Portfolio building has made fortunes for thousands of property investors over the years. Our investment planning advice has allowed ordinary people with limited capital (sometimes even with no capital) to build property empires of tens, or even hundreds, of houses.
For first-time or inexperienced investors, here is an idea of how easy it is to build a property portfolio with buy-to-let:
When you buy an investment property, the mortgage lender requires a 15% deposit. Therefore, if you buy a property for £80,000, you need a deposit of £12,000.
Let's assume that the property rises in value by 15%. The property is now worth £92,000, giving you a profit of £12,000.
If you want to buy a second property for £80,000 you could use another £12,000 of your savings, or you could remortgage the first property and use the profit you have made as the deposit. We call this 'gearing up'. As the value of your property increases, you can remortgage and further purchases using the profits.
If you are making a profit on the rent from both properties, even with the increased mortgage on the first, this is known as 'positive gearing'.
If the price of both properties was then to rise by just 7.5%, you could remortgage both properties, creating a 15% deposit for a third purchase.
During the last ten years, when property prices in some areas has increased by 200% - 400%, wise investors have built massive portfolios with little initial capital, simply by gearing up.