Don’t be fooled by get rich quick property schemes

I have seen it so many times, especially when watching programmes such as homes under the hammer, there is always people who seem to have a property portfolio of 20 or more, which they have managed to accumulate from nothing and it only took them 8 years. Does this make them a millionaire? How did they do it?

Between 2000 and 2008 finance was rather easy to come by and this was coupled with the fact that property prices kept rising. If you were interested in buying property during this period you could place a small deposit down, carry out some minor renovation works, revalue it and on paper be £10,000 richer. Then you would simply release your equity and move your first deposit onto the next. Before you knew it you had a few properties, an income and your deposit was back in your bank account. This allowed people to scale up their portfolio rapidly.

Was this a good idea? In short no. Many of these people were hit by the financial crisis in 2008. The banks revalued the portfolios and a large majority of these people found themselves in negative equity. Banks often had clauses that meant when a certain LTV (loan to value) threshold was surpassed the bank forced the sale of the assets, consequently forcing people to go bankrupt. Due to low interest rates, some landlords have been able to hang on, but without reinvesting the rental income back towards paying off the asset, they could find themselves in a sticky situation when rents rise.

I am not saying that everyone with a large portfolio went bankrupt or isn’t doing well from it, as that is not the case ,but to get such large portfolios takes time, brains and equity. Financing now is a lot harder to come by, this is not to say it’s impossible, the banks are now wiser and stricter than they were back in 2008. Property can be a very fruitful asset, but let me tell you, next time someone says they have 30 properties when you’re watching homes under the hammer don’t assume they are always rich as creases.