What’s The Safest and Cheapest Way To Fund A Buy To Let Property? Why Remortgaging Of Course!
Over the last decade, the ‘buy to let’ mortgage market in the UK has boomed. More and more landlords have entered the market, attracted by the investment opportunities offered by property. Many landlords remortgaged their portfolio to generate additional cash for further property purchases and it was only with the global financial crisis that it became clear that some landlords simply couldn’t manage their debt.
Horror stories told by many novice landlords should not necessarily put you off buying investment property in the future, but many landlords have cautionary tales about property buying which should be heeded.
Whilst it may not be as booming a market as it was in the early 2000s, buy to let property still offers excellent opportunities to make money. However, if you are planning to remortgage your own home to fund an investment purchase, or you plan to refinance existing investment properties to expand your portfolio, it is worth bearing in mind the mistakes made by many over recent years.
It is no surprise that many people fell into the trap when it was common for newspaper articles, television programmes and books to talk about how easy it was to make money by borrowing money against your own property to fund a buy to let. The problem was that people were careless and borrowed more than they could afford to repay.
If you are planning to expand your property portfolio through a remortgage, it is vital that you avoid some of these basic errors. The first point to bear in mind is that property is cyclical and that there will be periods where the going is very good as well as times when things are more difficult.
When the property market is booming it may seem like a good time to expand your property portfolio. However, it is also the idea time to use your surplus cash to reduce the borrowings on your properties. This puts you in a much stronger position when the market turns against you as you will have less debt to service.
In addition, it is worth making sure that you have a varied tenant base. Lots of landlords have relied on young professionals over the last decade or so whilst others have specialized in student properties. Having a diverse property portfolio and diverse tenant’s means you are less likely to be affected by a downturn in one specific area, such as a reduction in student numbers.
Students are particularly high risk, as their plans can change regularly and very quickly, so you may find that tenants leave without notice and suddenly. It is always a good idea to get details of whomever if paying the rent so that you have some form of backup if this happens.
It is vital that you consider how your property business will fare in both good and bad times. If you do plenty of research and know your market well, you are likely to be in a better position to maintain your business and to grow your income and capital over the medium to long term.
If you plan to remortgage your home in order to make a quick profit from property then you would be wise to rethink your plans. Unless the property market is booming it can be tough to make easy money through buy to let investment. A long term approach to business and a careful consideration of your investment strategy is likely to pay much greater dividends in the long run.
Timothy Frodsham writes for JustRemortgages.com one of the UK’s top sites for the latest remortgage rates and best remortgage deals.