your properties with a plan in mind, is the secret to building a portfolio quickly. If you have three properties and no additional funds you should be prepared to sell two of them. If you have access to some additional finance then you might only need to prepared to sell one.
If you want to grow your portfolio a little slower and are a little risk averse in terms of the number of houses you want to take on in the early days, then it could be that selling two properties and keeping one would suit you better.
The trick is to keep selling, build a bigger deposit pot, keep buying and keep growing your portfolio.
Don't Overestimate What Is Achievable
Overestimating what can be achieved, in say the first year of work, is a trap we see a lot of our clients fall into.
Of course, you will want to go quickly; especially, if you are just getting started. This is understandable; it's natural.
However, this is an instinct that can sour quickly. If you overestimate what can be achieved in a 12 month period then, when you don't achieve your goes, you will end up feeling frustrated.
This pattern doesn't only apply to beginners. We've seen it happen to people who have been investing in property for 5 years plus. It is however much more common for people in their first year.
What I'd say is this: Don't overestimate what you can achieve in a year. But, don't underestimate what you can achieve in five.
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Putting It All Together
Using the two-plus-one strategy you will be able to grow your portfolio much faster. Out of three properties, you should always be looking to sell at least one of them. Keep going with that; developing and selling, say one property every six months, with a mind to re-investing the freed up money in more property and in no time at all you will have 11 properties from a starting point of £50,000.
Hello,
I have 50,000 cash sitting in the bank. Please advise where to start. Do I need to apply for a mortgage to buy the first property?
Hi Mansuk, it completely depends on your aims and goals. Some investors don’t like leverage or finance so it’s impossible to say yes get a mortgage. If you are looking for lending options and did want to speak with a few mortgage brokers though we have some introductions on our resources page that should be able to help for you – https://www.propertyinvestmentsuk.co.uk/resources/
I literally do not understand a word of what you are suggesting. I am a tax accountant and can’t follow what you mean. Why would you sell one house to buy another? What is the point of this? If there is equity in it why not remortgage to release funds and not incur a CGT bill?
Hi Annabel,
Absolutely keeping and remortgaging where possible is part of this method, it just combines flipping/selling some as well.
Taxation is certainly a consideration but it isn’t the only thing to consider and shouldn’t be the driving factor behind every strategy. If you were to wait for equity growth to happen in each property before you can remortgage, it can take a significant time before you are able to purchase the next property.
If on day one you create equity with a refurbishment then it gives you options. If the figures work then refinancing to release funds and then using that for your next property can be great. We do this ourselves and many clients do also.
But depending on the market, access to credit, mortgage options and other factors, you may not be able to refinance the full amount out of the property so you need a plan B.
We also recommend clients to speak to both their mortgage advisor and their accountants to structure the best situation for them on each purchase, in instances where you have to leave a significant amount in the property, maybe you can only get a 65% LTV mortgage for example (this could be for a host of reasons, credit, rental income coverage, rental strategy) you could be stuck on that one property and the refinance may not give you your original funds back without waiting for further growth.
If however, you sold, you open up the access to the full profits/equity you generated to re-invest in the next property. This can give you a larger deposit which could mean a larger property, or split the pot over two smaller properties, or access different property types with higher yields or allow for a larger refurbishment to add more value than the first property. Each time your initial pot increases. Each time you can re-assess the property to see if refinancing and keeping is the best option, or selling, freeing up the profits and going again on a larger deal is the best route.
Over time and properties it helps you keep momentum on future deals without all your profits being stuck in the first deal.
Hope that helps
Hi
This seems to good to be true. What about capital gains tax when you buy and sell just after 6 to 12 months . Yes illustration with real case studies would be good .
If this is true I should be a multimillionaire as I have been in this business for 13 years.
Hi Cynthia,
Capital gains tax (or any other taxes) would be best to discuss with your accountant as they may be able to suggest the most tax efficient structure for you based on how you have set your property businesses up as a sole trader would be a very different position to a limited company for instance
Hello!
I have found your article very interesting. It would be great if you could demonstrate with numbers how to build an 11 property portfolio with £50K capital.
Many thanks,
Susan
Hi Susan,
Thanks, were looking at a couple of casestudies at the moment to create which looks at the figures of this strategy further, if we do this we’ll attach the link to this article in the future 🙂
All the best