Post by @theanxiousinvestor

I came across this video explaining how you can become a property millionaire in ten years. And whilst the strategy can work, I think it’s missing some important context. The idea is simple. Buy a house, live in it for two years, move into another and rent out the first. Repeat until you own five properties. But how do you actually afford five houses? One possible approach is refinancing. As your property increases in value and you pay down your mortgage, you build equity. You may then be able to remortgage, release some of that equity and use it towards your next deposit. For example: You buy a house for £200,000 with a £40,000 deposit. Two years later, it’s worth £240,000 and your mortgage balance is £155,000. You refinance at 75% loan-to-value, borrowing £180,000 and releasing £25,000 before fees. That money could help fund your next property. THE BENEFITS? You could build a portfolio, generate rental income, benefit from property appreciation and have tenants helping repay your mortgages. BUT HERE’S THE CATCH. Refinancing means taking on MORE debt. You’ll need sufficient equity, lender approval and rental income that meets the lender’s requirements. You’ll also need to account for stamp duty, mortgage costs, maintenance, insurance, tax and potentially empty properties. And refinancing your old home doesn’t automatically mean you’ll qualify for a mortgage on your next one. One final thing… Owning five houses worth £200,000 each gives you a £1 million property portfolio. But if you owe £750,000 in mortgages, your equity is only £250,000. So yes, this strategy can work, but it’s not as simple as buying another house every two years. There’s a big difference between controlling £1 million worth of property and actually being worth £1 million. Sources: GOV.UK, HMRC and MoneyHelper. #property #invest #PersonalFinance #Home #wealth