5 Mistakes To Avoid In Property Investment
1. Dont rate chase get proper mortgage advice
1. Dont rate chase get proper mortgage advice
Spending hours on the internet used to be the way to find a good mortgage rate but not anymore.
Too many investors make the school boy error of chasing the so-called best rates without properly considering all elements of a mortgage. They end up dealing intandem with their own aspirations and resources and can end up with a costly and unsuitable loan that could hold them back for years.
Rate chasing used to be easy. Youd just jump on the internet and look at any number of websites that give you 24-hour real-time access to live mortgage deal information. Nowadays the lenders criteria can be so detailed you later discover youre not eligible for that fantastic rate you found on the internet. The best thing to do is to get proper advice
2. Dont go direct to your bank
Inexperienced investors are at the mercy of the banks. Yes there are some great products available via your bank but you need to check the whole of the market. That means go to a mortgage broker that can search the whole mortgage market for you. That includes almost all lenders, not just your trusty high street bank. There are hundreds of products out there and a few minor differences in the product can make a huge difference to your bottom-line. The subject is so complex even specialist buy-to-
let mortgage brokers need powerful and expensive software to help them find you the best deal.
3. Dont underestimate your tax position
Get clever get tax advice.
One of the huge benefits of investing in buy to let property is that mortgage interest payments are deductible against tax. This means each mortgage payment in any given tax year can be deducted before you calculate your tax liability. If a property is purchased without a mortgage or with a small one, all or the majority of income (after management fees etc) will be applicable to income tax. So the greater the mortgage payment on a buy-to-let property, the smaller the tax bill. In certain circumstances rental income can have the negative effect of pushing people into the higher tax bracket, but offsetting mortgage payments against tax could push a tax payer below the higher rate tax band. By using bank borrowing and creating a smaller income from your investments, you will still gain capital growth but wont be paying unnecessary income tax.
4. Dont underestimate the power of gearing.
Many inexperienced investors getting into buy-to-let investments dont appreciate the benefits of leverage (using the banks money to purchase property and make your own money go further). For example, if you had 80,000 cash you may look to purchase one buy-to-let property for 120,000, and put all the initial 80,000 down as a deposit. If the property doubled in value, you make 120,000! The benefit in this example would appear to be that you only needed a 40,000 mortgage.
This keeps your monthly mortgage payments down. But actually you could have, in effect, purchased 240,000 of investment property by using the 80,000 as a deposit. So when house prices do go up, you get to take advantage of the gearing and potentially bank a whopping 240,000 profit if the value was to double. And dont forget, whatever the mortgage, the rent should cover it anyway.
5. Dont use a broker just because they are your friend
Buy-to-let finance is now a highly specialist area, so get a buy-to-let specialist mortgage broker on the case. In recent years the mortgage market has changed and in particular buy-to-let investments have become a highly specialist area of mortgage lending. Mortgage Lenders recognise that the buy-to-let space is growing fast and have designed and released unique mortgage products to help the dedicated buy-to-let investor. But the products themselves have some incredibly detailed criteria attached which requires intimate working knowledge to ensure you get the right deal for you.
by: FreshStart Living
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