Should you get an equity release on a buy-to-let property?
Landlords who have owned buy to let property for some years are likely to have built up some equity through capital growth. Some may choose to use that equity release on an additional buy-to-let investment to help fund a retirement, where others may decide to leave it in the property.
Whatever stage you’re at in building your property portfolio, it is important to weigh up the pros and cons of equity release before making this tough decision:
Reinvesting the money in something that will rise in value over time is certainly appealing. The important thing to calculate, however, is that the rental income of your new investment more than covers the increased mortgage, with an ideal figure being around 150% of your monthly mortgage payment.
Although your profits from rental income won’t double, because you will have a higher monthly mortgage payment, you should see a significant increase in your monthly earnings.
The main ‘negatives’ to consider are factors beyond your control. Property prices could fall, mortgage rates could go up and new government rulings could come into effect.
That said, you should always have enough equity to cushion yourself against falls of up to 15-20% to make sure you’re never in the position of having to sell when it’s not your choice.
The first thing you should do is talk to a specialist buy to let broker or specialist property accountant who will be able to help you work out which route makes the most financial sense.
You may also wish to speak to a property professional to find out what kind of property would suit your investment needs, which is where Members of the HMO and Property Community Group may be able to help.
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