With returns from Buy-to-Let investments beating low returns from bank and building society savings accounts, Buy-to-Let could be an excellent option for investors, especially those who are cash rich.
However, have you thought about whether to buy your investment property with cash or with a mortgage?
Buying with cash has its advantages, as cash buyers can be attractive to someone looking for a quick sale without the hassle of a chain, and the risk that brings to a vendor. Cash buyers also do not have to consider mortgage interest rates, and the impact fluctuating rates might have on their investment.
On the other hand, buying with a mortgage can allow you to spread your cash over a number of properties, and generate more income relative to your investment. Spreading your cash over a number of properties also spreads your risk. For instance a vacant property or a missed payment from a tenant would have a reduced impact on your overall investment if you had a portfolio of properties.
For instance: £150,000 to invest, typical annual gross yield of 5%
Option 1: Buy with cash
Purchase one property, annual gross income of £7,500. Capital value = £150,000
Option 2: Buy with a Buy-to-Let mortgage
Purchase three properties, each with £50,000 cash and 66% Buy-to-Let mortgage, with 4.5% interest-only loans.
Annual rental income of £22,500 – mortgage interest of £13,500 = annual gross income of £9,000
Capital value = £450,000
With option 2, the potential returns from capital growth are much larger. In Shrewsbury house prices have risen on average by approximately 1.5% from one year ago, according to property website Zoopla. This means that after one year, capital value in option 1 would be £152,250. In option 2, capital value would be £456,750 after one year.
To make sure you are making your money work hard for you with a Buy-to-Let investment, talk to the property experts at Belvoir Shrewsbury today. Belvoir can advise on what to buy, where to buy and how much to spend. Contact the office for an informal appointment with Paul Wallace-Tarry, and make sure that you are investing your money wisely.
