How to make a living off rental property income - example london - can be applied anywhere

If you’re getting fed up with the rat race and want a permanent replacement for your income then you could make a living off rental property income especially now as interest rates are really low. If you can get a mortgage on a property where the yearly rental income is equivalent to your yearly salary then you can effectively leave your job once you’ve paid off the mortgage.

If this type of living makes sense to you then it’s time to put your time and efforts into a plan that will help you achieve this. Without overcomplicating matters, all you need to do is build your credit history so you’ll be eligible for a mortgage, start saving for a deposit, buy a property which can pay your salary eventually and then pay off the mortgage as soon as possible. You can also maximize the rent and improve the property to add value. The steps are outlined in more detail below.

#1: Improve Your Credit Score

The better your credit score the better your mortgage rates will be; a 1% difference in mortgage rates can save you hundreds over the course of the year and thousands over the course of the mortgage. Take your time to improve your credit history and credit score and the superior financial products reserved for creditworthy people will be at your disposal.

If you have debt then pay this off quickly with high payments before the due date, if you don’t have debt then take out a few credit cards and then show how good you are with credit by putting all your expenses on plastic and then paying it off in full before the due date. If you can do this on a continuous basis your credit score will soar and you’ll be eligible for mortgage rates under 2%.

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#2: Save for That Deposit

If you’re serious about generating £1300 per month from rental income in London then you need to spend between £200,000 and £300,000. The bigger the deposit you can put down the better mortgage rates you’ll be eligible for. If you can put down 30% on a £200,000 house then you need to raise £60,000 as a deposit.

If you work really hard then you can achieve this in a year. Take another job, create an internet business, do some consultancy work, it all adds up. It takes dedication and hard work to come up with the deposit however if you think of this as a means to an end then you can keep focused and motivated to achieve your goal.

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#3: Find a Property

After a year you should have enough money for a deposit and you should have improved your credit score so that you’re eligible for the superior financial product which comes in the form of a cheap mortgage. Your next step is to find a property which has the potential to achieve £1200 per month; you should be able to find such properties in 2013 in the region of £220,000 in East London. The important thing to bear in mind is that you want to buy the property for as cheap as possible so that you can make minor alterations to maximize the rent.

Make sure you complete a structural survey to ensure that there are no structural problems. Do some research to see what the maximum rents are in that area and then look to see if you can copy what they have done, if you’re really good at DIY then you could even extend the property into the attic and conservatory to make even more space so you can achieve a greater rent.

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#4: Choose the Right Mortgage and Pay it Off Quickly

It’s best to go for a fixed rate mortgage when you start your rental property business, if interest rates suddenly rise you might find yourself in a very precarious position. Try to fix the rate for five years as this is your time frame to pay off your mortgage or at least make a significant dent to it. HSBC, NatWest, Barclays and Lloyds Bank are all offering five year fixed rate mortgage which are currently at record lows at the moment.

If you are able to find a property for £200,000 and you’ve given a £60,000 deposit then you can find a five year deal for 4.74% from Santander fixed for five years, this means you’ll be paying approximately £500 per month interest only on the mortgage. Whatever overpayments you make will be taken off the £140,000 principal loan amount.

To pay off £140,000 you need to save £28,000 per year, you can use the existing rent to pay off the interest element and the remainder can go towards overpayments. Again it will be hard to save £22,000 per year however if you maintain focused and determined on the end goal which is financial freedom and early retirement then it’s entirely possible.

# Pick the Right Tenants and Treat Them Well

If you treat your tenants nicely then they will pay your rent. If you’re concerned about late payments then you could use an estate agent to let the properties out for a cut of the rent, if you can then go for rent guarantee schemes which means the estate agents will pay you rent eve if the property is empty.

Make sure you listen to your tenants and treat them right as this will prevent problems in the future. Others matters you need to address are landlord home insurance and boiler cover, electrical and plumbing. Normally your total expense per month on estate agents and insurance should not exceed £150; typically a property in East London is going for £1300 per month which means you can eventually achieve £1150 per month which can definitely replace an income for a single person.

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