Buy To Let Investment Strategies
Because so many people choose to pay rent and not to own their own home for a various reasons, buy-to-let investment makes sense as a good business opportunity. You can use rental income to cover maintenance, management and insurance expenses, as well as mortgages. It is certain that inflation will increase over time the value of the rent and of your properties. Raising property value will increase over time your net worth. Borrowing “cheap money” is a good strategy to purchase property. This way you’ll use “other people’s money” to accelerate my wealth growth.
Property investors need to choose the right strategies in order to be successful and avoid failure. The most common thing for those who fail in their property investment business is a shortage of cash. As the equity left in property might be subject to high risk you always need to maintain high liquidity in form of cash saving account in the bank. Build a “rainy day fund” for your property investment business in order to cover these risks. Whether you are dealing with something unexpected or you are on the market to buy, you will need cash in the bank because it is always a risk that you’ll not be able to borrow money in a timely manner when you need them the most.
High gearing strategy
One of the property investment strategies to use is the high gearing strategy. This can work well when you combine it with high liquidity in form of money in the back, for risk reduction strategy. You can accelerate the expansion of your business and your property portfolio by keeping investing your money into further purchases. However, don’t invest them all. Keep a substantial amount of money raised from remortgaging in your bank account as a backup to cover the risks.
You can also use part of this rainy day fund when you encounter an opportunity to acquire a property below market value. Then you can transform the property through renovation and other means to optimise its value.
Long Term Strategy
There are various property investment strategies to choose from, such as HMO, BMV, and many others. However, I think that short term strategies are property speculation more than property investment. This is why I choose a long term property investment strategy planned ahead for at least one property market cycle. Whenever a good opportunity appears I release equity in order to transfer the risk. If property would reduce in value and equity is left in the property then its value may no longer be accessible. I control the liquidity once the property is refinanced, and this way the risk is transferred to my lenders.
We can notice that over the long term the general trend is for rental values to track inflation. However, depending of the availability of rental properties, from time to time there are periods when the rental demand can fall. This is another reason why I keep money in the back as a “rainy day fund”.
Because my long term strategy is never to sell, the negative equity can only affect me by preventing refinancing. If occurs an unexpected need to sell a property, my liquidity reserve can be used to reduce negative equity.