We often hear of compounding interest rates and the power of these in conventional investments: over a few decades, a modest sum of money can become a rather large sum of money, when the effects of compounding interest take effect.
There’s a somewhat similar technique that we’ve seen investors do, and it can take a single property and turn it into a super-sized portfolio in a matter of years. In fact, it’s an easily overlooked strategy that–carefully planned–yields tremendous results.
What kind of strategy could explode a portfolio and quickly amass large sums of money?
It’s entirely legitimate, and the best way to leverage the value of a property investments. We always talk about property needing to have a high rental yield, and this is predicated on the key idea that a property investment is there to work for you. And there’s no better way to make it work than using equity. The effects of leveraging equity in a property can be startling.
Here’s an example:
The first-time investor buys a property in a location that offers high rental yield and strong capital appreciation. ( is one such hotspot at present.)
A buyer would only need a GBP30,000 deposit to buy in the most affordable, fastest-appreciating location in the UK, the Midlands, to get a foot on the property ladder.
Let’s use, as an example, a property costing GBP100,000, which is already 15% below market value (due to a builder discount), so is therefore worth GBP115,000.
Based on the current growth projections in the Midlands of 7% per annum, with expected growth of 15-20% over the next five years, we can conservatively assume a growth figure of circa 20% five years down the line.
This means that the at 20% growth, the property would be worth GBP138,000, with a cash equity of GBP68,000 (calculated with a value of 138k less 70k of mortgage).
By re-mortgaging, this equity of 68k is unlocked and becomes available within 5 – 6 years–and can be used as the deposit on a second buy-to-let property. The original property still belongs to you, of course, and continues to make use of the sitting tenant who pays the mortgage off over a longer period of time.
By repeating the same process, over a subsequent period of 5 – 10 years, two or more additional properties enter the portfolio, thereby greatly bolstering its value.
This means an initial investment of 30k can be leveraged into a portfolio value of over ten times that amount in the medium term.
If you’re interested in seeing how we can help move up the property ladder–while avoiding the snakes along the way–don’t hesitate to reach out to us for a conversation to see what we can do to help with your financial strategies and planning for retirement.