Story By David - From Nothing to semi-retired

This is a true story of how I went from bankruptcy to semi-retired. I offer it here as an example of how it can be done and to encourage those of you who may be thinking you don't have a chance of doing something similar. Let's face it, most of you won't be starting from such a low base!

I'm afraid it's a bit long, but I believe it stands together better for being complete.

The Fall.
For various reasons, some of which were beyond my control, I found myself bankrupt in 1991 at the age of 31 and owing (with my then business partner) something in the order of £250K. We had raised money from the equity in our houses to finance our computer games business and since the value of the houses had recently soared, the banks were more than willing to lend a large amount of money until the housing market crashed and they decided to call in the loans. I was rather financially naïve at the time and left the business side to my partner. Anyway, the business failed and I found myself owing a lot of money.

I believe there is nearly always a way of making the best of a situation. A tactical retreat was in order. I put my house on the market and filed for my own bankruptcy. I could have waited for one of the creditors to do it, but I wanted to sort it out sooner rather than later and avoid having a debt for the rest of my life. Before I could sell the house it was repossessed by the mortgage company even though I had a willing buyer who was ready to pay more than my mortgage debt on it. Their loss, they sold it cheap at auction and then wrote to me to ask for the £20K shortfall. Sadly for them I had to tell them I wasn't allowed to pay because I was bankrupt and they would have to get in line with the other creditors to share out my assets which worth practically nothing. Ha Ha!

So, I moved back in with my parents for a bit and went to college for 3 years during the bankruptcy to avoid accidentally earning too much and having to pay the bank anything. As far as I'm concerned, if they over lend then it's their risk. The bankruptcy laws are there to be used and I made sure I used them well.

1994. Graduated with a 1st class honours degree in Information Technology with Mathematics AND the bankruptcy came to an end.

The Recovery
Having just ended my bankruptcy I knew I needed to start rebuilding my credit rating. I got myself a proper job and started earning a salary and I moved out to South Gloucestershire and rented a place. Immediately I could see that I was paying more in rent than I'd be paying for a mortgage on the same property. I filed the information away for later use.

Not much later, in fact only 7 months later I'd secured myself a 100% mortgage on a new build 2 bedroom house. As expected, the place was bigger and better in all respects than the small 2 bedroom flat I'd been renting and £100 per month cheaper. I made a mental note to do something about acquiring some rental property as soon as I could get some money together.

The Rise
Another 3 and a half years passed and I received a bonus on a game that I'd been working on that enabled me to put down the 25% I needed to buy my first £32K 1 bedroom flat in a local village. I'd kept on good terms with the letting agent I'd rented from and used his advice and his agency services for this property. The rent was £320 per month, a 12% yield, and as far as I was concerned a no brainer. I was off!

Less than a year later I had a stroke of luck. The office shut and I got s nice wedge of redundancy money. Not only that, but at the same time a second flat in the block came up for sale. I had to negotiate hard against the sellers estate agent who had a buyer, but I won through and had 2 of a set of 4. Suddenly this had become a collecting hobby!

Those of us that had been made redundant managed to negotiate a deal with another company to start a local office and take us all on so I was still employed. My next purchase came less than 6 months later. The new office was about 20 minutes further down the road making a daily commute of a whole half an hour. To me this is unacceptable! I found myself a new home that was 15 minutes closer to work, but since I was now becoming a serial landlord, I didn't want to sell my old house. I realised I could cover the mortgage, not by much, but by enough for a long term investment. This left me £7K short of a deposit for my new place. However, one of my credit cards had sent me some credit card cheques through the post and it again seemed an obvious no brainer to use them. I worked out that I could afford to service the additional credit card debt so I did it. So at end of the 20th century I now had 2 flats and a house for rental. I was quite pleased with myself.

In 2000 I bought the third flat in the block and I completed the set in early 2001. For both of these I used credit card cheques and accumulated rental income for deposits. I managed to keep my credit card debt manageable by bouncing it around between cheap rates and introductory offers. I still average only 4.5% over my total credit card debt.

Over the last year things have taken off. I discovered the North East for a start. In South Gloucestershire I had been used to paying £32K to £40K for a 1 bedroom flat. In Doncaster I could get a rough 3 bedroom terrace house for £20K, have it refurbished at a cost of approx £5K and put in a tenant paying £360 per month for just over 17% yield! I had no experience in refurbishing and it was a long way from my home so I used a selection packaging companies.

Assuming you can find a packaging company that is honest, organised and reliable they can do a very useful job. I took out a £10K loan and raised a £15K additional mortgage on my old home to get my initial seed capital of £25K. The place I selected was re-valued after refurbishment at £32K so I mortgaged it and got £27K out and did it again. I now have 4 properties from Doncaster to Newcastle and all my money back to do it again.

In the meantime my flats and houses here in Gloucestershire have soared in value so I've re-mortgaged and have a chunk of investment money to play with.

I wasn't originally intending to retire until a year from now which would fit with the often quoted 5 year plan, but I got fed up with management incompetence at my workplace and realised I could afford to take the time to complete my property holdings. For my semi-retirement I'm living off a combination of income from my 9 rental properties and some of the capital I've raised. I can last around 7 years even without buying additional property if I live as I'd become accustomed to while employed. However, I fully intend putting this money to work and I expect to achieve full old salary equivalent income in under a year. Then I'll start making some serious money!

Dave

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