When I speak to property investors about their goals, the most common answer is to generate enough “passive” income to stop working. Often, the aim is to build up rental income on the side so they can retire in 10+ years – which isn't easy, but is relatively straightforward to achieve.
But sometimes the timeline is more aggressive: they're sick of their job, and want to go full-time in property within a couple of years.
This is more of a challenge – because of the capital needed, and issues around getting mortgages. I'll explain both of these in more detail, then share my preferred method of slipping the shackles of the day job without taking on a huge amount of risk.
The maths behind replacing your income
Let's say you're getting paid £3,000 per month (£36,000 per year) pre-tax at your job. You want to quit and replace that earned income with rental income.
Let's also say that you can get an ROI on your rental properties – after leveraging up to around 75% – of 10%. What you can actually achieve depends on where in the country you're investing, whether you're self-managing and a million other factors, but 10% is a figure that's neither lowball nor unrealistic.
It also makes the maths easy. Because with an ROI of 10%, you only need to move the decimal point to see that you'd need to invest £360,000 to get a return of £36,000.
Do you have that kind of money sitting around? If so, great – you could probably spend that in a year then sit back and live off your rents. But most people don't.
Getting an ROI of above 10% is possible, of course – such as by investing in HMOs. But even if you were to achieve a 20% ROI (which I think would be challenging even with HMOs after accounting for all costs), you'd still need to find £180,000 in cash.
And you'd still have another challenge too…
Mortgage challenges
The other issue is that most mortgage lenders want to see personal income of at least £25,000 that isn't derived from rents. Even if you buy all the properties while you're still working, as soon as you quit that income is gone – so you might struggle when the time comes to remortgage.
At the moment there are some options open to landlords without another income source, but as the market is always changing this does leave you vulnerable if these options disappear: once your 2.5% fixed rate turns into a 5% SVR and you can't switch away, your profit takes a big hit.
Flipping as an alternative
Another method of exiting a job straight into property is going down the buy-to-sell (flipping) route: replacing a wage of £36,000 per year would only involve completing two projects per year with a net profit of £18,000 each.
This avoids the mortgage challenge, as you'd use bridging finance instead – and bridging lenders aren't as bothered about your personal income.
It eases the cash requirement too: if you aim to make a 20% return on your money (which is perfectly achievable) in a six-month project then re-invest those same funds, you'd only need £90,000 in cash.
It does, however, leave you very vulnerable to things going wrong – at exactly the time when things are most likely to go wrong, because you have the least experience. If a project only breaks even, or a property sits on the market for six months without selling, you could be left struggling to pay the bills.
What I'd do instead
If you're desperate to go into property full-time right now and you don't have a big pile of cash, flipping is likely to be the only realistic method. Even so, I'd only recommend going all-in if you've got some kind of related skills already (such as construction or project management) and enough of a cash buffer to cover your living expenses for at least a year.
However, if you want to go down the buy-to-let route, there are a few things I'd recommend doing to overcome the mortgage and capital challenges I mentioned earlier.
Extend the timeframe
Rather than quitting within a year, if you're willing to add a few years to your sentence it'll make the switch significantly easier.
For a start, you've got longer to save up and boost the amount of cash you can dedicate to property. If you're able to buy a property or two now and keep working, your capacity to save will be boosted by having some rental income as well as your earned income.
Also, you can potentially look at recycling your cash to leave less money in each deal and therefore stretch it further. The turnaround time is going to be at least 6-9 months on each project so it doesn't really help if you want to quit within a year, but could make a big difference if you executed this strategy over the course of a few years.
Go part-time
Perhaps going part-time isn't an option in your current job, but you could switch to another job where it is.
If going part-time means your previous wage is cut in half, then you only need to make up half of your previous income from rent in order to have the same income with more freedom. Alternatively if you were looking at flipping, then that part-time income would be a useful buffer so your livelihood isn't totally dependent on the success of your projects.
Also, strange as it may seem, you probably won't achieve that much less compared to if you were in property full-time. Time constraints are useful, and you'll make better use of the (say) two days per week that you can dedicate to property if you know you won't have that chance again until next week.
Go freelance or start a business
I've saved my favourite option of all until last: starting a business, or going freelance with what you do already.
As a freelancer you can scale your workload up and down depending on your needs, and as a business owner you can decide to dedicate more or less time to aggressively growing the business depending on what you've got going on in property.
In both cases, because you're not tied to an office for the whole working day you'll have far more flexibility to pursue property. As a result, you'll never get to the point of actually needing to “quit”: meaning you'll always have income for mortgages, and you won't be under such tremendous pressure to get to a point where property can pay all the bills.
For best results, combine this with a mild dose of delayed gratification: start doing some consulting or fire up your side-gig alongside your current job. By doing this on the side, you'll be building up the two years of accounts that mortgage lenders want to see – as well as boosting your income, therefore allowing you to save up more towards your property projects.
Getting real
I'm not here to pour cold water all over your ambitions to plonk down your resignation letter on your boss' desk tomorrow and be a property mogul by this time next year. People do it. It's possible. But many more people fail to do it, and I think it's important to recognise what a risky endeavour it is.
Most people have the dream of quitting their job and going into property full-time because they don't like the commute, being answerable to someone, spending all their time in an office, or working hard to make someone else rich.
By going freelance or starting your own business, you actually solve all of these issues immediately – while also building skills that will be hugely beneficial when you do transition into property. And if you can stomach staying in your job while you're building up your next project, you'll both boost your savings and avoid a period of struggling to get mortgages.
Not that running a business is a walk in the park. But neither is a career in property – and if you're getting into it because you think property is an easy option, you could be in for a rude awakening.