Borrowing for Investment PropertyLoans raised for investment property
Most real estate buyers begin their real estate investment trip by using the available capital in their home as a security for their first buy-to-lease property. Let's say you purchased your house for 100,000 ten years ago and you did it with a 20,000 pound investment and a 80,000 pound redemption mortgages.
Assuming a 4.5% interest on your loan (and we expect it to remain the same over the term of the loan), your annuity would be around £5,340. In the ten years you have paid back around 22,000 of your initial 80,000 pounds of borrowing. Now if your house is £200,000 in value, your entire capital is £142,000 (the value less the amount you still owe).
For example, with a loan-to-value of 70% is the maximal amount of capital you can free from home: When you do this, with a loan-to-value of 70% on a buy-to-lease mortgages you can finance a real estate investment of 273,000 (with a buy-to-lease mortgages of 191,000).
When you buy outside the purchase schedule, you usually buy with a rebate on the fair value, which is the value computed on the date of purchase. Expenditure of 273,000 has purchased a property worth 303,000. Once the value of your property rises by 10% before completion, your property will have a value of around £330,000.
If your property has gained another 15% in value after a few years, it will now be valued at around £380,000. Keep in mind that your buy-to-lease mortgages are £191,000. Your entire investment property now has £189,000 own capital. A 70% loan-to-value allows you to free up 75,000 and finance the acquisition of a second buy-to-lease property at a cost of 250,000 pounds (with another 175,000 pound buy-to-lease mortgage).
Turn this second investment into another off-plan property, and once again you profit from a rebate and an increased property value between the time of sale and the time of construction. When house values rise, flush and replicate easily by freeing up capital and credit to make investments. Soon you could have a multiple property real estate asset with a high value, a good capital cushion and a net profit.