We all have a finite amount of cash, and that puts a ceiling on the total size of your portfolio: when the money for deposits runs out, the only way to buy more is to hope the market rises so you can refinance.
Unless, that is, you “recycle your cash” – which is really nothing more than either buying below market value or forcing the appreciation (or both). It’s harder work than just buying a top-notch property at full market value, but it’s the route to capital preservation – and puts you in control of when you scale.
In this episode, we discuss…
- The two main, inter-related mechanisms that underpin recycling your cash
- The timeframe in which you can typically refinance
- How to finance this type of project
- The barriers to doing it successfully
- Why it’s so worthwhile
We also shared an example to explain the general concept:
- You buy a property for £100,000 by putting in a £25,000 deposit and taking out a 75% loan-to-value mortgage with Lender A for £75,000.
- Later, you get the property revalued at £133,500, allowing you to take out a mortgage for 75% of the new value from Lender B – which works out to a loan of £100,000.
- You pay the original £75,000 back to Lender A and put your initial £25,000 back in the bank to use again.
This lowers your cashflow (because higher mortgage = higher interest payments) but increases your ROI (because you have less money left in), and leaves your loan-to-value ratio unaffected.
And most importantly it allows you to build a larger portfolio because you won’t need to find so much money for deposits.
Resource of the week
We’ve shared lots of handy Gmail extensions in the past: little browser add-ons that allow you to do cool things like see who’s opened your emails, and schedule meetings with ease.
Mixmax is a new super-extension that combines the functionality of many of the tools we’ve talked about in the past – and plenty more besides – all in one place.
News this week
Divorce cases are being re-opened due to the property boom, reports The Telegraph.
It’s a touch depressing, but does raise some interesting concerns around the structure in which properties are bought and how to divorce-proof your portfolio.
It’s meetup o’clock!
We’re holding a long-overdue London meetup on 23rd July 2015 from 6-8pm, just a few minutes from King’s Cross station.
Tickets are free, and to get one you need to be a Property Hub member – which is also free. So no excuses not to join us then!
Join the conversation
Have you got any projects to share where you’ve successfully recycled your cash?
Any questions based on this week’s episode?
We’d love to know, so join the discussion in The Property Hub!
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