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How to increase your property investment faster

buy to let Nov 21, 2016

THE QUESTION

In various interviews and strategies there is a fairly heavy reliance on buying BMV and recycling your cash quickly to multiply your portfolio and increase cash flow. This doesn't only seem to be theory, but what lots of investors are actually doing.

How is this achieved? Are people buying with cash and then able to get a BTL mortgage as soon as they like? 

I guess another option is that some are using bridging until they've done the work and then getting the mortgage at the new higher value?

What are the options for those who simply want to use standard BTL mortgages? Would there be many with no ERC? If you use these to remortgage after 6 months after adding value, will the banks start to get annoyed? If that's the case is really the only option to wait out the 2 years and remortgage then? It seems like that will slow things down quite dramatically.

THE ANSWER

Building a portfolio traditionally can be a very slow process. Buy a property, put 25% deposit down, wait for the market to increase while you save up another 25% deposit before the first property has increased enough for you to refinance and take some cash is an exceptionally slow way to build a portfolio. Savvy investors know that you can accelerate this by being more creative in both what you do with a property once you have bought it and choosing which type of property to buy in the first place,

You are correct, in that you can buy property BMV, or even at market value sometimes; refurb the property to forcibly increase the value over a short period of time; then refinance onto a mortgage at the higher value you have created. If you can uplift the value sufficiently (whether bought BMV or not) you can recycle at least most of your cash.

The advantage when you use either of these methods is transparency. With cash, there is no lender to answer to, although you may use a private person’s money if not your own cash and they would want to be clear on your intentions. Bridgers expect you to repay them within months, either by selling or refinancing the property.

You can use both of the above methods as often as you can find a great deal and build your portfolio and wealth at an accelerated rate. This is not just theory; I put this into practice daily with the investors I act for.

However, you also hit on the other way investors execute this strategy, buy with a BTL mortgage, uplift the value, redeem the first BTL mortgage and replace with a new BTL mortgage. This is prevalent, not least because it is taught on many property education programmes as the way to recycle your cash.

There are a few, but not many, no ERC BTL mortgage products available.

Is there an inherent risk in repeatedly redeeming BTL mortgages within months of taking them out? Consider the points below when you evaluate the risk

  • Mortgages have a minimum 5 year term and you are required on the application form of any lender to state the term you want the mortgage to run. If your clear intent is to redeem it within a few months, you cannot be transparent. If you answer anything less than 5 years, you will be declined. Thus to get the mortgage, you have to deceive the lender as to your true intent.
  • Every mortgage transaction is fully documented on your credit file, including both the start and redemption date. So you are creating a clear audit trail that any lender can see whenever you apply for a mortgage of your conduct on every previous mortgage you have taken out going back years.
  • Mortgages redeemed within months of taking them out are not profitable for a lender. They do not expect you to keep their mortgage for 20 years but every lender will have stats detailing the average life of their mortgage products. The rates, set up and redemption charges will be geared around the life expectancy their stats dictate.
  • BTL lenders have a track record of altering their lending criteria (moving the goalposts) to reduce risks they perceive are harmful to their interests. Witness the introduction of the 6 month ownership restriction and detailed analysis of the source of the borrowers deposit to name but two.
  • It is conceivable that, at any future point, BTL lenders could harden the stance they take towards serial early redeemers.
  • Those investors with an audit trail of early redemptions on their credit file could find themselves unmortgageable overnight

Sitting out your two-year deal would be one way to avoid the above risks, but clearly that would slow down your portfolio building dramatically. However ,there are also one-year mortgage deals that would reduce that time somewhat although still slow. Cash or bridging are the real, transparent ways to accelerate your portfolio building.

 

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