How-to-make-your-money-work-harder-for-you

How to make your money work harder for you

24.04.19

Releasing a small percentage of the value from your property, can provide the funding for you to truly leverage your net worth.

Most of us were brought up to believe that, come adulthood, paying off the mortgage on your home is a good idea – right up there with eating your five-a-day and paying your bills on time. At least this way you’ll have a roof over your head or something tangible to fall back on if you hit financial turbulence.

There is undoubtedly a sense of security that comes with having no mortgage on the house you live in and it is a very sensible goal for retirement. However, the downside is that it means a significant amount of capital and probably your net worth are being used in an unproductive way. It’s not generating any revenue, earning zero percent interest as a totally sterile asset and, basically, not working for you at all.

If you’ve owned your home for many years, it’s likely you’ve got a mortgage that either represents a small percentage of the value of your property or you have no mortgage at all. If you’ve ever thought about supplementing your income or boosting your pension, the equity in your home is the single biggest opportunity for you to raise the finances.

Interested in finding out your networth?

Releasing a percentage of the value of your property can provide the funding to use on other more productive investments. Now here comes the but. Nobody is suggesting – and if they are, don’t listen – that it’s a good idea to release as much equity as possible from your existing property to fund a more extravagant lifestyle. Nor should you put this money into other investments where there is either a medium or high degree of risk.

However, if you’re taking money out to invest in a low-risk investment opportunity that will generate more income than the cost of borrowing, this is good debt. As in debt that produces an income over and above the cost of borrowing.

It’s generally possible to release capital from existing property at a cost of between 3.5% and 5%. If that same capital can be put to work in a relatively safe way and generate a return of, let’s say, 15% or more, then for every £100,000 reinvested, you could be making an additional £10,000 extra annual income. Releasing equity, if you have it, can be a great way of giving you financial options that may otherwise not be open to you.

Property investment is a great example of how you could achieve this. If you were to look at a specialist buy-to-let (BTL) investment model where 75% of the BTL property is mortgaged, you have to find 25% for the deposit, legal fees and any refurbishment you do. Done properly – a specialist BTL investment can be a secure, low-risk investment and a great way to generate both income and capital growth.

All the evidence says that over the long-term, property is a good investment, but the key issue to really improve both the returns and reduce the risk is to ensure that you’re getting a high level of income, with the potential of capital growth as an added bonus. That’s the trickiest thing to achieve, but it can be done.

This article comes courtesy of Platinum Property Partners a specialist property investment franchise, who recently designed an intelligent online calculator to help people get a complete picture of their financial situation and a clearer idea of their personal net worth, have a go!

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