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on the ladder; but where to next?


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Hi guys,

 

I own a 1 bed in Wimbledon which I bought last year as a FTB, next year my mortgage will be up for renewal and I am thinking of the best way to make the most of my investment.

 

I am currently saving for a BTL in Manchester (where I am from) which I aim to purchase in 2018. I set myself a budget of >£125k so to avoid stamp duty. Currently around 10% of the way to getting the desired 25% deposit.

 

I was considering whether it would be worth mortgaging next year to free up some funds so I can invest in my next place. The flat in Wimbledon will have increased in value so there should be some profit I can take out of it (as to how much it will have increased by- I am unsure).

 

has anyone got an advice on whether this would be a good strategy? I am inclined to leave as much equity in my flat as possible (as I am 27 and have many years left on the mortgage; even with a 20% deposit!) however I can see the benefit of freeing up some funds to bolster my war-chest.

 

that being said this is very early days so any advice/comment/criticism would be welcome!

 

thanks!

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  • 3 weeks later...

So first off you know you're going to be hit with stamp duty now right? You'll be buying a 2nd home so will have to pay the 3% surcharge. Sorry to give you an additional £4k to find. Oops. 

 

There are two ways to view your own property; 

  1. It's an asset
  2. It's a liability

You'll always have to live somewhere, so you need to put some money aside to pay rent or pay a mortgage. Or go full commando and live in a tree. 

 

At 27 you can probably afford to take more risks than someone later in life, so there is an argument you view your home as an asset. If it increases in value, you pull the money out and provided you can make a return on that money that is above the cost of finance, it is a sensible decision. 

 

I.e. if you can pull out £40k from your own property and use that to fund the deposit on the Manchester flat, if you make 10% ROI on that money and it only costs you 3% to borrow it, you're in the black. Yay. 

 

The arguments are that you're likely to earn more over the years so you can pay down the debt on your own home more easily going forward. 

 

 

Alternatively, and less risk averse people are likely to suggest not playing with your own home and using it as an asset. It is a cost each month, but in return for that cost you get a place to live. Fair transaction. If you're using company structures and protecting yourself, you can go mental with risk in your business and investing life, but your home would always be protected if you just pay it down over time.

 

 

Got to admit, I'm a mix of the two. I believe in refinancing a maximum of once on an investment property then paying down the debt on a capital repayment basis. I realise I'm a very lonely voice with that opinion, but I believe it is more prudent and better long term to have a low geared portfolio or unencumbered assets. It protects you a great deal from random tax changes for example! 

 

With regard personal home, I won't refinance it. It's my home, not an asset. 

 

 

Best piece of advice I can give is think through the long term plan, then work back from there in order to make the right decisions now. It will start as 'personal life goals' and then get more specific as you work backwards. What you ultimately want is an actionable strategy you can be working on week by week, but secure in the knowledge that it's taking you towards your 30 year goal. 

Damien Fogg
MRICS CeMAP CeFA

Email: damien@theepinvestor.com

Web: www.theEPinvestor.com

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