FICTION (although you do need to own a property)
When talking to people about becoming a buy-to-let investor, their two main worries are that they don’t have enough savings, and that a property investment will impact too heavily on their disposable income. These are understandable concerns but, in most cases, shouldn’t hold you up from at least considering a buy-to-let investment.
There is a way of becoming a buy-to-let investor in a ‘cash neutral’ fashion. Obviously this doesn’t mean that it’s not costing you anything, but we aim to find a solution that has no impact on your day-to-day disposable income, and leaves you with a buffer to cover any unexpected expenses associated with your property investment.
Re-mortgaging your residential property to fund a buy-to-let
Re-mortgaging a property to release capital is a surprisingly under-utilised facility, probably driven by the legacy of our parents’ generation who were obsessed with paying off their mortgage.
Of course there’s the risk that the cost of borrowing will increase, and property values will decrease, so it’s right to be wary. However, being shrewd with the amount you release, and choosing the right investment property, can help to mitigate these risks. And let’s face it – you have to take a little risk if you want to reap investment rewards.
A few months ago we had a client who owned a property in London worth £500,000. They had bought it a number of years ago, and they had an outstanding mortgage of £140,000. They had no savings to speak of, so they chose to finance their buy-to-let through re-mortgaging their existing property.
- They re-mortgaged their property, releasing £150,000
- This had the effect of increasing the monthly payments on their residential mortgage by only £100 as we were able to find them a better mortgage deal than they were on
- This £150,000 was used to cover a deposit on the new property, as well as all fees such as stamp duty, solicitor, MPC fee, mortgage fee, and the cost of a small refurb of the flat they bought
- We found them a two-bedroom property in Zone 3 London, within 5 minutes of a tube station, and with great rental demand. The asking price was £475,000, and we secured it for £450,000
- We organised a new buy-to-let mortgage, with monthly re-payments of £850
- Tenants were quickly in place, paying £1,400 a month, which covered the buy-to-let mortgage, the residential mortgage increase, all fees and expenses for the ongoing management of the property, and with nearly £200 a month left over for future unexpected expenses (we always encourage our landlords to save any profit)
This example suits a property investor who is looking for capital appreciation over the medium to longer term, rather than a monthly income.
Taking the leap
Property investment is not risk-free and is not for everyone, but if you have always had the urge to become a buy-to-let investor, and you don’t have a spare £100,000 in the bank, why not make the property you own work a little harder for you?
We would more than happy to run some numbers for you, based on your own circumstances. This is part of our no-obligation quote service, so you really do have nothing to lose.