Buy to Let Cash or Mortgage?
Buy to Let Cash or Mortgage? By Malcolm Davidson
I’ve got a lump sum of money, shall I purchase a buy to let with cash or buy several with buy to let mortgages?…
Shall I Buy to Let Cash or Mortgage?
If the market conditions are favourable then often you will find that Investors that normally pay cash switch their attention to splitting their investment over 2 or 3 properties using Buy to Let mortgages.
Examples of what I mean by favourable market conditions are low property prices, low interest rates and high tenant demand. If you are really lucky then all 3 of these can happen at the same time!
Many UK Buy to Let Landlords prefer the mortgage route for a number of reasons.
Firstly, it stands to reason that by spreading your investment allows you to grow your property portfolio faster than if you were paying cash each time.
Secondly, as mentioned elsewhere, a Landlord is able to offset mortgage interest against his/her tax liability each year.
Put simply, the higher their mortgage debt the more interest they pay and the more interest they pay the lower the tax bill.
Even the shrewdest of Landlord will sometimes buy a property at the wrong time and it could go down in value but property should be viewed as a long-term investment and history tells us that over a long enough period of time prices recover and profit made.
If you believe in this theory then it is better to own 3 properties than 1 as shown in the above example.
Lastly on this subject, although you will have mortgages to pay, you are spreading the risk of tenancy voids because you would be unlucky to lose all 3 tenants at the same time.
If you had only purchased one property then your entire income stops the day the tenancy moves out and the monthly return on your investment will only re-start when you have replaced them.
A trend has developed in the last few years whereby Buy to Let investors are looking to make a profit each month on each property where in the past when tenant demand was lower they were satisfied just to cover their costs with a view to long-term capital growth.
Please click here to read my buy to let mortgage section of this website.
For a free buy to let mortgage review then please get in touch.
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Malcolm Davidson – Mortgage Broker
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