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Four Profit Levers in UK Property Investing

Whenever you buy to rent a residential property for investment purposes, there are only four areas where you can make money which are commonly known as profit levers. This article assumes that you are buying with a mortgage as most real estate investors do these days.

LEVERAGE OF PROFITS 1 – DISCOUNT

Whenever you buy an investment property, you should always try to buy at a discount, no matter how small, as this will multiply several times over the term of your purchase when combined with profit levers 3 and 4 below.

But it’s important that when you research your potential purchase, the numbers add up even without the discount, because you shouldn’t rely on the discount you might get to put the purchase in a positive position.

Additionally, you should do your own due diligence on comparable properties to ensure that any discount achieved is real and not due to the price being artificially inflated to allow for the discount.

PROFIT LEVER 2 – RENTAL INCOME

Monthly rental income is the bread and butter of all real estate investors and it is the gift that keeps on giving. This is the money that pays all the bills for the property and the balance, after paying the bills and putting your contingency in a separate account for emergency problems, is your profit and can be used as salary for yourself or saved for future investments.

With rental income, it’s important to make sure you know the local market rents and make sure you raise your rent 3-5% each year to put yourself in a position to re-mortgage the property in the future.

LEVERAGE OF BENEFITS 3 – REFINANCING

Every 2-4 years, you should look to re-mortgage your investment properties in order to release lump sum income from the additional equity built on your property.

This is achieved as the UK property market grows steadily and the value of a property doubles, on average, every 8-10 years, so you see an annual annual increase of around 8%, so that after a few years, you can see significant growth in the equity of your property.

By withdrawing this capital on a regular basis, you receive a tax-free sum that can be used for other income-producing assets, such as more homes and investments, or to use some or all of them to pamper yourself.

PROFIT LEVER 4 – EQUITY GROWTH

As mentioned above, with the growth of the UK property market, a typical residential property will double in value, thanks to capitalisation, in around nine years. The 25% stake that was initially held in the property is maintained even with the refinancing activities that will have been carried out.

For a property initially purchased at, say, £100k, there will be a £25k initial capital deposit equal to 25% of the purchase price remaining on the deal, so with the growth in property value, this 25% The initial amount will still remain as the equity portion of the growth, but it will also have doubled in value to £50k, although this money can only be recovered on the sale of the property and would be taxable.

So, these are the four areas where profits can be made on each and every investment property you buy, so when you’re doing your due diligence, always do your math based on these profit areas. .

Remember: you make money when you BUY a property, not sell it!

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