How to Start and Scale Your Buy-to-Let Property Business in 2022
Investing in a buy-to-let (BTL) property is one of the best ways to create financial security and build wealth by generating passive, monthly income.
Property investing is a numbers game; the more properties you have, the higher your monthly income – which can amount to life-changing amounts of money.
When you have the right education and know-how to do it correctly, you can invest more quickly and effectively so that your cash flow increases even faster.
This guide will share how you can get started in property and grow your business quickly.
Let’s get into it…
Understand the Different Buy-to-Let Property Strategies
First of all, you need to understand how property investing works, and there are a few ways you can invest in BTL property.
Buy-to-let consists of buying property to generate a monthly income. For most investors, it is a medium to long-term investment strategy. As well as generating regular cash flow, if you hold onto the property for a long time, you can build long-term wealth through capital appreciation.
The BTL strategy you choose depends largely on your personal interests, business goals, financial situation, and the time you have to invest in the business.
Below we take a look at the different strategies you can use to invest in BTL property in more detail.
- Traditional Buy-to-Let (Single Lets)
This is the most common way to invest in property and consists of buying a property to rent out to tenants to live in. The rent should cover the mortgage payments and other costs, leaving you with a monthly profit. This strategy tends to be a long-term investment with returns made from the monthly rental income and the potential capital appreciation of the property.
- Buy, Refurbish, Refinance, Rent (BRRR)
The BRRR strategy entails buying a low-value property, refurbishing it to increase the value and then refinancing it. With the property’s increased value, you can recycle the money you put in and invest it into another property. You can also rent the property to generate monthly income. More on this strategy further down.
Houses in multiple occupations (HMOs) are properties shared by multiple tenants from different families. There is typically a shared communal kitchen, living area, and sometimes a shared bathroom. HMO properties provide higher rental yields than a traditional BTL but come with more costs.
- Holiday Lets
Holiday Lets are a type of BTL investment focused on short-term renting for part of the year. In recent years, as more Brits have opted for a holiday at home, staycations have risen in demand. Choosing the right location is key to attracting holidaymakers and keeping the property booked up.
What’s the Best Way to Start a Buy-to-Let Property Portfolio and Grow it Quickly?
While there are many ways to get into property, the Buy, Refurbish, Refinance, Rent (BRRR) method is one of the most common methods for first-time investors as it requires low initial capital to get started. It also allows you to gain momentum quickly (providing you do it right) and grow your portfolio quickly.
Growing a buy-to-let portfolio the traditional way can be an extremely slow process spanning years of saving for a cash deposit before being able to purchase the next property. However, with the BRRR strategy, you can build your portfolio a lot quicker by leveraging the equity you create.
The key to getting your property business off the ground is to leverage finance and build momentum so you can keep growing!
Here’s how the BRRR strategy works…
Step 1: Buy: The first step is to purchase a property at a low value that can be improved by renovating. For the BRRR deal to work, you need to add value and be able to rent the property out; therefore, buying the right property at the right price in the right area is key. You can fund the purchase with cash, releasing home equity or using a bridging loan.
Step 2: Refurbish: Now it’s time to refurbish the property by carrying out a full renovation, adding features or upgrading systems. The objective of this stage is only to carry out improvements that will immediately increase the property’s value.
Step 3: Refinance: When the work on the property is complete, you can refinance onto a long-term product such as a buy-to-let mortgage. As you have done the necessary work and increased the property’s value, you can now refinance at a rate based on the property’s improved market value. This allows you to recycle the initial capital you used in the deal so you can purchase another property.
Step 4: Rent: Now that the property is habitable and you have taken out a buy-to-let mortgage, you can rent the property to generate monthly income!
The BRRR strategy means you can start with little capital, generate a monthly income and grow your portfolio quickly – which is why so many property investors get started in property by following the BRRR method.
How Much Money do I Need to Start my Buy-to-Let Property Business?
We get asked this question a lot, and unfortunately, there isn’t a straightforward answer. The amount of money you need will depend on the type of projects you take on, the level of risk involved and your property goal. There is a big misconception that you need a lot of money to be a property investor, but in reality, there are options for most financial circumstances.
Generally, you will need cash, a bridging loan, or a buy-to-let mortgage to purchase your first property.
- Purchasing with Cash
You can purchase the property outright with savings, inheritance, or a cash gift. The monthly income you generate will be 100% profit as there will be no mortgage payments to make.
- Releasing Equity
If you own your existing home or you are paying the mortgage and have built up equity in the home, this equity can be withdrawn to purchase an investment property. This is one of the most common ways to get started in property.
- Buy-to-Let Mortgages
Buy-to-let mortgages can be hard to obtain if you don’t already own a residential home, but it’s not impossible. Some lenders have strict eligibility criteria, while others are more flexible. The deposit required for most buy-to-let properties is 25%.
- Bridging Finance
Bridging finance is a short-term loan used by investors to purchase a property which is later repaid by refinancing to a long-term product such as a buy-to-let mortgage. The deposit required for a bridging loan is typically 30% of the property value.
The great thing about bridging finance is that the lenders’ offer is based on the exit strategy of your deal rather than your income and credit history. This means that as long as you can establish clearly how you will repay the bridging loan (by switching to a buy-to-let mortgage or selling the property), they will provide you with the funds to purchase the property.
This is why many investors start their property business using bridging finance and by follow the BRRR strategy. They can take out a bridging loan fairly easy to purchase a property and then refinance it onto a buy-to-let mortgage and generate a monthly income.
Ready to Start Your Buy-to-Let Property Portfolio?
At Ramsay and White, we help first-time investors start and scale their portfolios. Even if you have low income, bad credit, you’re self-employed, an ex-pat or a foreign investor – we can help!