Investment ‘gurus’ advocate making an asset ‘sweat’. In other words, making it produce the maximum return possible.
Property is a great asset class, but many properties are not optimally geared/mortgaged to produce the maximum net rental return for their owners. They are simply not ‘sweating’.
This is usually as a result of the original mortgage having been paid off and the property being treated as a low-risk investment.
Yes, it is low risk in one respect, but you can still enjoy a low-risk investment and get a much better income stream by mortgaging it correctly.
As our long-standing clients will know, the Global Financial Crisis of 2008/2009 taught us all about the perils of borrowing money and has made us very risk-averse for ourselves and our clients.
Nevertheless, a conservative level of gearing which can easily be serviced from the rental income can be a safe and profitable strategy.
A typical example is a London rental property with a low or non-existent mortgage. The rental income should be secure (although relatively low), and it could be remortgaged and the funds invested in another property.
Whilst the capital gain from two properties is an obvious benefit, the real benefit is the considerably enhanced overall net rental income.
Importantly, the property you invest the funds in must be in a sector with an attractive, ongoing rental demand to ensure you are able to service the debt component.
The affordable co-living/HMO sector is one such sector – its strong rental demand is not going to disappear in the foreseeable future, irrespective of issues such as Brexit or anything else. The ongoing and intractable housing shortage problem will see to that.
The good news is that this strategy, if implemented correctly, can produce a substantially increased income stream with minimum risk.