Monday, 8 June 2015
Invest more in Clapham & Brixton - with no more of your own money. And here's how.
So, when was the last time you did a portfolio review? I’ll bet it’s been a while. Landlords are long-term strategists after all. I spoke to a landlord who lets properties in Brixton over the weekend and he was keen to hear more about my thoughts on the market. He had read an article or two on the blog in which I mention that it’s “trendy” to live further from the station and cycle to work or get a bus to the station. Train station of course, tubes are so passé…
I had found a few properties which would suit his newly found love for Outer Brixton (Or Streatham Hill – sorry I still speak like an estate agent!) but he said they’d be too expensive as the deposit he had saved up wasn’t enough. Property prices had gone up more than he thought. I said “that’s a good thing!” and he looked at me curiously.
You see here’s the thing: if property prices are going up and you already have a portfolio it means the loan amounts you have stay static whilst the value of your assets is going up. So the “Loan to Value” percentage is lower. Imagine if you had a 300k property (5 years ago) and you put in 20% deposit the loan would be 240k. Over 5 years thought the value of the property would have gone up about 5% year on year (roughly speaking, valuation is a bit more of a science than simply a calculation, but bear with me). Today this property would be worth about 380k, in which case your 240k loan only represents 63% of the property’s value. So you could do one of two things:
a) Remortgage to a better rate (lenders are keen to lend to people that represent low risk – 63% exposure is better than 80% so they will lower their borrowing rates for you)
b) Remortgage and RELEASE SOME EQUITY AND INVEST MORE!
Nothing says savvy investor like taking out your gains and reinvesting – if you remortgage up to 80% LTV again you can borrow 304k, leaving 64k to play with after you've paid off the first mortgage. This particular landlord had 5 properties that he could do this with, so essentially giving him enough cash in the bank to purchase a further 5 properties. With which he was yielding 5.5% per annum. You do the sums!
In essence buy to let is a balancing act. Never have all your eggs in one basket of course. Buy a few further from the station, a few close to the station, look for a few high-yielding investments, play the long game on a few and so forth. If you are just starting your BTL journey you will love the gains – if you are close to retiring you may be looking to sell. Take advice of course, wherever you are on your journey.
If you are looking for a friendly chat about property, weather, or Wiggo’s latest triumph on the track by all means give me a call in the office on 020 3397 2099 or drop me a line on email@example.com.
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