High Equity Mortgage

Large equity mortgage

Hello, I wanted to pick people's brains before I arranged a new mortgage. Borrowed capital / equity capital quota for real estate investments - what is right? This is a frequent predicament for real estate investors: Well, now that I've begun building my BTL pipeline and made some equity capital gains; should I extract the excess equity and re-invest through funding or keep it there to lower the debt/equity capital ratios and instead reap some of the ever-increasing cash flow advantages?

Among other things, we take into account our debt/equity capital ratios. It is easy to determine the leverage ratio: In fact, they are two different computations that say the same thing actually, so some may choose to use the debt/equity ration and others the LTV instead...it doesn't matter so much which one to use, but it should be something we look at regularly when evaluating our real estate KPIs.

The following is a general guideline: the higher the outcome, the higher the indebtedness and thus the higher the possible risks. E.g. Mark Alexander of 118 Properties has some opinions on this subject and I have been reading about his personality philosophy.... and he has been in the properties a LONG TO DELAY so have a lot of experiance.

E.g. he maximizes his LTV (within reason) BUT instead of letting all the money bound in tiles and mortars, he has a certain amount of money, i.e. currency equal to 20% of his entire mortgage indebtedness put aside at a given point in fore. At the other side I have been told by some investor, like Rob Bence from RMP Property & The Property Hub, who say they will keep forever and fund every x years.... I also go into this stock, but I won't exhaust my debt/equity ration either.

When I can re-finance any real estate every 5 years up to 75% LTV (debt / equity of 3). Then, due to the inherent renewal cycles distributed over a period of years, some will have lower asset -liability ratings (or debt/equity ratios) in the portfolios when a new one emerges for refinancing.

That means my mean debt/equity capital ratios are probably around 2 (LTV 67%). Then I would re-invest the equity freed up to purchase more real estate and use more leveraging to increase my wealth basis. I' m also still in the growing stage and so in this case a higher LTV or debt/equity rate may occur more often.

The LTV or debt/equity ratios may fall during the period of consolidated or even phased out operations, and may do so. A lot of people say that 60% is a convenient LTV (debt / equity ratio: 1.5) across a whole asset class, in the period of consolidating with maybe 50% LTV (debt / equity ratio: 1) in output.

Exits could involve passing on to the next generations and a recipient of a real estate portfolios is likely to be able to obtain funding at 50% LTV, or if not, half could be sold to keep half - a useful generality there. Attitudes to risks are another very peculiar aspect - I recently talked to an owner of a mortgage-free home and he thought that 50% LTV (debt/equity ratio: 1) is a high level of risks, while some people don't think anything of 80%+ LTV (debt/equity ratio: 4+).

However, I would take a look at the long-term trend and suggest that an LTV of 50%-60%, corresponding to an equity capital quota of 1 in 1.5, should be enough to avoid most correction in the year. Now that he has established the asset base, he will let the mortgage expire of course and select which real estate to buy each year to finance this year's cruises or cars.

It enters the stage of "exit". Here the basic premise is that mortgage indebtedness does not grow and thus progressively falls over the course of times due to its debt/equity ratios as housing costs go up. Furthermore, he will see an improved cash flow with rising rentals and continued mortgage balance (also depending on the interest rate level).

Real estate sales offer extra endowment, but there may be a levy payable on all equity gain, which is different from options one and two where no levy is payable on debts that have been cleared by remoortgaging. Perhaps this ultimate policy is the least risky, but it is also the one that is most appropriate once a targeted asset value is reached, unless the deposits come from other places such as saving.

The third way to manage the debt/equity ratios is therefore to progressively reduce the rate of credit, use home equity rate headwinds to reduce the debt/equity ratios and maximise the equity and cash flow of each and every asset. That gives the three most important permutations to this riddle... the "right" one, as I mentioned before, is the one that suits our own agenda... objectives, finances, risk appetite and our phase on the way to the real estate portfolios - so we have one choice to manage the leverage for us "more correctly" than another.

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