financing vs. cash purchase

Some of my clients invest in our properties for cash, other’s want to use finance.

What does this mean?

does it mean a cash buyer is wealthier? No, course it doesn’t…

Our mantra has always and will always be ‘to invest in property for high cash flow.’

So if your paying cash for a property that nets you £350 a month, and the property only costs £16k, the return is simply phenominal!

If you use finance to buy the same property your cash flow will be less as you have a mortgage to pay, lets say £200 a month – not bad!

However, your entry costs are massively reduced – by 80% in some cases. Using finance to buy property is a process called gearing in other words maximizing your buying power with your existing capital to buy more property.

Lets do an example with a investment fund of 19k:

Cash purchase:
Purchase Price: £16k
costs to buy £3k
total 19k

Monthly cash flow; £350 (less than 4 years to repay your entire investment capital!

Gearing:
Purchase Price: £16k
costs to buy £3k
Mortgage at 80% LTV (loan to value) deposit; £3200
total £6,200

Monthly cash flow; £200

Using your 19k investment capital you could now buy another 2 properties and increase your cash flow by £400 (£200 per property)

NET income a month = £600

And now you’ve got appreciation on 3 properties!

That’s the power of gearing or leverage…

So what’s the conclusion, which method is better?

Well…both! It really all depends on your own personal wealth, your lifestyle, whether or not you want to be a seasoned investor or just buy 1 to leave the kids in later life.

So first figure out what you want, get a calculator and do your sums. If that fails contact us and let us help

why invest in US property?

I was talking just this morning with a friend of mine who’s recently been made redundant. He’s an electrician so it’s no suprise really. His father has also been made redundant, both of them are living in the same house. I went round to see them and we spent about an hour talking about the ecomony and where it’s all heading. In all the years I’ve known them it’s first time we’ve had a debate that’s not about football!

It got me thinking about the days when I was an employee and I thought financial freedom meant having a good job with benefits that paid well…boy I was wrong!

If we should learn anything at all from 2009 is that regardless of how you earn a living, you cannot rely on others to pay your way. Job security means very little these days, and the more you have, big house, nice cars, etc the harder you fall when things out of your control go wrong…like a country in a recession.

As many of you know I’m a UK landlord as well. All my mortgages here are interest only. Up until a year ago I didn’t mind, so long as I get the rent every month i really am not bothered about house prices…that is until now.

With my property in the USA it’s different. If I buy on finance it’s a repayment mortgage, after 5 or 10 years I will own the property outright. That feels very good. I am securing my future in a way I simply cannot do here in the UK. I will not be at the mercy of interest rate changes and changes to borrowing criteria. My properties will be mine, all mine.

This is great! I will be the master of my own financial destiny! I can control my property, and whether I get paid my rent on time every month for very little work on my part. I will be at the mercy of noone other than myself.

Next year, when the UK market picks up my plans are to sell as many of my UK properties (assuming I can!) and simply buy as many properties in the US as I can find. I know I will be putting my financial future in safe hands.

If you feel the same way about investing in property for short, medium and long term gains get in touch

back to basics

I think it’s easier to make money if you don’t crave it. In my days as an IT consultant I had a very good job and lifestyle working for IBM. I’d earn 40k a year work from home and pretty much suit myself day to day. During this time agencies would call me up every week and try to entice me to leave and go contracting for more money. I resisted for a long time but eventually the lure of 100k+ a year following the work around the world was too much to take and i left the ‘day job.’

Strange, I owe that decision to the life I have now despite the fact it was the most unhappy working days I’ve ever had. My time as a contractor was short lived, my health suffered and my lifestyle was, to put mildly shallow and disfunctional. But like any human, when the back’s against the wall that’s when we prevail – and I did!

Going back to my ‘Rich Dad Poor Dad’ books I remembered the ‘cash flow quadrant': employee, self employed/contractor, business owner, or investor. I’d now been two: an employee – not for me, and a contractor – nope!

I started investing in property amongst other things and soon realised my passion was rooted in investing for my lifestyle NOW and my future (and hopefully my family’s future.)

I promise you this is true: there is no better way to earn a living then waking up every morning and deciding when and where you will work…I could literally be anywhere with an internet connection and a laptop – what an age we live in, I’m so glad I exist in these times. Sometimes I think there is no limit to what can be achieved using technology.

So now I’m here writing this I feel a warm sense of (almost) completness ;-) I don’t crave the greenback, but I understand how important it is. I don’t work 15 hour days, but I don’t mind hard work. I don’t work on things I hate doing, but I know sacrifices have to made in life from time to time, and I don’t spend hours in the rush hour commute. And, I suppose ironically, I WANT and CAN work until I’m a 100 years old – just because I have the ‘choice’ to.

So, as far as my plans for my future go, I plan to continue investing in property mostly, but also expanding into other investment vehicles as I learn more every day and become a older, wiser, and better person in all areas of my life.

viva la choice!

who suffers the most from low interest rates?

Who are the people that suffer the most from low interest rates?

Savers.

Interest on your savings is now at a record low at 0.5% and it’s likely we’ll see this hit 0% before long! who’d have thought….

So the banks are now offerings us pretty much nothing on our money in a volatile market place where we don’t feel the banks can be trusted anymore, and as a kicker they charge us disproportionate fees.

So what’s the definition of a bank? Honestly, I’m not even sure anymore.

Sorry, rant over..