How To Use Equity To Buy Investment Property | Property Investing | Mortgage Finance / Refinance

Equity is the difference between what your property is worth today minus your mortgage. How can you use this equity.

Equity is the difference between what your
property is worth today minus your mortgage. How can you use this equity to buy investment
property? That’s coming up after this. Hi. My name is Tony Law from Your First Four
Houses and my channel is all about helping you achieve financial freedom through property.
If this is your first time here, be sure to subscribe to the channel and hit the notification
icon so you don’t miss out on any of the free content I share each week. Before we get into
this, I just had to say I’m not FCA approved so before you take any action on any of the
content I’m about to share with you here, it’s essential you seek the advice from three
different people. Firstly, an independent mortgage broker with access to the whole of
the market. Secondly, please speak to your accountant if you have one. Lastly, but perhaps
most importantly, book a call with specialist tax advisor because they’ll tell you exactly
how you should buy that investment property. They’re not expensive and it could be the
best advice you ever pay for. First things first, let’s consider how someone
would’ve bought their own house perhaps a few years ago that was worth at the time say
200,000 pounds. They would genuinely have put down a deposit and let’s imagine this
would’ve been 10% or 20,000 pounds in this example. They would then have paid the 90%
balance, i.e. 180,000 pounds, with a mortgage. Obviously, I appreciate the numbers are going
to vary from person to person and I also appreciate that some people at the time would’ve taken
a repayment mortgage and others an interest only mortgage. Let’s just try to keep things
simple here and imagine that this person took out a interest only mortgage. Many years later, hopefully, the property
has gone up in value and let’s imagine that today it’s worth 300,000 pounds. Technically,
the owner’s initial deposit is still locked up in this property and technically, there’s
still an 180,000 pound mortgage. Don’t forget, this was an interest only mortgage and so
none of the 180,000 pounds has been paid down. However, the property has increased in value
by this much and so today, assuming the property is indeed worth 300,000 pounds, if we take
off the existing mortgage of 180,000 pounds, that means the total equity that’s locked
in this property is 120,000 pounds. I would suggest this individual has two choices.
They could leave things exactly as they are with this lump of equity locked in the property
or they might think to themselves, “Hang on a minute. I reckon some of this equity could
be working a little bit harder for me in another property, specifically an investment property.”
If that’s the case, I suggest they got three choices as a way to release some of this equity.
They could speak to their existing lender about some additional borrowing. They could
take out a second mortgage with a new lender or they could refinance the entire property
with a new lender. If this is something that you want to do,
once again I must emphasise you honestly need to speak to an independent mortgage broker
firstly and take their advice on this, not mine. However, with that said, in my experience
most people would probably lean towards option number three which is to refinance the entire
property with a new mortgage if they can. Let’s look at how that process might work.
You go to your mortgage broker and together discuss the various mortgage products that
are available to you. This will vary depending on your circumstances and what you ultimately
want to achieve. Just for the sake of this example, let’s imagine you [inaudible 00:03:58]
75% loan to value type product which means you’re going to borrow 75% of the value of
your property. That’s 75% of today’s value I hasten to add. Your mortgage broker would
then pre-approve you with the lender that you’re going to use which means assuming everything’s
okay with the property, you shouldn’t have a problem getting the mortgage. Although you
can never be 100% sure about that. You then you need to get a formal valuation
done on the property and your broker can organise all of this for you. Just be aware there is
a fee for this and it’s a non-refundable fee. The surveyor will then come out and confirm
the property is indeed worth 300,000 pounds and the lender should then agree to loan you,
in this case, 75% of that 300,000 pounds, i.e. 225,000 pounds. In this way, you just
managed to release 45,000 pounds of additional equity which you can now use to go and buy
that investment property. By the way, if this stuff is helping you, I would really appreciate
it if you could take a moment to just quickly click on the thumbs up button down there.
It really helps me if that’s okay. Now of course what you then buy as an investment
property falls outside of what I can really cover here in this video but let me sew just
a couple of quick seeds to give you some idea of why this might be worth you doing. We’ve
released 45,000 pounds of equity from our house. Of course, we’re now paying some interest
on that so let’s be sensible about this interest rate and imagine it’s 6% which would mean
you would actually be paying 2,700 pounds extra in interest payments each year. Let’s
again be sensible and take 5,000 pounds off of the 45,000 pound figure to cover any fees
involved in what we’re about to do and so let’s imagine we got 40,000 pounds left as
a usable deposit to put into a deal. We now find a nice little property that we can buy
for 160,000 pounds. We put in our 40,000 pound deposit and get a new mortgage of 120,000
pounds to make up the balance. There’s loads of different ways that we can
rent this hypothetical place out but let’s imagine that we’re going to turn it into a
small, easy-to-manage HMO, which stands for house of multiple occupancy. Now, after paying
the mortgage and all other bills, this place starts to cash flow say 675 pounds per calendar
month. Don’t forget, that’s 675 pounds going into your account each month after you’ve
paid the mortgage and all the associated bills. If you multiply this figure by 12, we get
the annual cash flow of 8,100 pounds. To put it another way, that’s three times what it’s
actually costing you in interest payments each year for the additional 45,000 pounds
you’ve borrowed out of your own home and you’ve now got two properties, not one. Admittedly, what I just shared here is an
idealised example of a very straightforward purchase and in reality, there’s obviously
more to it than this. I do appreciate that. To help you, I’ve actually put together a
free 50 point checklist that guides you through every step that you need to take when buying
that first investment property. You just run down that checklist, ticking off the boxes
as you go to make sure that you don’t miss out on anything really, really important.
Just click on the link at the end and you can download that for free with my compliments. I would love to hear your thoughts on this
strategy if this is something you’re about thinking of doing yourself. If you got any
questions, just feel free to drop them into the comments section below and I’ll be sure
to reply to them. Also, be sure to subscribe by clicking here so you don’t miss out on
any of the free content that I share each week and don’t forget to grab that 50 point
checklist because you’re going to find it really helpful when buying that first or indeed
next investment property. My name is Tony Law from Your First Four Houses and I look
forward to seeing you in the next video. Thank you.

70 thoughts on “How To Use Equity To Buy Investment Property | Property Investing | Mortgage Finance / Refinance”

  1. Hi Tony
    Really inspiring and engaging video. Could you reveal how one can raise the value of a property to boost the equity with relatively cheap quick wins. Thank you in advance.

  2. great video thanks a lot I have watched all your videos !!!I am just starting out on my property portfolio however I have been a landlord for over 10 years and now I am trying to release equity to finance my next property and hopefully put it into an HMO .I have a few questions and was wondering if could maybe give me a few pointers ?1) you stated that this equity was for  a small size hmo what size were you referring too?2)  how much in your area would you charge for a room ?3) are you paying all the bills on this hmo ? for example ,council tax and landlords insurance ,building insurance?would you have a meter for electricity and gas?4) do you pay tax on the rent received ? or were is that factored in ?5) im trying to get to the figure that you have as cash flow of £675 per month ?.
    I have 2 ideas and one of them is that I get some equity released split it and buy 2 properties that I can buy from a property club maybe at a reduced price from the outset so for example if the property   is £250,000 because the have a working relationship with the builder or estate agent I get it for £235 so I have made some profit right from the beginning (but still have to pay the property club) then I wait 2 years and do the same again?but in one of your videos ( i cant remember which one now as I have  watched them all  many times over )you say don't buy a property and put your equity on it and just sit and wait so do you mean that hmo s are a far better vehicle for property ?which is my other option ,im really looking for cash flow as well as the property going up in value , as I would like to decrease the hours or my regular job. I have lots more questions but don't want to take up too much of your time ,t hank you very much in advance regards,Jason.
    ps your videos are great and very helpful indeed .

  3. hi tony,thank you very much for replying to my questions so promptly im sure your very busy ,I am very grateful to listen to your advice, and eagerly  await your announcement on Tuesday ,and I do understand that I have to do my research and due diligence into everything before I make that decision .once again thanks very much Jason.

  4. Looking to start a property investment company early next year, myself and 2 partners. Do you think around £50,000 is enough to get started? Definitely in it for the long term and not looking to be cashing anything out for about 5 years, also more than willing to put more money in on a monthly basis to help gain more equity/capital.

  5. Very interesting videos! one of the very few rare ones that are clear and straight to the point.
    I hope you don't mind me asking about how the mortgage on the first house, which was an interest only mortgage, was paid or switched to the second house. I am sorry if i have missed anything.
    Thank you for your precious time.

  6. Isn't there a rental stress test when you remortgage in your example so it might be worth 300k but doesn't mean you can release funds. What would be your next move if that was the case?

  7. Do you have any advice for someone looking to move out of parents into first house? I'm 21 and saving for a house deposit for a property that I can build equity with for a few years. Are there any videos in your collection addressed to first time buyers?

  8. Another quality video Tony! You're doing an excellent job here! I particularly enjoyed this video as I plan to show it to my parents, who are "old fashioned" to say the least. I have recognised that their savings/pension isn't much to sing and dance about and my sister and I are not in a financial position to assist them….yet! So I wanted to help them with some income options as their house is paid off completely and they have equity to play with. Maybe invest in a HMO along the HS2, perhaps?? Thanks again!

  9. What about stamp duty payment and others fees on second property, what about taxes paid on income on second property. When all these are considered in the financial model, is the residual income worth all the effort involved in buying a second property?

  10. Really great information, also finding your emails very insightful. I'm a real novice to all of this, so my next question might seem like a very simple one. I believe that I have correctly worked out the equity on my current property to be £109,000 which in percentage terms is 45%. Does this figure represent the amount that I could potentially utilise for a deposit on a buy to let or buy to sell house? Furthermore is this likely to make a significant change to my currently mortgage payments? Any advice would greatly be appreciated, thanks again for all the great content, I will be a future member of your online teachings.Kind Regards

  11. Hi Tony,
    Really resonate with your tips and advice.  Also your reasons for entering the business full time.
    Your videos are very honest and thorough, especially how you are realistic about not so obvious costs and promote people to calculate their ROI realistically. Keep it going. I shall recommend and support your videos.

  12. Great content Tony. I am 23 years old currently in my final year of University but I am quickly realizing the degree I am doing is not the field in which I want to go in to when I graduate. I am swaying more towards Real Estate investment and taking my time learning what it takes to be successful in this field. I also watched your video where you stated in should only take someone 4 right properties to be financially stable which has motivated me even more. I have watched a number of your videos and they are very helpful! keep them coming as they are truly appreciated.

    Many thanks,

  13. We're thinking of buying our next investment property cash (£150,000). Any thoughts on whether we should mortgage the property instead with at 25% deposit and potentially buy 3-4 instead of 1?

  14. Your paying interest for both £120,000 the new mortgage and the £45,000 equity loan. So you wouldn't make much ?

  15. Hi Tony.
    r.e. your episode on un-mortgagable properties. 
    Friend of mine got a great deal on an ex council house with concrete cancer, he did a lot of research and could find no tangible evidence that concrete cancer would in reality ever be a real problem. the house it was suggested could outlive a convensional brick built house of the same era. 
    Because the property (in Bristol) was un-mortgagable he eventualy purhased for half the marketable value of the brick houses on the opposite side of the same street!

  16. Another lovely video that is succinct and fairly comprehensive, for the simple example shown. I think you've cracked it in terms of showing the videos Tony !

  17. All to do with ‘high gearing’ and brinkmanship. Money doesn’t work hard for you, people work hard.

  18. The equity I take out of my buy to let, can I then use that money to start property investing as a ltd company without paying cgt. So effectively buying another property with the equity but as a ltd not as an individual?

  19. so you have your first home, and you borrow between the mortgage paid off and the increased value of the house? lets say this is 75.000, what is the bank likely to loan, unto 80% of that? you then get a loan calculated on paying this back? and you'll no doubt be assessed that you can afford it? then you take a mortgage on the second rental income, but because you just increased your loans by taking equity will there ever be a problem actually getting mortgage approved, or does the bank understand its all for a good return

  20. I have £60k to invest should I buy a property outright up north or buy one for £160k for example with a mortgage. I want it as a retirement plan in 25 years to pay an income. Money has been borrowed from our current home. Can you do a video on that.

  21. I have a few questions Sir

    So I definitely want to get into the property investment world and I am 20 and I want to use this strategy
    So #1 if I had to use it how long would it take to do this ?
    #2 How much would you need to pay if you only wanted to go up to 12 houses on mortgage ?
    And in your personal opinion is this a good strategy in order to buy 12 houses ?

  22. Very timely video, I’m working out whether to release equity from my video. I suppose the benefit of leaving equity in the property is a better interest when remortgaging therefore a lower monthly payment assuming all other variables are the same. I’m working with tight figures, so fingers crossed. I like your approach and style, very down to earth. Thanks.

  23. wouldn't you have more equity if you purchased using a capital repayment mortgage as the difference in price from interest only isn't really worth it after the fixed term ends just seems like by far the safer option overall

  24. Hi,

    So, one of my dad's properties has about 60k of mortgage left on it and is valued at 350k, if I buy the property for 70k, am I able to remortgage the house and invest the money into elsewhere?

    sorry if this seems a bit of a no-brainer, some of us specialise within different areas haha

    many thanks

  25. You left out how the refinace would than increase your monthly mortgage payments? I'd love an option that wouldn't increase my payments because that eats into my profit on my rental property leaving me in the sameboat. I'm trying extremely hard to build multiple streams of income.

  26. I'm confused. Your example doesn't seem to include the interest payments on the £120,000 mortgage which would need to be a Buy To Let mortgage. Those monthly repayments could be £500 which wipes out any profit.

  27. Love this video and thanks for the info. I’m 20 years old and I really want to be a property investor someday. You really motivate me, really wish I had a mentor just like you ❤️

  28. I’m a big fan. Just started doing research into real estate investment and from your videos I believe you’ve painted a very real picture. Thank you!

  29. Regarding the example, to borrow £225,000 you would need an income well above average. For example, if your lender offered you 4x your salary you would need to be earning £56,250.

  30. Hey Tony, great video. But I got a question(s)…

    How is it exactly that u pull ur money out? Because although I may be getting another mortgage which will cover all costs (deposit, refurb, e.t.c), it’s still a mortgage. So wouldn’t I have to keep paying for it monthly?

    I’m sure that if u have something like 10,000 left over from the mortgage, u can’t just put that into a bank account or another house right?

  31. Hey Tony please help me understand this ?? So after you remortgage the first house do you still only owe the bank £180 K for the first house even though it’s now worth £300k but the bank have now given you £225K to pay back the £180 K that’s why you have £45 K ‘extra’ money to buy a second property??? Please reply back ??

  32. Would you advise using all of your capital on an initial house purchase Tony? It would be reflected in the house value in about a years time.. am thinking could then unlock that as equity for another purchase? Any advice?

  33. Exactly what I was looking for so thank you for that. I do have a question about paying back the interest on the mortgages. If you use a 6% rate then on the 180k youre paying 10.8k and then ontop of that youre paying 2.7k. Then as you say the cash flow from the second house is 675 but thats not covering the payments. Are you also assuming that the first house is renting out as well and covering payments? I suppose my query is Im struggling to see where the money is being made here?
    Cheers! George

  34. Hi tony im wondering if you have a video for people who are cash buyers who don’t need to have a mortgage and the pros and cons of buying with cash vs mortgage. Thanks

  35. Great video. I have a small 3 bed with 100k equity in it. However I want to move out and rent it out as I feel the roi is good. I also want to remortage and buy my first btl? It's the capital gains and stamp duty, tax etc that puts me off? What would you do? Would you go into rented property?

  36. Hi Tony, great video – just regarding the equity at 5:01 on the video – will they just pay the £45,000 straight into your bank account in cash? be great to understand how this works and what other criteria needed for this to take place as it is essentially a cash loan right? … many thanks!

  37. I'm confused, question. So equity is the amount of the home minus the mortgage paid but how does the equity belong to me or who really owns the equity and to do what with.

  38. Nice explanation. Everyday with my clients, I try being as detailed as possible when giving investment explanations.

  39. Great content, thank you. What happens when you refinance on the first property? Don't your mortgage payment go up? If you are looking to rent the first property that you just refinanced, I guess you would want to make sure that the rents covers mortgage and service charge (if it's a flat). Thanks

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