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