Lots of people like to create a property portfolio as a means of funding their retirement.
Not everybody likes to use a pension plan, but they do understand how the property market works. I know that over the past 20 or 30 years it has been a very strong long term investment, despite the ups and downs.
In this case study, we will take a look at one way we helped a customer to take her initial steps to becoming a Landlord.
Carol is a self-employed mum with two children, and she is a Director of two small businesses in the Hull area. She and her partner had quite a lot of equity in their home and were interested in raising some capital in order to purchase a low value buy to let property, potentially at an auction.
Carol felt that she was able to get some bargains at auctions, but she never had the money to attend one of these as a cash buyer.
She looked into the possibility of Remortgaging her house in Hull in order to do this, but had been told previously that it wasn’t possible unless they could provide an address for property they were looking to buy once they’d done this – a proverbial “chicken and egg” scenario.
Carol also mentioned that once or twice a year, she would receive a dividend somewhere within the region of £3000, from one of the companies she was in partnership with. She also mentioned that she had been prone to wasting some of that cash when she received it, perhaps unexpectedly.
I could tell that Carol was always very busy, but also a very savvy businesswoman. The dividends she received could easily be put towards an investment, as there was never anything she was specifically spending it on.
I recommended that she take out an offset Remortgage in Hull that Carol and her partner could secure against their home.
I found a Lender who was more than happy to release funds on completion, in order for it to be assigned to a future buy to let purchase (without wanting to know the address of the specific property).
Carol simply deposited the additional funds into the offset savings account that you get with that type of mortgage, and left the money to sit there until she needed it.
The offset savings accounts will not attract interest, though it is instead offset against your mortgage balance.
To clarify, Carol had £85,000 surplus funds from a overall remortgage of £215,000. While the money is sitting in the savings account, Carol only has to pay interest on the £130,000 difference between the two figures.
The £85,000 is on instant access and was available to jump into at any point in time.
Three months after her remortgage had completed, Carol found a suitable property that was in a state of disrepair. It was likely not able to have a mortgage on it itself, but Carol had saved up enough funds to buy the house outright.
Carol secured the property at a knock-down price of £55,000, but this amount needed to be brought up to the total of £70,000 to cover all of the legal costs and a refurbishment program of works.
A further nine months went by, and with all of the work completed, Carol had no trouble finding a tenant to start paying rent. The house was now worth around £90,000, and we were able to raise a remortgage of £67,500 against it to help fund the purchase of a second buy to let property.
Carol has no intention of changing career paths and becoming a full-time Landlord, but she can now see a way into the future where she might own three or maybe even four properties in the future, as a way of funding her retirement plans.
She loves the flexibility that her offset mortgage allows her to have, and while she may still ‘squander’ some of her dividend from time to time, which she is free to do, without fail, half of it at least is deposited back into her offset savings account each time. This means her money will essentially “do the work for her”, reducing the overall amount of interest that is repayable on the mortgage.
If you are interested in offset mortgages or building your investment property portfolio, please feel free to book a free mortgage appointment. Our Mortgage Advisors in Hull will be happy to help you in any way they can.