Release equity and raise funds to build you property portfolio

A quick answer on how to best release equity and raise funds to build a property portfolio is to refinance your current property. However, there is a lot of leg work and a lot to know before you go down this route.  Ideally you should be a professional and well educated before exploring this option.

If you are asking this question then it alludes to the fact that you are not a property expert and you are at the beginning of your journey, or maybe you have been used to a passive portfolio investment strategy rather than an active one.

Previously we have outlined a financial example to explain how refinancing a property gets funds from a property. You can read the full article on this here. This will explain in more detail the technical steps involved.

 

Financial example

• Buy a house at £100k
• Refurb at £50k
• House is valued at £200k
• Get a new 75% loan (refinance), where you would then get your initial 150K back (house price plus the refurb costs)

Move on and buy a second house, do this repeatedly and move on to more property. As you go each property will generate you extra income, so you are effectively leaving your profits on loans and moving to invest again and again to build your rental stream income.

 

A bank/lender will refinance your property based on comparable and a RICS valuation. So, if you have made £100k on a property through growth or refurbishment you will get this money back to you through the refinance loan. This is also seen as debt which means it is tax free, the only issue is that you must spend it on your next investment.

 

What you need to do before you begin

 

1. Get Educated – This is a strategy where some expert knowledge comes into play. This will include skills such as sourcing deals, negotiating, refurbishing properties, research the area and competition, getting accurate valuations and being flexible and reactive to any unforeseen obstacles. You can educate yourself through courses or maybe even getting a mentor, working in the investment industry is also helpful, so if you are young maybe look at working at an estate agent, investment specialist or even a profession such as a RICS valuator.  We have written a small guide on property investment course to see if they are right for you which you can read here.

You can also read more about the step-by-step process here.

 

2. Put the time in and ditch the passive model – This not an investment model where you can just lay back and rely on property rental income, which is known as a passive income, instead this is very active, which relies on you working hard and making things happen for yourself. As you will be looking for deals, negotiating, getting quotes etc.. all yourself you will need to dedicate a significant number of hours per week to make this work.

 

If you are a passive investor looking for an easier solution then we recommend you look at fully manged property investments, we have listed and reviewed many. You can find them here

 

What this does for you

 

1. Builds up your income with every property – arguably this is a better passive income stream than a passive income strategy, as once you have put in years (yes years) of work doing this strategy, you will eventually reach appoint where you can sit back and rely purely on rental income to live off comfortably as a wealthy individual. Likelihood is you will not want to stop as many individuals with the energy to do this never want to stop.

 

2. With the building income your will, be able to go for bigger properties and projects – Bigger properties and developments will eventually mean bigger profits per project, it will also build you a reputation. This is fantastic if you ever want to go down the full development route, as the experience and reputation will be invaluable

 

3. You will be trusted by banks for better and bigger loans – Banks will see the success you have had on a consistent basis and will be willing to lend you more money. This is also fantastic if you are one day looking to develop an entire new project such as a block of new build flats.

 

4. Other investors and individuals will trust you and work with you – Same as the banks private investors will see your success and abilities, and thus will be willing to invest with you on big projects

 

5. More deal opportunities as you build your network – This reputation from private investors will open the opportunity for you to purchase some fantastic development opportunities through private auctions or other investors will want to bring you on as a partner to their own opportunities. Ultimately you will have far more choice in where you can invest.