Your financial future in focus

Your financial future in focus

The benefits of turning your first home into an investment property

There are a growing number of people who are taking the view that property will be at the epicentre of their retirement planning strategy, rather than putting money into a pension pot, and when you see how property values have performed over an extended period, it is easy to understand their thinking.

If you are searching for a suitable property to buy, someone like Entwistle Green has details of a variety of different residences that may not just make an ideal first home, but could form part of a portfolio of investment properties.

MT fotolia workingTime on your side

If you have a decent amount of time ahead of you, you are well placed to work on the idea of turning your home into an investment property and seeing where things go from there.

The fundamental point about considering buying your first property as soon as you are in a position to do so, is that it deals with two issues in one go. The first is that it puts a roof over your head that you can truly call home, and it also means that you are paying money into a property that will allow you to profit from any price rises, which isn’t the case when you rent.

The second major point about keeping your first property as an investment, is that with time on your side, you are giving yourself a great chance to build a decent amount of equity, which you can then use at some point to maybe add to your portfolio at some point.

Owner-occupier or buy-to-let

It should be remembered that when you are arranging financing for your property purchase, you need to be very clear what your initial intentions are with the property.

The reasons for this is that there are two distinct forms of property financing. When you apply for a mortgage you will have to confirm whether you intend to live in the property as an owner-occupier or whether you are going to let it out and become a landlord.

There are plenty of people who start out by living in the property that they have bought with the help of a mortgage, and then a few years down the road, decide to buy another house when they can afford to, without selling their original one.

If you do it that way around, you simply have to inform your lender and get their permission to convert your mortgage to a buy-to-let loan, which often means that they will charge you a slightly higher mortgage interest rate, to reflect the different level of risk.

If you have decided to buy a property for investment purposes rather than live in it. You will need to meet the lending criteria for a buy-to-let loan. This will normally stipulate that your anticipated rental income each month, is at least 125% of mortgage repayments, and you will also have to raise a bigger deposit, somewhere in the region of 25% of the purchase price.

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A source of income

One of the secrets to growing your wealth is to make sure your money works as hard as possible for you, so just leaving some cash in a savings account that is paying nominal interest, really isn’t going to get you very far.

It is definitely no coincidence that virtually every millionaire around the globe will have some sort of property portfolio as part of their wealth strategy, so it makes perfect sense to emulate this line of thinking, even if you don’t have anything like the same sort of financial resources.

Even having just one investment property will give you the chance to earn some additional income, and the added bonus is that while you are enjoying a monthly rental income as a landlord, you are also putting yourself in line for some potential growth too.

You can soon see that if you get your strategy right, owning property could be a good way of getting your money to work hard for you.

A good opportunity?

It is never too late to try and build a property portfolio and even if you take it slowly and are only able to buy at long intervals, but if you are young and haven’t even thought about how you will finance your retirement, you might just find that keeping hold of any house that you buy, turns out to grow your wealth more that you imagined.

Melissa Marshall has always worked in the world of real estate and property management. She has amassed a lot of knowledge and now shares that through her articles.