The most obvious way to make money from your property investments is to buy and sell and slowly build up your capital so you can eventually acquire more properties and spread the risk. Many people assume this is the only way to make money from your property assets when in reality there are other options available. There is not always a need to sell your property to move onto the next one and it is useful to spread your risk over more than one asset.
The rental yield on any individual property asset will vary widely according to its location, type of property, condition and potential tenants in the area. It is possible in some situations to obtain a rental yield in excess of 10% which basically means that before costs you are receiving 10% of the initial value you invested each year in the form of rent. On this basis, you would receive back the gross amount that you originally invested in just 10 years.
If you look at renting a property month by month the figures may seem fairly small and irrelevant but if you look at them year by year there is some significant income available. Reinvesting your rental income will also give you the opportunity to expand your portfolio and therefore diversify your risk.
While the property market moves in cycles so do base rates and it is possible, as we are seeing today, to refinance property assets at low interest rates which will reduce your liabilities going forward. Where you have a property which has risen in value there is also the option to apply for a higher mortgage than the one originally used to acquire the property. This is a means of maximising your assets while minimising your liabilities going forward.
When you bear in mind some of the figures involved in the UK property market just 1% saving per annum on your mortgage rate is a significant amount of money in the longer term. If you look at this situation in the short term it may seem minimal but you need to keep a long-term focus in mind.
Remortgaging to buy additional properties
While the refinancing option we mentioned above basically allows you to reduce your liabilities going forward, in the correct conditions, there is always the option of remortgaging property which has significant equity remaining or has already have been paid off in full. In this situation it is imperative that you give yourself some “headroom” which basically allows you breathing space if there were short-term issues with rental income or additional funds were required at short notice.
Remortgaging to acquire additional properties is perhaps the purest form of maximising your assets to build your portfolio and diversify your risk. However, when you remortgage one property to acquire another you need to be certain you can meet your mortgage payments going forward. In difficult times this could force you to liquidate part, or all, of your property portfolio at short notice at a time when property values may not be in your favour.
There are many ways and means of increasing income from your property portfolio aside from simply trading property for profit. There are risks in whatever you do but if you simply buy one property, renovate it, sell it on for a profit and buy another your risk is still 100% focused on that one asset. It is advisable to diversify your property risk as quickly as possible but this must also be done under a financial umbrella which gives you breathing space and reduces undue pressure in the event of unforeseen cash calls.