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How to: Release equity from your home to invest in property

Last updated: 9th September 2020

Not many investors have a vast pot of savings to drop on an investment property when they get started. In fact, many start off with one property and release equity to start to gradually build their portfolio from there.

That one property is usually their main family residence.

And by releasing equity (i.e the money) from that family residence, investors get the cash injection they need to invest in their first buy-to-let property – and subsequent ones. It’s a repeatable cycle.

Confused? Don’t be.

There are a load of pros, but there are also things you’ll need to consider before you dive in and release the cash.

We’re here to help with all of that.

Why should you release equity from your property?

Releasing equity from your home is often considered the quickest and easiest way to get started with property investment.

Many aspiring investors want to invest but often lack the cash to do so. So for those who have cash locked into their family homes, a simple remortgage will release this and serve as a deposit on your buy-to-let property.

And they’re able to do this again, and again, and again on those buy-to-let properties to grow that portfolio.

If you have an investment property that’s got £50,000 value in it, you can remortgage the property, release the cash and use this as a deposit on your next property. Of course you’ll have higher mortgage payments as a result, but we’ll go into that a bit later.

Mortgages are often the catalyst that fuels property portfolio building – often referred to as ‘leverage’. If you’re an avid Hub follower, you’ll have heard us talk about leverage numerous times. It’s the tool that we like to call a property investor’s secret weapon.

If you’re not 100% sure on what leverage actually is and how it can benefit you, you might want to have a listen to this podcast episode.

The main pros

You can choose how much equity you want to release from your home. So, you may want to extract enough money just to use as a deposit on a property, or take out enough to cover the deposit and say the refurbishment of a property. The option is completely up to you.

Another pro is that you won’t be using up all of your life savings to purchase a second property. Many people think that the key to successful investing is being mortgage free, but that’s not always the case. If you’re thinking about ploughing every penny you’ve saved into one property, read this article and see why buying more properties with mortgages will give you a better return.

Chances are, you’re probably only going to extract equity from your residential property once, to get you off the ground. After that you can use the leveraging method on your buy-to-let properties to purchase more. That way, if you want to continue to pay off the mortgage on your home ready for when you retire, you can do so.

And finally, remortgages can be relatively quick. Some might say it’s far quicker than stacking savings for 5+ years; by which time, house prices could have risen massively so the amount needed as a deposit will also increase.

Things to consider

Not all mortgage lenders will allow you to release equity to invest in buy-to-let property, so you need to check with your lender first.

Your income will also be taken into consideration when remortgaging your main family home. Residential mortgages are based on your income – so depending on how much you’re looking to borrow, you’ll need to show proof that you have enough of an income to cover the new mortgage payments.

Which leads us onto higher mortgage payments. When you remortgage to release equity, your payments are likely to be higher than they were. The rental income from your new buy-to-let property may be able to ease the hit, but always run the numbers to make sure you’re 100% confident that releasing equity on your home is the right option for you.

Running the numbers should be done on both the remortgage of your family home and the buy-to-let property you want to invest in – this is where many investors fail, because they don’t understand the financials properly.

Investing in property is a business transaction, so should be treated as such. If the numbers don’t stack up, walk away.

We’ve got plenty of resources on the site here and on the podcast to help you with your calculations, like this run-down on how to calculate your property yields right here.

There’s also a whole YouTube channel dedicated to education here. There’s a whole video on buy-to-let mortgages that’s worth a watch to further your knowledge.

Next steps

So, you’ve decided what kind of property you’d like to buy, done your calculations, spoken to your lender/broker and have an idea of how much money you can release from your home.

Now what?

Well, now is the time to take action. But, before you do, you should give this YouTube video a watch. Rob & Rob discuss everything you need to know before you get ahead of yourself and purchase the first property you see. If that video isn’t enough then this one includes a checklist with everything you need, and should do, before making an investment.

On the other hand, if you’ve done all your homework and research, and you’re ready to nail down your strategy, then why not book in a free strategy meeting with a member of our Invest team?

Or maybe you need a little guidance on what your goals are and how you’re going to achieve them. In that case, why not choose a date and time that suits you for a free goals call where a member of our team will discuss with you over the phone what it is you want to achieve from property and offer you some advice on how to get there.

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