How To Use Equity To Buy Investment Property | Property Investment Education


Equity is the difference between the price
paid for a property and the current value. Let’s say, you bought your home 7 years
ago for 150,000. And just recently you have noticed that other properties selling in your
street for 200,000. That means you have potentially got 50,000 of equity in your current home. Let’s also say that you purchased that home
with a 10% deposit meaning you have got a mortgage for 135,000. So if you sold the property
for 200,000, you will receive 65,000 less your selling fees, which includes your 15,000
deposit plus your 50,000 in equity. With me so far? So how do you use the equity which you have
gained in your home, without having to move and sell it? Stick with me and I’ll tell
you. Hi, I’m Andy Walker from monoperty.com where
I blog online about my journey as a property investor and landlord, sharing what works
for me, and what doesn’t, to help you start or expand your property portfolio. There are 2 methods that you may be able to
consider to release any equity from your home: Firstly, you can look to refinance or in other
words remortgage. And whether you decide to extract cash to invest in another property
or not, it is still worth reviewing your current mortgage over time because there may be better
products than the one you currently have. You may be able to find a cheaper product
which will allow you to repay your mortgage more quickly, or you may just be able to fix
your interest rate for a longer period of time which will give you more certainty over
the next 2 – 5 years. Anyway I digress, lets assume that you would like to invest in another
property. First of all you need to approach a mortgage
lender, and I would recommend doing this through a broker as they’ll find a lender that best
matches your needs and they’ll assist you through the whole process. You then need to have a valuation carried
out on your home, and this will cost somewhere around 2-400 pounds here in the UK. Now, you
will already know that prices have risen in your area and your broker will have already
qualified you with potential lenders, so although the valuation fees are non refundable it should
be money well spent. Once the valuation is complete, the mortgage
lender will then provide you with some mortgage products for you to chose from and you can
then spend some time thinking about your options and deciding what you would like to do. Of
course, some mortgage products will have higher application fees and interest rates than others
and you will probably have a choice of fixed, tracker or variable rates to choose from,
so you there’ll be a lot to consider. Using the same example, let’s say that you
would like to extract 25,000 so that you can use 20,000 as a deposit to buy an investment
property and have 5,000 to cover your purchasing fees plus any items that you may need. You
will then have a mortgage of 160,000 on a property valued at 200,000 meaning you’ll
have a better loan to value of 80% as opposed to when you first purchased the property at
a loan to value 90%. Once you have selected the mortgage product
that you would like, you will then need to appoint a solicitor or conveyancer to handle
the transaction and you can expect to pay somewhere in the region of £500 for this
service here in the UK. Once the transaction is complete, your previous
mortgage will be repaid, your new mortgage will be in place, and the balance will be
paid directly into your bank account which is tax free because it’s a loan. You can
then spend that cash on whatever you like. New car, luxury holiday, clothes, jewellery
… don’t do that! I recommend using the money as a deposit to
buy an investment property. You can use my Getting Started Playlist for guidance to assist
you in getting a good property that’s in demand on the rental market. Provided you buy well, your net profit on
your new rental property will cover the extra mortgage payment you now have on your home
for extracting the 25,000, whilst still leaving you some cash to enjoy. If you would like
a new car, or a luxury holiday, now is a better time to consider it because you will have
profit coming in from your rental income which can pay for it. And guess what, once that
car or holiday is paid for, you’ll still have that income stream coming from your investment
property. That’s the way to do it. The second method that may be available to
you for extracting equity from your home is additional borrowing. This is where your current
mortgage lender agrees a further advance which is typically at a different rate to your main
mortgage. This option will work well if you don’t
want to switch lenders or if there offer is more competitive. And people often use this
to fund home improvements, as well as raising a deposit for investment properties. You will still need to pay for the valuation
of your home, but you will be able to cut out the services of a conveyancer and mortgage
broker because you will be staying with the same lender. But I would still recommend doing
a comparison of the whole market so you know you have the best product that’s available
to you. Experienced property investors review their
portfolio regularly, at least every 6 months to keep an eye on their property values, and
they use the equity to grow their business whenever the opportunity presents itself.
Here’s a quick demonstration in a growing market: Year 1 you purchase your first investment
property. And maybe you do that by extracting equity from your home. In year 3 you then extract equity from property
number 1 to buy your investment property number 2. Year 6 you then extract equity from investment
properties 1 and 2 to purchase investment properties 3 and 4. And in year 9 you extract equity from investment
properties 1, 2, 3 and 4 to purchase investment properties 5, 6, 7 and 8. You can see how the model works. There comes
a point where it just snowballs and some people achieve financial freedom. And remember, this
chain of events started with the use of only 1 deposit. This is only a a rough example to give you
some inspiration, there may well be years where there won’t be any capital growth,
you won’t have any equity and you won’t be able to extract any cash. Some people will
not be able to achieve 8 properties in 9 years, but others will achieve more. Have you already considered using equity in
your home? Would you do it or would you prefer to look for another way of raising a deposit
to invest? Please let me know in the comment section below as I would like to know your
thoughts on this or head over to monoperty.com/equity. Please like and share this video if you found
it useful, and if it’s your first time visiting this channel, don’t leave until you have
clicked that subscribe button so you won’t mss any of my future videos which are all
geared towards helping you start or improve your property business. Thank you for watching,
enjoy the rest of your day, and I will see you in the next video. Bye for now. I have
problems with the word borrow, borrowing and profit …. profit ….. profit ……. profit
…… profit ….. prrrrrof lol!

33 Replies to “How To Use Equity To Buy Investment Property | Property Investment Education”

  1. 150,000 sounds like a steal of a deal for property as that amount is only down payment in the Silicon Valley. Great simple Visuals at the end, looks so easy to proooffiitqttts from that model. =) (nice outtakes too haha)

  2. that model is the "best case" scenario?
    you should also touch up on the worst case scenarios like in the event of housing market crash of 08' and what sort of contingency plans you'd deploy.
    i know people don't like talking about their losses, but it is a must.

  3. LOL I once knew a guy who took out equity to buy an old corvette. I think he's doing OK, but wasn't the smartest financial move.

  4. hi. my parents are pretty much done paying for their home. if i use their equity from their property to purchase rental property does this mean that they must know continue or start paying their bond for the amount/equity i took out?

  5. You have not mentioned S24 this method of BTLis very old hat not wise to do Now  ? Unless you do new Purchases via a Ltd Co

  6. Do you happen to know if you can extract equity if your property was originally mortgaged as shared ownership? I only own half of mine and would like to do so to start investing.

  7. is this apply in London areas? This is only my impression, but it would be interesting to hear form other about it.

    With house price rocketing, with equity of your home, say £60k, you will not be able to buy anything unless you move your attention in areas where buying is cheaper and consequently rental incomes will be lower.
    Considering the overage price for a 1bed flat is now close to £300000 within London zone 5 and 6, don't you think the house price are exceptionally increased leaving little chance to invest? Also the increase of stamp duty in 2014 and now a further increase SDLT for additional residential property (buy to let or second home) above £40k of 3%, represent an other obstacle to consider. So the question is: Should we start to consider moving business somewhere else?

  8. Does equity increase monthly payment?
    Let's say
    Property with a loan 300,000 – monthly payment 1000
    Equity loan 100,000 – monthly payment 800
    Total monthly payment = 1800
    Is my calculation correct?

  9. Good video thanks! I'm wondering how do you find good deals or areas that will increase equity enough in order to buy more properties? As I don't live in my own country anymore and have to speak a different language than my native one it makes it more difficult for me to identify these properties – would there be a professional I should seek help from or just try to learn the value of different areas and look for a "cheap deal"?

  10. I am in the forces and I have 4 rental properties I am going to now have a review and relies the equity to buy more. However the new tax law is putting me of a little but property is a long term investment and I'm sure in time it will change again.

  11. im looking into building a small 2 bed "house" in my parents large garden and letting it, i dont have any money but demand is really high in my area. could i remortgage my parents house with them and use the cash the bank gives to invest in the building cost?

  12. Super interesting, I'm at the early stages of getting into this after raising a second deposit since buying my first property. Would love to find out some more info from you, do you have an email address I can send some questions over to?

  13. Awesome videos Andy, this type of advice has helped give me the push I needed to keep investing using the suggested strategy with both my own home and my investment properties in developing areas like Trafford and Liverpool. Please keep up the good work!

  14. not sure i'd say a valuation fee is well spent, more has to be spent…. but what i did, buy, wait, remortgage, buy, wait, remortgage…

  15. Ive been left a house in a will and I want to borrow money on it to build property number two so was thinking of renting it out the people renting will pay the money I borrow and I can build number 2 what u reckon ?

  16. Great video. Just subscribed too. I've recently been looking into getting a home equity line of credit (not a loan) to replace my current mortgage on my own house. I'll pay all my bills and pay my my wage into this too to help reduce my principal balance. Would you recommend me doing this and do you know of how to go about this here in the UK?

  17. Great video you have answered all my questions, that I have been worried,also i'am worried about credit score,can this affect what level give you a chance,

  18. Hi Andy,! Thanks for your amazing videos…you really helped me understanding a lot of things that were really confusing to me. I'm about to buy a property to refurbish and wish to refinance in 6 months or a year to withdraw the equity I will add to it. I have question that I couldn't find a straight answer anywhere, may you can help! What kind of mortgage do I need? If I get a regular mortgage I will have to pay so many fees that it will not be with refinance in ,6 months. Basically I want to put money in and take money out of this deal as quick as possible but don't what type of mortgage will allow me to do it. Would you be able to help me with this one? Cheers !!! 🙂

  19. Monoperty, tell me is it better to buy a property outright or get a mortgage? What's the draw backs and benefits of doing this? I'm planing on buying my first home, but I'm holding off for a while and saving for it as I feel timid at the idea of going into negative equity. What's your opinion? Many thanks, Mickey.

  20. Maybe I'm being thick, but you're only putting deposits down on all the other houses. How would one manage a 90% LTV mortgages on all the houses? Do banks allow that if you dont have a day job?

  21. Thanks for the video.

    In regards to remortgaging to release equity, are there any increased mortgage rates etc? I'm assuming not, but I keep being told that if I remortgage to release equity I'll suffer and have to pay back a large % more than what I did with my previous mortgage and it's basically putting a rope around my neck.

    However, you and a number of other youtubers seem to suggest otherwise. I'm presuming the equity that they've released they've squandered on such things you mentioned in this video (holidays, clothes etc) rather than investing it?

    I obviously understand that mortgage repayments may go up as by releasing the equity you will be borrowing more (correct?), but not to the point in which you can't afford to repay it as you will then invest it in another property, let's say to rent and you use the money for the rental to cover the costs.

    Sorry, I am sort of repeating similar things to what you have said, however, I want to make sure I have this absolutely nailed down as I've been putting plans in place for the last 6 months to really get the ball in motion to start my own property portfolio.

    Thanks for taking the time to create the videos, and any comments would be greatly appreciated.

  22. Hi, I really like your videos as they provide a no nonsense, easy to understand approach. Please can you help me with something that I'm struggling to understand? I bought a house just over 6 years ago and it has generated approx £50k in equity through market growth and considerable home improvements etc. I approached a mortgage broker with a view to extracting this equity to use as a deposit to buy a second property to flip. My concern is understanding where the limit is regarding affordability and how lenders will calculate this. The broker assures me that I can afford but when I go online and use mortgage calculators it shows a much lower max borrowing limit, although these calculators do not give you the option to specify the full details such as buying a second property and the equity used in one property etc. Maybe I'm working it out incorrectly. Thanks.

  23. I'd like to buy a property using the help to buy scheme in London, but since I'm not really sure about how much is gonna be the amount of money I have to give to the government back since is a percentage loan the mortgage advisor told me that I can remortgage so with the amount of money that I get from the equity release I pay off the loan, do you think is a good move?

  24. I wish you'd upload more of these property videos. Your channel and website have been so valuable to me and I'm incredibly grateful. I'm sure many feel the same way

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