How to Get a Bigger Buy to Let Return with Leverage
One of the simplest but most effective strategies in buy to let property investment is that of leverage. If you haven’t heard of this before then you are about to find out something really exciting.
When we talk about using leverage in the context of buy to let property investment what we mean is that by using other people’s money you can get a bigger return on your cash. At first this might sound strange. Surely putting more of your money into the property will result in a bigger profit for you? Let’s look at an example to clear it up for you.
How to Stretch £100,000
The first thing we need to consider is how many buy to let properties you want to buy and then let out to tenants. If you are already convinced that buy to let investments are right for you then you probably want to get started with as many houses as possible. If you spread all of your available cash over as many properties as possible and use mortgages to make up the rest then you will get several income streams and the chance to profit from increases in value on all of the houses. Now we can go on to look at how doing things this way will affect your overall profits on the value of the properties.
Increase the Profits
Let’s say that you had put all your £100,000 into one buy to let property and had topped it up with a mortgage for the same amount. If this £200,000 house then gets sold at £250,000 then you make a profit of £50,000, which is a 50% return on your original investment. That’s not a bad return at all, but what if you had invested in 4 buy to let properties by putting £25,000 of your own cash into each of them and they each made the same increase in value as the one we just mentioned? In this case you would earn £50,000 on each house, which is £200,000 in total, or a 200% profit. By using leverage you have earned four times what you would have done otherwise.
Clearly the big worry here is that you overstretch yourself and try to take on too much at the one time. If you can avoid that and stick within your overall budget then this simple technique can be the key to earning a lot more money on your future property investments. In fact, it is a tactic which has already generated huge returns for many property investors.
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