The Perpetual Property Portfolio

"Perpetual motion, the action of a device that, once set in motion, would continue in motion forever, with no additional energy required to maintain it"

The concept of Perpetual Motion has long captured the imagination of scientists and the public alike. In the scientific world the enormous appeal of perpetual motion resides in the promise of a virtually free and limitless source of power. The fact that perpetual-motion machines cannot work because they violate the laws of thermodynamics has not discouraged inventors and hucksters from attempting to break, circumvent, or ignore those laws.

Fortunately, the thermodynamic restrictions which hinder us in the scientific and physical world do not necessarily apply in the financial world. The concept of a portfolio which pays for itself is very much available here and now.

It is possible to generate a self propelling property portfolio with just a little kick-start ourselves.

The concept is simple, we apply a little nudge in the early years, to get the wheels in motion, and then allow that motion to grow exponentially into a completely self-sufficient system which requires no more input from our own resources after the initial outlay!

The First Piece in the Puzzle

Using Our Unique No-Mortgage property purchase scheme means you can pay as little as £1,750 for 24 months, a total of just £45,000 in comfortable monthly installments, and at the end of the 24 months you own a property of your own.

The full purchase price of the property is £69,999 (please refer to our No Mortgage Plan for more details) and you fund the remaining 35% by way of an interest free unsecured loan from the developer. Repayment of the 35% balance will be met by way of collecting the early few years rental payments once the property is completed and your tenants have moved in.

In simple terms, you pay £45,000 yourself and then sit back and wait for the revenue to roll in.

It is important to note that at the end of the 24 month period you will exchange contracts and be registered as the owner of the property - even showing on the UK Land Registry as the full owner - if you choose you could even sell the property at that point receiving the benefits of any increase in the property value.

From here if you make no further investment yourself, you just sit back and let the rent take care of the remaining balance. It will take around 4 years to repay the remaining 35% balance by way of your monthly rental income, and from that point forward you will receive an initial rental income of around £500 per month for as long as you hold the property, as well as any capital gains in the sale value of the property itself.

An income of around £6,000 per year (rising with the indexation of UK rental prices which typically outperform inflation by a considerable margin) which represents a yield on your personal investment of £45,000 at around 13% per annum. Of course you may feel that the additional £24,999 has been paid from your own rental income and so even taking this into account this represents an advertised yield of 8.5% per annum!

You may at this point decide to never invest another penny again and allow this one property to pay for the next purchase in your portfolio. In this scenario it may take another 7 years to accumulate the funds to buy the second apartment. Some people opt for this approach, it is simple and easy to achieve, but slower to reach the end goal of a self-propelling property portfolio!

Most of our clients opt for what we call the Snow-ball effect: Using the rental income form the first property in conjunction with the £1,750 per month you are already used to saving, you can achieve the purchase of the second and third properties and so forth much quicker...

The Snow-ball Effect

Using the property income and assuming you continue to invest the initial £1,750 per month we see a much faster snowball effect.

The second purchase:

The Second purchase works in a similar way to the first. You pay £1,750 per month for 24 months and the end result is you own the next property within 24 months (you still owe the remaining £24,999 interest free loan which is again paid back using the rental income and not out of your own pocket). At this point in time you now own two rental properties, allowing the rent to cover the 35% balances on each.

The third purchase and beginnings of a self propelled portfolio

In its infancy the third purchase works in exactly the same way as the original and second purchase, however this is when the Perpetual portfolio and the snowballing of rental income really begins to reap its rewards.

By the time the exchange of contracts on Property 3 come along, property 1 is already 6 years into your ownership and the rental income acquired over the 4 years will have completely paid off the balance.

Property 2 is 4 years into your ownership and has been receiving rent towards the balance for 2 years, amounting to approximately £15k, meaning it still has around £10k left to repay.

We typically see a steady rise in rental income in the early years of the schemes and can assume therefore that the monthly rent on property 1, which will now be an income to you will be around £607 per month.

At this point we suggest redirecting your rental income of £607 per month in the first year (year 6 from outset) and an additional £638 per month in the second year (year 7) to reduce the balance owed on properties 2 and 3.

This means that by the end of the 24th month from exchange on the third property you will have overpaid by approximately £14,940. You will have completely paid off properties 1 and 2. You will have paid £45,000 yourself by way of the £1,750 monthly payment towards property 3 and saved an additional amount of circa £9,000 to immediately use to reduce the balance outstanding on property 3, which has been accumulated by your rental income from property number 1 and property number 2.

Assuming the same early increase in rental income, that’s likely to be a rental income of 2 x £669.90 per month, which means you will by now be collecting a monthly income of £1339.80 per month from your original two properties along with the new rental income of £669.90 per month from your third property.

Of course the third property still owes the remaining balance of around £15k - however this balance can be repaid in as little as 3 or 4 months by way of paying down the balance using the £1,750 per month you currently pay along with the monthly rent from properties 1 and 2 and of course the rent from property number 3.

By now, just 76 months (or a little over 6 years) into the plan, you can now own 3 UK rental properties outright, having never used a mortgage!

The Perpetual Portfolio, Ceasing your personal contributions and property number 4

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From this point forward you now own 3 properties outright and receive the rent of those three properties every month. The approximate assumed rent is circa £669.90/month x 3 properties which equates to a monthly income of £2009.70 per month.

From this day forward you can buy another property using absolutely no more money from your own pocket. And because of the rental income you now receive, you can do so in as little as 34 months. You now have a Perpetual Portfolio!

Purchase number 5

By this time you will have 4 places paying out at circa £700 per month, which amounts to a monthly income of £2,800 per month.

This means you would be able to completely pay off property number 5 within just over 2 years using nothing but the rent from your portfolio.

Using the Snowball Effect to Purchase numbers 6 & 7

Using the rent from properties 1-5 you would be generating a monthly income of 5 x 700 per month, being £3,500 each month. From here you are therefore able to simultaneously acquire property number 6 and number 7 using the No Mortgage Plan - £3,500 pays for the monthly commitment of £1,750 for both properties at once. Snowballing!

Purchases 8 & 9

By the time the 24 month build period for properties 6 and 7 is complete you sit back and let the rent from those two places cover the repayment of the remaining balance by themselves and begin the purchase of properties 8 & 9.

Your Perpetual Portfolio

By the time 8 & 9 have completed their 24 month down-payment and are ready for tenants to move in you will have 7 properties fully paid for and returning rental income in excess of £5,000 per month into your pocket with 8 & 9 repaying the balances from their own rent. This provides sufficient income to acquire a further 3 properties using the same system.

Once these are complete you will have 9 properties generating income and a further 3 self-repaying their balances in record time. We have seen some clients reach this point in under 10 years by continuing to contribute their personal £1,750 in addition to all their rental income.

You too can become the proud owner of a monopoly of properties throughout the UK, possibly throughout the world. Where you decide to stop building your portfolio and sit back and enjoy the benefits is a personal choice. For some people it is just one property to boost an existing income or a retirement plan, for others its 3 or 4, maybe 5. Some of our clients have over 20 properties and still add new purchases each year, using nothing but their perpetual portfolio income.

Please reach out to us today at www.optimaproperties.uk to find out more.