Financial freedom using the equity in your home.
The secret disclosed on how you too could achieve financial freedom through
property (and tell the pension companies just where to stick their measly,
worthless 'pensions') Geoff Morris is a self-made property millionaire
who made it in less than 18 months even with a hectic 'day job'. He has
written a series of articles to help people like you achieve the same
levels of success - as long as you are willing to 'Go For It!'
|Many people these days are
getting more and more concerned as they approach retirement age.
Even those in their late twenties are beginning to become concerned
about the effects of old age. What has brought on such a dilemma
in those so young? It is the plight of the pensions in this country
that is causing this concern?
But there is a solution to all this that could not only remove this
fear, but also dramatically improve the lifestyle of all concerned.
What is this solution?
Most people are brought up to believe that their main goal in life
is to own their own house, and have fully paid for it by the time
What is the point in just scrimping and scraping throughout your
working life only to have to sell your house and move down market,
or worse still, sell up and rent, while you just try and make ends
meet on a pitifully small handout from the State?
As soon as you have bought your first house, you should be thinking about
buying your second and your third, and your fourth...
on earth for" , will be the retort of most of you, " we can only just
afford the repayments on the first one, let alone buy any more"
Let's look at the way most people buy a house, and then lets look at some
The usual way of acquiring a house is to put down a large deposit - somewhere
in the region of 10 - 15%, which on an average £200,000 house will
equate to around £30,000.
The next route is to take out a repayment mortgage over a fixed term,
say 15 to 25 years, where you will be paying a combination of interest
on the outstanding loan, as well as repaying the capital.
On top of this, most people will take out some other financial facility,
such as an endowment policy coupled with a life insurance policy for
the period of the mortgage, so at the end of the mortgage term, they
will not only own the house outright, but also have a lump sum. Not
a very large lump sum, as a lot of the insurance premiums would have
gone towards the life cover purchased.
Now, we have all seen how endowments have failed terribly of late due
to overoptimistic performance, so there is no guarantee that the above
route wil produce anything other than a tremendous financial drain on
this person for a very large period of their lives, and with no real
plan for their future except ownership of a house, a small endowment,
and probably a ridiculously low pension to keep them going in their
However, there is another way. Interested? Then read on..
Let's look at a totally different scenario, where the couple looking
to buy their first house took specialist advice from one of the more
reputable property clubs that are around. These clubs are admittedly
usually aimed at property investors, but isn't that what we all should
Now, let's take our example of the £200,000 dream house for our
hopeful house buyers. They see a development of dream houses by one
of the nationally recognised house builders. Do you think they could
persuade the developers to pay the 15% deposit for them? On their own
- not a chance, but if our hopefuls go via one of these property clubs,
the chances are that the developer would now be willing to pay the 15%
as a 'gift'.
I can see your expression now. "Not a chance" you say. But it does happen,
and we can arrange introductions to make this possible.
So, you now have bought your house, and instead of having to find £30,000
deposit, al you have to do is get your self a mortgage.
Now, when you move into a house, especially in your early years, the
chance of you staying there for the term of the mortgage is very unlikely.
You may change jobs; you may want to move to a different area, or there
may be many other reason why you will want to move within a few years.
So, the house you have bought is only a temporary residence, and you
could almost treat it as a rental property - but with one big big difference.
Whether you paid the deposit, or whether you got this 'gifted' deposit
from the developers, this money, this equity in the property is YOURS.
And not only that, it is a historical fact that house prices, given
time, will always increase.
So as this is a 'temporary' abode, why go for a mortgage that includes
a repayment element in it? Why not go for what is known as an interest
only mortgage? What this is then is a loan where you never pay back
any of the principle of the loan, but only the interest on it. You will
have to pay back the capital at the end of the term, but we will be
showing you how easy that can be achieved a little bit later.
Your situation now is that you are paying the barest minimum mortgage
repayment, but are also sitting on a considerable amount of INCREASIING
equity! You do not have to pay for an expensive endowment policy, although
a life policy may well give your other half a comfort blanket.
But now look at another effect, which is called 'Leverage'. With a no-money
down deal, the leverage is enormous, but consider the case where you
bought a £200,000 house and put a 10% (£20,000) deposit
down on it. If the house goes up in value by 10% the equity in your
house will have increased by some £20,000. Now, your initial investment
was £20,000, so you will have DOUBLED your investment in 12 months.
Not bad huh! Try doing that at your local Bank, or even if you dare,
the Stock Market!
So, let's say house prices went up by just 5% per annum over the next
2 years. This would mean an increase in your equity (equity being the
difference between the value of your house and the amount of the mortgage
on it). This would mean you now owned an extra £10,000 after the
first year (5% of £200,000) and £21,000 after the second year
(5% of £210,000 + £10,000 from the previous year). This would
mean that your house was now worth £221,000, of which you now owned
(£221.000 - £170,000) which comes to some £55,100.
Wow! £55 Grand that belongs to you!
Now, let's do something
with this money!
With a good clean credit record after the last 2 years (assuming you had
no defaults on your mortgage payments) you could now refinance your house.
You could go to your existing lender (if you have a penalty period in
your mortgage), or you could go to any other lender and negotiate up to
90% (subject to your financial status) of THE NEW VALUE OF YOUR HOUSE.
90% of £221,000 is £198,900. So you can release nearly £30,000
out of the equity in your house. And the best thing about this money is
it is totally tax free! No capital gains to pay and no income tax! If
you don't believe me, speak to an accountant.
Many people have in fact done this, but have then spent the money on new
cars, boats, holidays and the like, but once the money is spent in this
fashion, it is gone for ever.
But how about if you went and bought another house, this time as an investment
You never know, your friendly developer may be persuaded to give you another
gifted deposit, in which case you could buy several more houses (your
only expense being legal fees, broker's fees, and stamp duty, which on
a £200,000 property would come to around £5,000). In this
case, with your £30,000 you could buy another 6 houses!
But how do you go about buying all of these houses? And how, if they all
have £170,000 mortgages on them are you ever going to meet the repayments.
Assuming an interest rate of 5%, that would be about £700 per property
per month! £4,200 per month mortgage! Heaven forbid. How would you
sleep at night with that level of debt to your name?
Some years ago this would have been impossible as there was no real financial
system that would enable an individual to do this. However, now, you can
get what is known as a 'Buy To Let' mortgage, where lenders will usually
lend up to 85% of the property in question, as long as the anticipated
rental income will cover the repayments , plus a bit. The 'plus a bit'
tends to vary from lender to lender, but you can very quickly get an answer
from lenders on whether they will meet the loan. Also, if you are going
to get a 'gifted deposit', there are only a few lenders who will offer
85% of the list price, so once again, you will need to use a property
club or a broker who is used to this situation.
So, you are now the lucky owner of 6 investment properties, as well as
your own house.
You also have a commitment to pay 6 investment mortgages as well, and
we totalled that as being some £4,200 a month!
|But - you don't want to
have to pay that do you? No! You get tenants in, who very kindly
pay the mortgage for you (plus a bit for your pocket and 10% or
thereabouts for a managing agent to look after the tenants). You
can also take out insurances to cover loss of rent, damage, legal
fees on disputes, so it is eminently possible for you to become
an 'armchair' investor landlord.
However, you now own 6 investment houses, not one. You have already
seen how equity can build up in your own house. So let's look at
each of your investment properties.
If each property was worth £200,000, and you got a 15% gifted
deposit on each one, you are already looking at an equity of some
£30,000 in each unit.
If each property increased in value by just 5% per annum, that's
£10,000 from every unit.
Just look what you would be gaining. You would now own a property
portfolio of 6 investment properties worth £1.200,000 of which
you would have instant equity of around £180,000, and this
would be increasing (at just 5%) of some £60,000 every year.
Without compounding this increase, if you sold all of your investment
properties after 10 years, you would walk away with well over THREE
QUARTERS OF A MILLION POUNDS!
So, do you still believe that - whatever the cost - your main objective
in life is to pay off your mortgage?
By all means, have this intention - but only after you have made
so many other gains that you can really afford this luxury.