Portfolio Building

Portfolio Building Through Cash Up Front Purchasing

Many investors simply purchase a number of properties using mortgage finance up front to create an instant portfolio. However a judicious process of buying a property outright with cash and then raising a mortgage once your first property is refurbished, known as “gearing”, means that you can build your portfolio with minimal further capital investment. The first property is valued and, subject to status, a BUY-TO-LET MORTGAGE is arranged. These funds are then used to repeat the purchase and refurbishment process. The mortgage commitment is covered by the rental income with the difference representing the investor’s profit.

Portfolio Building Illustration

An initial cash investment of £70,000 is used to purchase, refurbish, insure for the first year and let Property 1. The gross rental income is £425 per calendar month. The property is valued at £70,000(1) and a 75% BUY-TO-LET MORTGAGE is obtained, i.e. £52,500(1). These funds along with a further cash investment of £17,500(1) are used to fund Property 2 at £70,000.

This process is repeated until Property 5 is mortgaged to release £52,500(1) of the total capital invested. You therefore hold a portfolio of 5 properties for a total capital investment of £87,500(1) producing a rental income of £10,680(1) per annum net of mortgage repayments and management fees.

Cash Invested (1) After Mortgaging

Value After Refurb (1)

75% Mortgage Obtained

Monthly Rent Received (2)

Monthly Mortgage Repayment (3)

Monthly Profit (1)

Property 1

£17,500

£70,000

£52,500

£374

£196

£178

Property 2

£17,500

£70,000

£52,500

£374

£196

£178

Property 3

£17,500

£70,000

£52,500

£374

£196

£178

Property 4

£17,500

£70,000

£52,500

£374

£196

£178

Property 5

£17,500

£70,000

£52,500

£374

£196

£178

Totals

£87,500

£350,000

£262,500

£1,870

£1,020

£890

That’s an annual yield over 12%!!

With a highly realistic annual growth rate of 4% on average over the next 10 years the value of the portfolio would be in excess of £500,000 at the end of year 10!!

Notes: (1) Approximate example figures for illustration only, actual values, package prices and achievable yields will of course vary from property to property. (2) This figure is net of MRA’s 10% + VAT management fee. (3) Approximate figure based on an interest only mortgage at 4.49% PA. As with any investment yields and capital values can go down as well as up. MRA do not guarantee rental incomes or post refurbishment values in any way and ongoing maintenance costs may be incurred in the future. MRA Property Investments Ltd are not financial advisors. We act as an agent sourcing, maintaining, letting and managing residential properties on behalf of investor clients. *Mortgages are subject to status and availability. Your property is at risk if payments are not maintained.