How You Can Maximise Your Equity and Expand Your Property Portfolio
What if I were to tell you that you could move house WITHOUT selling your home?
Okay what if I told you that you can move house without selling your home AND you also avoid incurring selling fees?
What.. pray tell… would you say if I were to tell you that you could invest in property even if you didn’t have enough liquid cash to invest?
Okay… Now… What if I told you that you could:
- Move house without selling your home
- Avoid incurring selling costs
- Invest in property even if you don’t have liquid funds to invest
And you could do all of the above AT THE EXACT SAME TIME!!!!
Too good to be true? Think again! This is a tried and tested strategy to help you move home and also get a foothold on your future property portfolio.
So how does it work then? As the great Morpheus once said,
“You take the blue pill, the story ends; you wake up in your bed and believe whatever you want to believe.
You take the red pill, you stay in Wonderland and I show you how deep the rabbit hole goes….“
Okay then let’s take you from property tycoon zero to hero! In this section I’ll explain the process and the key things you need to consider before starting down the journey.
The absolute number one thing that you need to get this strategy off the ground, is a house. And preferably a house with a lot of equity (but we’ll get to the finer points later). You’ll also need to have – it goes without saying – the desire to live in a different house.
What you’ll be doing is simple:
- Raise capital against your old house using existing equity
- You keep your existing home – but you rent it out
- Buy a new house with your newly released equity
- Pay some stamp duty
- Relax, safe in the knowledge you just bump-started your property investment portfolio
Here’s the steps in more detail…
Step 1 – Convert Your Mortgage / Release Equity
If you have a mortgage on your existing home it’ll be a residential mortgage. It’s highly unlikely that the terms of your mortgage will permit you to let out your property to paying tenants.
You’ll need to get round this by converting your existing mortgage to a buy-to-let mortgage. This is called ‘Let-To-Buy’ and is a well established practice.
Most Let-To-Buy mortgages are interest only, which helps keep your repayments lower, although the rates may be a little higher than you pay on a residential mortgage which is important to consider (see step 3).
Usually you’ll be offered a maximum loan to value of 75%, which (other than your requirement to finance the deposit on your new home) is why you need to have a respectable amount of equity for this to work well.
Also, be careful if you’re within your fixed rate mortgage period as you may well need to pay early repayment charges, this will eat away at your equity. Buy your local mortgage advisor a beer and they’ll be happy to advise you on this.
*inset gif or image of Paul at the pub with beer winking* ?
Finally, lenders often have a maximum age of 70 for applicants to this type of mortgage.
Step 2 – Buy a New House
If you’re renting out your current property then you’ll need to live somewhere else. Because you’re a savvy property tycoon you would of course already made sure that you’d have released enough equity to fund the deposit for your new dream home.
You’ll need to find a new home and arrange a mortgage in the usual way.
One difference here is that since you are buying a second home, you’ll be liable to pay a stamp duty surcharge on your new property. This amounts to the normal stamp duty that you’ll pay plus 3%, but don’t forget you won’t need to pay any house selling fees.
Bear in mind that it is often a lender requirement to provide evidence of your onward purchase.
Step 3 – Rent Out Your Old House
You’ll need to consider (before the process begins of course) the rental value of your current home. The buy-to-let rules have changed in recent years and most lenders require your rental income to be greater than your mortgage repayments.
Since you’ll be becoming a landlord you’ll need to think about all the things a landlord needs to think about. Aside from the affordability of your mortgage repayments, you’ll need to consider:
- Landlords insurance premiums
- Letting agent’s fees (if using a letting agent of course).
- Additional income tax payable on your rental income.
- Rental demand in your local area.
So you’ll need to factor in the above when deciding whether this strategy is right for you. Of course, if you can command a high enough rental yield you’ll be taking the first steps to building your property empire.
Other Things to Consider
Before you start buying yachts in the Mediterranean and naming them after your cat, you might want to think about the below real quick:
This strategy enables you to buy a new home whilst at the same time, keeping your old home. It’s fantastic! But you’ll also need to remember that you’ll be taking on two mortgages.
Now if you’ve done all your due diligence and have assessed the profitability of your rental yield and the strength of rental demand in your area, you can feel confident that your mortgage will be covered by the rental payments. So no worries there then.
As well as two mortgages, you’ll also be the proud owner of two homes (funnily enough!). That means that you’ll double your exposure to the fluctuations in house prices. This is a double edged sword so whilst it’s bad news if prices go down, you’ll be rewarded handsomely if prices rise.
Again, it’s important to do your own due diligence and research to satisfy yourself that you think it more likely than not that house prices will rise rather than fall over the medium to long term.
It is of course hard to know whether you’re getting bad advice if you’re new or inexperienced in a certain field. So avoid this risk by investing your time with a great advisor. Make sure you do your due diligence and research on your mortgage broker and any other professionals you use.
Want to Move But Like Your Home? Keep It!
So there you have it, a simple strategy for you to move whilst keeping your existing home and kickstarting your property investment career all in one go. All of the above is simple, but can be a bit more work, so why should you consider it?
Keep Your House:
Do you like your house? Of course you do! That’s why you bought it in the first place! Well you can keep it, and still move into your dream house by the sea, or wherever your dream house is located…
Avoid Selling Fees
Of course another big advantage of not selling a house is that you don’t have to pay solicitors fees and other costs associated with selling your house. So whilst you may pay a little more in stamp duty, you avoid the other costs, and did I mention that you get to keep your home?! What a boon!
You Can Buy with Little to No Cash
Don’t have much in the way of liquid assets? Is all your wealth tied up in your home? This strategy helps you maximise this asset by releasing some of that equity in liquid form enabling you to buy your next home.
P.S. You also get to keep your existing home! What a win!
Become a Property Magnate
One distinct advantage of becoming a property magnate is that you get to call yourself a property magnate. So start the printing press whirring on those business cards…
If investing in property has been on your to do list for a while then this is a great way to kick start your investment career.
Plus you get to keep your current home! Which is great because we’ve already established that you like your current home.
Keep Your Current Home
Yes I know, I’ve already said this one, but it’s such a great thing that I thought it’s worth while saying again.
Unleash Your Inner Property Tycoon
Whether you see yourself as an investor, or are just looking to move fast into your new home. Let-to-buy mortgages can be your pathway to happiness.