Real Estate is a one of a kind investment, so you can’t apply the same rules as you do to investing in stocks or bonds. So it is always a rule of the thumb to play by the rules of the real estate industry.
Choose a Repayment Mortgage
Most buy-to-let investors have interest-only mortgages, so they’re completely relying on equity growth through a generous market. It is a known fact that property prices always go up. If house prices don’t increase, those investors won’t make profit and they run the risk of having negative equity. Don’t rely on hiking house prices alone. Interest-only is fine for short-term investors, but it is impractical and risky if you want to eventually own the property debt free.
Repayment mortgages will allow you to chip away at your outstanding balance every month, consequently building equity. It would be even better when the rental income covers your mortgage so you don’t have to pay out of your pocket. Eventually, your mortgage comes to an end and so will your debt. You will be debt free, and by this time you would have owned the property outright and all that you have invested would be your initial 25% deposit.
Put down a high deposit
When you put down a low deposit like a maximum of 15%, it becomes extremely difficult to find an appropriate property that matches your investment plans. You won’t be able to find a property that will generate enough rental income to cover a repayment mortgage every month. The wise thing would be to save up at least 30% and in due time, the monthly payments will reduce, while the rent will eventually cover the mortgage. So, the next time there is a new property launch, make sure you have enough savings in hand. The best way to do this is to save until you can pay the 30% and then your rental income will take over the rest of what is to be done. This way you don’t have to struggle in allotting a budget every month for mortgage payments.
The advantage of these strategies is that they carry a very low risk. When it comes to long term property investments with repayment mortgages, they usually safe from market blips. If the market dips and house prices drop, there will still be time to recover. Whereas, short-term investments can easily fall into a bracket of negative equity if the property launch market takes a worst turn. In that case the investor will have only two options, either to hold onto the property or sell at a loss.
By choosing to put down 30% on the property, while the rest of the mortgage is paid by rental income, you only stand to lose that initial 30%. After 20years, your mortgage debt would also be cleared. Therefore these methods are extremely low risk methods and work best for any type of investment property.