Financing Real Estate
One of the nicest things about real estate is the fact that banks are willing to provide cheap financing. If you can make (rental) income exceed interest payments, you can create “leveraging” for your own cash. Financing real estate with other people’s money is a proven success to get rich with OPM (other people’s money)
Financing Uk real estate is quite doable and with a spread between rental income of 6%+ and interest paid of ~3%, the leverage makes sure you can bring the return on your own cash steeply above 10%.
If you apply a little bit of financial algebra on real estate investments in UK and other (European) countries, the differences are striking. I made a comparison between UK real estate and Belgian Real Estate. Adding all costs and returns, I have arrived at 7% total return in Belgium and 20%+ in UK. Feel free to request the calculation here. Thank god for leveraging. No need to be cash rich to get rich.
Your home bank
In the European Union – where capital is supposedly free – banks are not allowed to take mortgages in other countries. Alas. But in most European countries, banks can (re)mortgage any property in the home country in order to buy property abroad. The easiest trick is to use an existing mortgage and re-open the credit line to buy foreign real estate.
Two years ago, my bank agreed to a 65.000€ bullet-loan on my (partly paid) mortgage in order to buy a 70.000£ care home room. I am receiving 8% interest on my room and I am paying 2.1% interest. You can easily calculate the return on equity. Don’t be surprised. It was probably the best investment of 15.000€ of my life.
The UK bank
Only a few UK basks would give mortgages to non-residents. And they charge 1-2% more than what they would charge UK-tax payers. But you can find hem. And with net rental income of 6%+, you would still create a positive cash flow. And of course borrowing in UK£ will reduce your UK£ exposure, as the loan is repaid in the same currency as the rental income.
UK banks would only finance residential real estate of 150.000£ and more. Your own investment of +/- 45.000 is a minimum. And of course you have to put up with a lot of paperwork. No free lunch in this life…
Financing real estate with other collateral
Many home banks would also consider other collateral. investment portfolio’s for example. This way you can keep your money in your portfolio, while using it a second time for reale state investment. Take care to well design your portfolio, as making changes becomes subject to banking paperwork.
In many other countries you could also use the savings in your pension scheme as collateral. As such money normally only brings 1-2% interest anyway, this could be a good way to put that capital to some decent work.
It requires some work to find the possibilities in your situation, but financing real estate pays off for a very long time…