Investing in property is a move that can build serious wealth over time. Not only do landlords receive ongoing rent payments from tenants, but they can also benefit from the capital gains over time, if the value of their property rises.
Naturally, investing in more than one property is more wealth-building overall. However, it does come with more admin, upfront costs and risks. Property values can go down as well as up, as can mortgage interest rates, and there are legal and regulatory requirements imposed on landlords that must be kept to.
So, how do professional landlords finance multiple buy to lets? By using the following methods.
Consolidating mortgages
Many professional landlords – especially those with a high number of rental properties – choose to consolidate their mortgages with a portfolio mortgage.
A portfolio mortgage is a specialised type of loan for landlords who have multiple buy to let properties. With this type of mortgage, landlords can pay for multiple mortgages in a single payment. This makes the administrative side of things far easier and more streamlined.
Where property values and rents vary within the portfolio, you can also smooth out the variances so that all properties are optimised for strongest performance.
What’s more, you still have the flexibility to sell property on the mortgage without having to refinance.
If you have multiple mortgages you want to consolidate, working with a specialist broker like Commercial Trust, can help you save time and money. It can also ensure you find the best lender for your needs and circumstances, as most high street banks won’t offer mortgages for multiple properties and you will need specialist finance.
Buy to let mortgages
A buy to let mortgage is the most common way landlords finance a buy to let purchase when not buying outright in cash. The deposit for a buy to let mortgage is typically higher than a residential mortgage – from a minimum of 15%-20%, but with a lot more borrowing options at 25%, or more, of the total cost.
The benefit, however, is that the monthly mortgage payments can be interest-only rather than capital repayment. Given you don’t need to live in the property, you may opt for an interest-only mortgage for lower monthly costs. However, you won’t own the property at the end of the term – you will only ever own the amount you put in as a deposit. If you choose a capital repayment mortgage you will pay down the original lump sum you borrowed and end up owning the property at the end of the term.
Remortgaging properties
If a professional landlord needs money to purchase new houses to rent out, and they have enough equity in their properties (the amount of money they have invested in the property of their own money is more than 25% of the property value) they can remortgage a property, increase the borrowing on it and release the equity as a lump sum of cash that they can then use as a deposit on a new property.
Remortgaging is essentially the process of changing the current mortgage you have (either with the same lender or a new one). Then, when the equity (cash) is released, landlords have the chance to expand their portfolio.
Bridging loans
Another way professional landlords finance multiple buy to let properties is via a bridging loan.
A bridging loan is an alternative to a mortgage that involves gaining access to a large amount of money quickly. It’s a short-term loan that is ideal for landlords who have come across a great property investment.
These loans are often used during auction sales and buying property in need of refurbishment that would not be eligible for a buy to let mortgage. They are also popular if a landlord is waiting for another property to sell – so, when they get the money from that sale, they can then repay the bridging loan.
Commercial mortgages
A commercial mortgage is specifically a mortgage for buying property that a business operates from.
Professional landlords may seek out a commercial mortgage if their portfolio consists of buying property to rent to businesses, or to operate a business they own from.
When letting, this can be highly beneficial, as commercial tenants tend to sign much longer leases – perhaps for five years rather than one year. If a landlord runs their own business from the premises, owning it gives them complete control over the building and means they are paying a mortgage rather than paying rent to a third party, amongst other benefits.
Final thoughts
There is no denying that building a buy to let property portfolio takes serious work and financial investment and is not without risk. Learning how professional landlords go about financing their portfolio expansion can help you understand how to get started yourself.
With the right type of loan, you can begin building your property portfolio and building wealth over the years.
