This mortgage allows me to realize some of the equity in my property. An account is opened with the realized amount as a sort of overdraft protection/line of credit. I don’t get charged on the new equity until I draw on the finances.

This really takes the pressure off as I can make my new offers in peace and not be pressured by time. I only have 5 weeks to locate, purchase and fund the new property, all-the-while refinancing the existing property AND remodeling the kitchen and bathrooms. I have the position of power again. I can offer and REALLY walk away if I can’t get the price I want.

Fantastic!

There are even rumblings of a mortgage that will match your current rate. WOW! At the moment it’s IS available, but only for SFR and not buy-to-let freaks like me. You never know…

The bad news is the banks are taking their sweet time making the ‘offer’. In the past one could expect a bank to answer your funding request in 2 to 4 weeks (depending on the type of sale), now it’s 2 months on average and I just heard today of a 6 month delay in an offer. Makes one nervous. Who wants to loose their deposit due to tardy banks who seem to be playing the market? Or perhaps they’re REALLY looking into each borrower for the first time.

Stranger things have happened.

If you’re kind of confused by this post, you need to read the master plan. As with all ‘master plans’ I’m sure it will have to be modified extensively along the way.

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.