Transcription of the video below:
I am excited to talk about the subject, which I think if you’re brand-new to property or are coming into it, you’re probably wrestling in your mind and when I run my property training one of the things that happens is people say, I’m getting quite excited about this.
I understand the concept of passive income, buying a property or house in multiple occupations. How do I know how many properties to buy?
How do you work it out?
The first conversation I have with people is what is your financial independence figure?
Some people refer to it as financial security figure, financial freedom figure and when I talk about replacing your expenses, i.e. what are your basic outgoing costs that if that was covered now I don’t necessarily have to work or you work part-time.
I want to show you the numbers associated with the process. Let’s just say somebody’s got expenses of £2500 per month that’s what they need to replace and one of the strategies remember you can have several strategies going on at the same time which could accelerate this process, but one of the strategies they found is buying low value buy to let properties i.e. 60 to say 80 K type range that produced £250 a month net cash. Not the gross rents gross that’s gross rent minus various expenses, giving the net of 250 per month per property.
Our target then becomes to divide what the cash flow is needed i.e. expenses 2500 x 200 and £50 per month per property telling us that that person needs 10 properties to cover their basic expenses. However, we need a safety net. What if it’s not filled or couple aren’t filled on the occasion, we’ve got to allow tax in there so as a safety net, an initial target would be, say, 40% of so 14 properties i.e. £3500 per month, 3500 month gives them some fat but it also allows for some slippage if some properties aren’t rented out.
If someone says I’m looking at HMOs it’s a small, four-bedroom HMO that would be £500 a month approximately, in which case £500 month divides 2500 by 500, i.e., each property telling us that we have five properties to get that cash flow target.
Again you want to build some contingency in there, so we would be looking at somewhere in the region of seven which would give us extra £1,000 a month so that the target would be to get seven of the small HMOs which we know would then produce enough cash flow plus a surplus to cover their expenses and that’s the point when people start to make decisions like should I give up my job?
Can I step away? Or it could be that cash is used for things like holidays or whatever you’re choosing to use it for, and this is a bit of a left brained approach to it is, there’s a lot you need to get to before you go into this, but hopefully this is starting to make sense and it does become achievable.
Dr Ro signing out.
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