The situation
Within 2 months the London SW9 house moves to an adjustable rate, so it’s time to get down there and sort a few things out. I’m going to have to find a new loan because I don’t/can’t pay in excess of 7%, which is what the adjustable will be.
The second step (planned a long time ago) is to realize some equity in the 4 bedroom SW9 home and go looking in E15 for another freehold house that will pay for itself and a bit more.
I have to remind myself I’m an income investor and not a speculator. These properties have to make an income and the income has to relate to the capital I’m putting in.
We got into the SW9 London house for 45% down payment after the sale of my wife’s flat and it’s been turning a very tidy profit, but I think we’re capital heavy in that property AND London’s rentals have risen*. With a high capital to equity ratio and rents on the rise, I feel good about extracting some equity. I think it’s a good time for us to move on to the next phase and try to add a second income property.
Here’s the problem…
On with the investor cap
If I can get a new mortgage under 6%, I’ll go for the 5 year fixed mortgage. That includes the SW9 and the potential E15. I’m willing to extract as much as £100,000, however, I have to leave a profitable margin. We have over £200K in equity so we’re not over-extending ourselves. My experience is I will need a minimum of £200 pcm net profit to cover costs and have a safe margin.
The rental has cleared £15,000, so in total we have £115,000. I like to keep the down payment to around a third, it makes the numbers work on most houses. I know some investors are shaking their heads right now but I think everyone will agree the ‘get-rich-quick-schemes’ are a thing of the past. The bubble has burst for everyone.
The way things are looking I may have to move some money over to the UK to cover the closing costs. The stamp duty is the BIG ticket item all buyers have to pay.
Here’s where I have to be careful. An investor makes money on the PURCHASE PRICE not the sales price. Right now prices are high. On the flip-side, there are no mortgages of any worth and the buyers have gone bye-bye. Especially the first time buyers. So it’s hit low, listen and move on. Right now I’m compiling a list of houses in my target area. If these homes are still on the market in late July, I’ll start with my favorite and start low-balling.
Let’s see how it goes…
*The changes were boosted by a nine percent increase in price of renting a house in prime central London – with the average annual price of a rented property increasing by £3000.
ARLA Monday, 10th March 2008
Read the entire article here.
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