Investing in Property – the magic formula of wealth
A few years ago I was involved in a property club, now defunct thank goodness, but they taught me that some mortgages (BTL – buy to let) were a good thing as they allowed you to control a property with very little of your own money.
Controlling property is the key here! This allows you to either live in it yourself or even better get a tenant in, who will respect it, pay your mortgage every month and give you a profit at the end of it.
With time rents and your equity* in the property will go up; statistically property has been doubling in value every 10 years on average. The average house price 30 years ago was 20K and it is now around 170K. Will it still go up in the future, nobody knows but the likelihood of this happening is very high.
Banks lend money secured on assets such as property easily. Why? They know that if you do not pay the mortgage, they can repossess you in a matter of months and sell this asset on also within months. For them the risk is low.
Benefits to you? You control what happens to the property by putting down a small deposit and the bank lending you the biggest portion of the purchase price. You either pay down the loan using a repayment mortgage or you only pay the interest due on the loan, which is what most property investors do, then let the property out to a tenant paying the mortgage and giving you a monthly profit and finally waiting for the equity (money left in the house – usually the deposit and the refurbishment costs) to build over time.
Remortgaging the property may enable you to get money out of the asset and give you cash free income. If you do not sell the property during the time you own it, then the capital gains tax liability will die with you – this will also lower the inheritance tax as you will only have a minimum of equity in the property. A little caveat here: you will not be able to reduce your income tax liability by deducting the interest payment more than the original purchase price.
So, do you ever want to sell a property? Yes, because at times you want to get rid of problem houses: attracting difficult tenants, difficult to let as too rural or too quirky. You may also want to release equity to pay for further investments, refurbs or your own living expenses. The good thing is that you are in control: you benefit from any capital appreciation and rental income.
If you buy a 100K house and put down a 25K deposit (bank lends you 75%) then the likelihood of it being worth double in the future is high. Let’s say 10 years down the line, the house is worth 200K and provided that you have not remortgaged it during that time to release equity, your mortgage would still be 75K (interest only). However, the equity in your house is now not 25K but 125K. Do you know anyone who can easily save 100K? This also has the added benefit of reducing your mortgage to less than 40% of the total house price. Do you think it might be easy for you to release more equity with a (tax free) loan or get another mortgage with an excellent interest rate as the risk for the bank is very low.
Now imagine that you have bought several houses – what are your savings now worth?
| This is magical in my |
opinion; just think about
this for a minute.