How To Use Equity To Buy Investment Property | Property Investing | Mortgage Finance / Refinance

How To Use Equity To Buy Investment Property | Property Investing | Mortgage Finance / Refinance

equity is the difference between what your property is worth today – your mortgage but how can you use this equity to buy investment property that's coming up after this hi my name is Tony ball from your first four houses and my channels all about helping you achieve financial freedom through the property if this is your first find here be sure to subscribe to the channel and hit the bill notification icon so that you don't miss out on any of the free content I share each week before we get into this I just had to say I am NOT FCA approved and so before you take any action on any of the content I'm about to share with you here it's essential you seek the advice from three different people firstly an independent mortgage broker with access to the whole of the market secondly please speak to your accountant if you have one and lastly but perhaps most importantly book a call with a specialist tax advisor because they'll tell you exactly how you should buy that investment property they're not expensive and it could be the best advice you ever pay for okay so first things first let's consider how someone would have bought their own house perhaps a few years ago that was worth at the time say two hundred thousand pounds they would generally have put down a deposit and let's imagine this would have been ten percent or twenty thousand pounds in this example and they would then have paid the 90 percent balance ie one hundred and eighty thousand pounds with a mortgage now obviously I appreciate the numbers are going to vary from person to person and I I also appreciate the some people at the time would have taken a repayment mortgage and others an interest-only mortgage but let's just try to keep things simple here and imagine that this person took out an interest-only mortgage many years later hopefully the property's gone up in value and so let's imagine that today it's worth three hundred thousand pounds technically the owners initial deposit is still locked up in this property and technically there's still a hundred and eighty thousand pound mortgage don't forget this was an interest-only mortgage and so none of the 180 and pounds has been paid down however the property is increased in value by this much and so today assuming the property is indeed worth three hundred thousand pounds if we take off the existing mortgage of one hundred and eighty thousand pounds that means the total equity that's locked in this property is a hundred and twenty thousand pounds now I would suggest this individual has two choices they could leave things exactly as they are with this lump of equity locked in the property or they might think to themselves hang on a minute I reckon some of this equity could be working a little bit harder for me in another property specifically an investment property and so if that's the case I suggest they've got three choices as a way to release some of this equity they could speak to their existing lender about some additional borrowing they could take out a second mortgage with a new lender or they could we finance the entire property with a new lender now if it is something that you want to do once again I must emphasize you honestly need to speak to an independent mortgage broker firstly and take their advice on this not mine however with that said in my experience most people would probably lean towards option number three which is to refinance the entire property with a new mortgage if they can and so let's look at how that process might work you go to your mortgage broker and together discuss the various mortgage products that are available to you and this will vary depending on your circumstances and what you ultimately want to achieve just for the sake of this example let's imagine you several made seventy five percent loan to value type products which means you're going to borrow seventy five percent of the value of your property that's seventy five percent of today's value I hasten to add your mortgage broker would then pre-approve you with the lender that you're going to use which means assuming everything's ok with the property you shouldn't have a problem getting the mortgage well you can never be a hundred percent sure about that you'll then need to get a formal valuation done on the property in your broker can organize all of this for you just be aware there is a fee for this and it's a non-refundable fee the surveyor will then come out and confirm the property is indeed worth three hundred thousand pounds and the lender should then agree to loan you in this case seventy five percent of that three hundred thousand pounds ie two hundred and twenty five thousand pounds and so in this way you've just managed to release forty five thousand pounds of additional equity which you can now use to go and buy that investment property by the way if this stuff is helping you I would really appreciate it if you could take a moment just a quick those have to click on the thumbs up button down there it really helps me if that's okay now of course what you then buy as an investment property falls outside of what I can really cover here in this video but let me show just a couple of quick seeds to give you some idea of why this might be worth you doing so we've released forty five thousand pounds of equity form our house but of course we're now paying have interest on that and so let's be sensible about this interest rate and imagine it's six percent which would mean you would actually be paying two thousand seven hundred pounds extra in interest payments each year let's again be sensible and take five thousand pounds off of the forty five thousand pound figure to cover any fees involved in what we're about to do and so let's imagine we've got forty thousand pound left as a usable deposit to put into a deal we now find a nice little property that we can buy for a hundred and sixty thousand pounds and so we put in our forty thousand pound deposit and get a new mortgage of a hundred and twenty thousand pounds to make up the balance now there's loads of different ways that we could rent this hypothetical place out but let's imagine that we're going to turn it into a small easy to manage HMO which stands for house of multiple occupancy so now after paying the mortgage and all other bills this place starts the cash flow say six hundred and seventy five pounds per calendar month don't forget that's six hundred and seventy five pounds going into your account each month after you've paid the mortgage and all the associated bills if you multiply this figure by twelve we get the annual cash flow of eight thousand one hundred pounds or to put it another way that's three times what is actually costing you in interest payments each year for the additional forty five thousand pounds you borrowed out of your own home and you've now got two properties not one now admittedly what I've just shared here is an idealized example of a very straightforward purchase and in reality there's obviously more to it than this I do appreciate that and so to help you I've actually put together a free fifty point checklist that guides you through every step that you need to take when buying that first investment property you just run down the checklist ticking off the boxes as you go to make sure that you don't miss out on anything really really important just click on the link at the end and you can download that for free with my compliments I would love to hear your thoughts on this strategy if this is something that you're thinking about doing yourself and if you've got any questions just feel free to drop them into the comment section below and I'll be sure to reply to them also be sure to subscribe by clicking here if you don't miss out on any of the free content that I share each week and don't forget to grab that fifty point checklist because you're going to find it really helpful when buying it first or indeed next investment property my name is Tony doll from your first four houses and I look forward to see you in the next video thank you

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