Building a ‘buy to let’ portfolio from scratch with £50,000 – Tips on portfolio building for cashflow

May 20, 2012
© Photo by Eric Beato

Local vs worldwide

There used to be hundreds of ‘tip sheets’ for budding buy-to-let investors. Almost all of them seemed to give bad advice – buy lots of new flats, at a ‘discount’ for capital growth.

Anyone who did this in UK within the past five years will have run into serious problems. As inflation begins to rear its head and with possible rises in interest rates on the horizon, the man sitting on his 5 year old apartments with his 5.2% yield will be hit by a cashflow tsunami when the interest rate cycle, until now artificially held back by the Bank of England, inevitably hits.

But it is still possible to:

1. Build a buy to let portfolio from scratch with £50,000/$75,000.
2. Avoid all the traps that the ‘growth’ peddlers fell into.

Firstly you’ll have to decide where to look. There are very few good deals in British real estate right now. Now the tide is out on capital growth, real estate is left with only its yield exposed.

According to Rental Index Gross yields in UK average around 5%.

Lets say you find your first investment with your £50,000. Two £100,000 apartments rented from £550 each per month – a gross yield of 6.5%, so a good deal for UK. Lets say you get a mortgage of 75% at 4% interest rate.

Monthly money in £550 x 2 minus service charge of £80 x2 minus letting fee of £75 x 2. Total money in = £790 per month

Monthly money out = £150,000 x 4% interest = £600 per month.

So net return with no repairs, voids or other issues would be £190 per month, or 4.5% annual return.

BUT, I hear you say – surely in a post capital growth world, this return can be eaten up by any repairs, voids, and more importantly, rises in interest rates? A 1% rise in interest rate wipes out almost all the annual return. A months vacancy does the same. Surely the money would be better in a bank than in an investment where all the risk is downside ?

Well, that was the conclusion I came to regarding the UK market. It tells me that the market is overpriced and rents must rise and prices must fall for a few years yet before anything becomes attractive. Perhaps its better to be the guy buying these same apartments in 5 years time in foreclosure, when rents are the same but the price is £60,000 each.

After some years of search however, I came across Western New York.

In a city like Buffalo, I managed to seed my portfolio with £60,000 – lets say $90,000, by buying 2 single unit houses and one double unit house with cash. The prices have gone up a little bit in the last 2 years, but it’s still possible to achieve the following –

Single house – $28,000 – rent $650, taxes, management fee, and maintenance $250 – net income $400

Double unit house $34,000 – rent $850, tax, management and maintenance $350 – net income $500

My net income is therefor $400+$400+$500 = $1300 per month – 17.3% return per annum.

This means that in around two years I can save up enough to add another house to the portfolio.

Ok, you may say – there are a lot of things I don’t know about here:

Local vs Worldwide – Building a portfolio in a place that isn’t ‘home’ is a perceived risk that in fact, doesn’t exist.

With the right investment at the right price, and a reputable letting and management agency, the perception of distance is removed, and the investment should run smoothly.

In fact, like many professional investors, I prefer not to pass the investments every day in the car, as it brings an unwanted emotional attachment to the house/apartment. A ‘full service’ portfolio building advisor like Abbotsinch Capital can take the perceived distance risk out, and ensure the investment is arms length.

Local Economy, and Tenant Demand

The other issue with arms length investments is that you may not know too much about the local economy and local tenant demand. This again, is where a reputable portfolio building advisor comes in.

Fortunately the internet (including our website, has a myriad of statistics and information regarding the local trends and environment. We rely on repeat business, so our interests are aligned with helping the investor make good long term investment decisions.


Finance is more difficult to obtain in overseas markets, including first world countries similar to our own, simply because the credit rating systems are not linked up.

This however, could be a blessing in disguise, in the current environment where the interest rates are being held down artificially by politicians, stoking the fire for when interest rates really must rise to quell inflation (which is now).

Borrowing at low rates and being able to fix for the term however, should be taken advantage of while rates are low, but rates can rise quickly and by a large amount, putting certainly most real estate into negative cashflow within a matter or two or three months.

If you do decide to take the cashflow risk, calculate in the interest rate being at least three times current rates. If the investment is still cashflow positive, then it’s a deal.

More smaller investments versus one bigger one

Hedging your bets and spreading the risk with 3 or 4 investment properties is the reason for most people building a portfolio. The advantage of having a few properties rather than one are:

Less vacancy risk. If one is empty then the others can take up the slack.
More flexibility. If your circumstances change and you need some money out (perhaps to buy a place to live) then you can sell one.
Spread exposure. You can have one house in one area, others in different areas. One area may go downhill for some reason, the others may go up. The main thing is that a portfolio can more accurately reflect trends rather than having all your eggs in one inflexible basket.

One negative regarding going down the portfolio route is that for each property you buy, there will be one roof, one boiler, one set of tenants, floors, and so one set of problems for EACH house. However, with good management, this risk is vastly offset by the advantages outlines above.

In conclusion

– buy right, and don’t let geography cloud your vision
– take advice from a knowledgable local advisor, like
– DON’T buy for capital growth.
– DO buy poised for strong cashflow, no matter the economic climate, like any healthy business.
– Spread your risks and build a portfolio that can sustainably build itself over the years, until your monthly income is the amount you choose to retire on.


Author Alan W. Findlay is a Partner in Abbotsinch Capital with more than 15 years of experience in real estate investment. You can contact Alan by E-mail: or by phone: +44 (0) 20 7193 2079.

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