Most of us were brought up to believe that, come adulthood, paying off the mortgage on your home is a good idea – right up there with eating your five-a-day and paying your bills on time. At least this way, you’ll have a roof over your head or something tangible to fall back on if you hit financial turbulence.
There is undoubtedly a sense of security that comes with having no mortgage on the house you live in, and it is a very sensible goal for retirement. However, the downside is that it means a significant amount of capital, and probably your net worth, is being used in an unproductive way. It’s not generating any revenue, earning zero interest as a totally sterile asset and, basically, not working for you at all.
If you’ve owned your home for many years, it’s likely you’ve got a mortgage that either represents a small percentage of the value of your property, or you have no mortgage at all. If you’ve ever considered investing in property, whether that’s to supplement/replace your income, or generate a boost to your pension, the equity in your home is the single biggest opportunity for many people to raise the finances (ruling out robbing a bank or winning the lottery).
Releasing a percentage of the value of your property can provide the funding to use on other more productive investments. Now here comes the ‘but’. Nobody is suggesting (and if they are, don’t listen) that it’s a good idea to release as much equity as possible from your existing property to fund a more extravagant lifestyle. Nor should you put this money into other investments where there is either a medium or high degree of risk.
However, if you’re taking money out to invest in property that will generate more income than the cost of borrowing, this is ‘good debt’ – debt that produces an income over and above the cost of borrowing.
It’s generally possible to release capital from existing property at a cost of between 3.5% and 5%. If that same capital can be put to work in a relatively safe way and generate a return of, let’s say, 15% or more (as is the case with a PPP property franchise), then for every £100,000 reinvested, you could be making an additional £10,000 extra annual income. This is a strategy that over 300 other intelligent, like-minded people are doing right now.
If you take a specialist buy-to-let (BTL) investment model where 75% of the BTL property is mortgaged, you have to find 25% for the deposit, legal fees and any refurbishment you do. Done properly– a specialist BTL investment can be a secure, low-risk investment and a great way to generate both income and capital growth.
All the evidence says that over the long-term, property is a good investment, but the key issue to really improve both the returns and reduce the risk is to ensure that you’re getting a high level of income, with the potential of capital growth as an added bonus.
That’s the trickiest thing to achieve, but it can be done: Platinum Property Partners (PPP) will add value to your property and help you maximise your gross rental income by using a tried, tested and proven system.
Releasing equity, if you have it, can be a great way of giving you financial options that may otherwise not be open to you.
For more information about how PPP could help you reinvest your equity to maximise its potential, please contact us.