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Financing Options

Key to building any kind of property portfolio is having the funding in place to do so.

As they say in the property market "Cash is King"

Personal circumstance and your portfolio ambitions will dictate the type of funding most appropriate for you to seek. If you are in a position to fund the entire purchase yourself then head straight to the "building a portfolio" section for advice on getting started.

Alternatively, if like most prospective landlords you require initial or incremental borrowing to grow your business then read on for a number of the options most readily available to you.

1. Personal Buy-To-Let Mortgage

Generally buy-to-let (BTL) mortgages will require a deposit of 15-25% of the purchase price but this can vary depending on the lender and product. A typical requirement for lending is that the rental income equates to approximately 130% of the capital and interest repayment against the outstanding loan. BTL mortgages attract competitive interest rates although for the serious investor there are a number of limitations such as deposits and timescales to draw down the loan funds.

Full House recommends speaking with an independent financial advisor to assess the most appropriate BTL mortgage at the time of purchase.

Web-links:

www.moneysupermarket.com for independent online advice on BTL mortgages.

2. Property Hunting Fund or War Chest

Buy to let mortgages provide that all important purpose in giving you the ability to take the initial step up onto the rental property ladder. Although for many part time landlords or smaller scale developers it is hard to see beyond this medium to the other options on the market.

For prospective buyers with existing assets looking to build a substantial cash flow portfolio within a short space of time there are more flexible ways to finance your business.

To fully understand the benefits of setting up this type of finance you first need to get your head around the concept of making "your money" work best for you rather than having to spend your cash flow and savings on deposits each time an investment opportunity for your business arises.

Establishing a "hunting fund" is almost certainly the way to go if you have aspirations of moving beyond the 1 or 2 property level and building a broader property portfolio over a relatively short period of time.

If you are already in the property business with a rental portfolio or simply a home owner with a personal mortgage you will most likely have a certain amount of equity within your estate.
You can make this equity work for you to purchase additional properties which will generate a cash flow income for your business. This is the basis of the concept of making your money work for you by allowing your assets to finance the borrowing which in turn gives you the ability to start strengthening your portfolio.

Not all high street banks will offer this facility, there are only a few banks in Edinburgh and central Scotland that offer this service.

Basic Principals:
Lets say you own 2 properties jointly worth £500k, your equity within these stands at £200k.
Your lender takes a 2nd security over these properties therefore allowing you to borrow against your equity.
Borrowing maximum @ 75% of your total equity = £150k.
For each property you buy a 20% deposit is secured out of the £150k.
Each rental property must again meet standard lending requirements of 130% return against the loan repayment.
Therefore you could buy seven £100k rental properties taking you to £140k of your equity secured as deposits against your enhanced portfolio.

Key Benefits:
100% > loan to property value.
You can cover legal, furnishing and advertising costs.
Dedicated business manager.
Funds available quickly giving you more negotiating power.
You always know how much you have available and at what rates.

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