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Honey, I shrunk the deposit!

When it comes to investing in property the big challenge, especially for newbies, is getting enough money in the bank to pay that all important 25% deposit.  Depending on where you are buying property that can run to many thousands of pounds.

So what if you could trim that 25% down to nearer 10%?

Here’s the strategy:

Step 1:  Complete the purchase – using bridging finance rather than a BTL mortgage.  Some properties won’t be mortgageable anyway, but that doesn’t mean they’re a bad buy.

Step 2: A quick exchange of contracts.  This can be done as soon as your loan is approved and as soon as your solicitor is able to arrange it.  We should be talking days here, rather than weeks and certainly not months.

Step 3: Quick completion.  Again, that will be as fast as your solicitor is able to do it. Often this will be in 28 days or even quicker.

Step 4: Execute your exit strategy from the day of purchase.  This means if you’re planning to sell, put it on the market.  If you’re planning to hold it, you can begin the remortgaging process, with the right choice of lender.

This is how it works:

  1. Identify a suitable property that you want to buy.
  2. Get expert input to see if the deal stacks up.
  3. Complete an enquiry form with a brokerage (I can help you with that!)
  4. Get the bridging loan approved in principal.
  5. Lodge the deposit money with your solicitor.
  6. Exchange contracts and complete the legal process to complete.
  7. Proceed with sale or refinance.

This works for both buy-to-sell or buy-to-hold strategies.  A good rule-of-thumb to work on is that you sell the properties that need no work doing, but hold on to the ones that need refurbs.

The caveat to this is – as long as you are mortgageable.  If you’re unable to get a mortgage then you’re restricted to the buy-to-sell option.  Not being mortgageable doesn’t restrict you from buying and selling as you much as you want.

Shrinking the deposit down to way below the normal 25% has massive knock-on consequences, once you can fully absorb its implications. In short, it allows you to consider buying properties in significantly higher price brackets than you are used to; typically 200% - 300% higher.

For investors that do my workshop, it is fascinating for me to watch the penny drop with them, as the realisation that they are not governed by their available cash needing to equal a 25% deposit.

Think of it like this; you have £50,000 in cash to put down as a deposit. Typical Mortgage Buyer Mind-set thinking equates that to being a 25% deposit, so you limit yourself to researching properties you can buy for £200,000, putting down your £50,000 25% deposit and getting a £150,000 75% BTL mortgage for the balance of the purchase price.

Now adopt the more empowering Cash Buyer Mind-set which means, when you find the right property being sold by the right seller and can agree to buy it below its true current value, your £50,000 cash pile can easily equate to 10% of the purchase price, not 25%.

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