Ignore the banks and buy yourself breathing space

Focus: Rupert Wright explains how one man turned £30,000 into a property portfolio of more than £30 million.

The only thing that worries the investor is the possibility of a catastrophe in London that will deter people from living in the city. Reuters

"I think the London property market sell-off has gone far enough."

The speaker was a man down the end of the table from me, and the voice that of a handsome 40-year-old fellow with curly hair and round, Harry Potteresque glasses. The year was 1993.

"You want to be very careful," said a voice to his left. She was an attractive woman in her early 30s, renowned as a high-flyer who worked for a major investment bank. "Our bankers say that there is still some way to go before you can talk of a recovery."

Unwittingly, this comment reinforced his first rule of property investment: if a bank tells you it won't lend you money, that is a signal to buy. If they are throwing money down your throat, hold back or sell.

In less than 20 years the man at the table has managed to turn an initial stake of £30,000 (Dh176,217) into a property portfolio of more than £30 million. He went home from that dinner party and the next day borrowed 50 per cent of the value of his property in Clapham from a merchant bank, paying an interest rate of 5 per cent over base rates. Then he went into an estate agency and asked them: "What's the cheapest property you have that you cannot sell?"

They showed him a one-bedroom flat above several other apartments in a divided house. The rear half of the property was splitting away from the wall. A structural engineer friend told him the wall wasn't a problem, so he paid £30,000 for it. Then he went into the loft, persuading the building's fellow owners that if they would let him do a conversion to create another flat, he would put a new roof on for free. They agreed.

Suddenly he had two properties for a total outlay of £50,000 worth a total of £120,000. He let both flats and then moved on to the second part of his plan, which was to focus on an area he felt was undervalued. Clapham North nearly 20 years ago boasted the same housing stock as its more salubrious neighbour Clapham South, but for half the price. "I figured tenants wouldn't mind too much and would be prepared to pay similar rents," he says. "The transport links to the City were equally good."

He began buying four-bedroom houses for £70,000 and letting them immediately - they were giving him a 30 per cent yield - then sought planning permission to turn them into flats. As he bought more he used the properties as collateral for fresh loans. "Prices did not really start to move until 1997-1998," he says, "so I had the advantage of getting in early."

He decided to restrict his portfolio to Clapham and Brixton, with each flat no more than 10 minutes' walk from a tube station, either the Northern or Victoria line. Now he has more than 65 flats, 30 of which are in the same road. He is about 50 per cent geared, with interest only mortgages. "I don't need to pay back the loans," he says. "I am looking for capital growth and income."

He points out that since 1950 house prices in the capital have doubled every 10 years. The only thing that worries him is the possibility of a catastrophe in London that will deter people from living in the city, an earthquake or a terrorist attack. And he has kept buying even when prices began to soar at the turn of the millennium, although he stopped in 2007 because prices got crazy.

"2008 was a bit nerve-racking,"he says. "Rents went down and mortgage rates hadn't dropped by then."

If rents go down by 10 per cent he loses £120,000, while if interest rates go up by 1 per cent it costs him an additional £150,000 a year.

"You can see that it can get very volatile and I can lose £270,000 a year without any effort on my part."

He started buying properties in London again last year. "I went to the auctions and saw prices going down but realised that I could buy them and get an immediate yield of 8 per cent. How can prices keep going down if you can do that?"

His last purchase was a string of 26 garages in Wandsworth. They are let and bringing in a yield of 4 per cent. However, if he manages to get planning permission he wants to knock them down and build houses on the site.

All his flats are let fully furnished and he expects to have to replace beds every two years and also redecorate on a regular basis.

"The buy-to-let business is not for the faint-hearted," he says. "You mustn't get personally involved and certainly shouldn't do up the flats as if you wanted to live there yourself."

His final word of advice? "Don't do it if you need to live off the money on a daily basis, it's a slow process. And don't listen to the banks."