The Secret Revealed On How You, Too, Could Achieve Financial Freedom Through Ownership (and Telling Pension Companies Where To Put Your Measly, Worthless ‘Pensions’) Geoff Morris is a self-made real estate millionaire who made it in less than 18 months, even with a busy ‘day job’. He has written a number of articles to help people like you achieve the same levels of success, as long as you’re willing to ‘Go for it!’
Many people these days are becoming more concerned as they approach retirement age. Even those in their twenties begin to worry about the effects of old age. What has caused such a dilemma in those so young? Is it the difficult pension situation in this country that is causing this concern?
Probably.
But there is a solution to all this that could not only eliminate this fear, but also drastically improve the lifestyle of everyone involved.
What is this solution?
Most people are taught to believe that their main goal in life is to own their own home and have paid for it in full by the time they retire.
Why?
What’s the point of scrimping and scraping throughout your working life only to have to sell your house and drive the market down, or worse yet, sell and rent, while trying to make ends meet on a pitifully small handout from the Condition? ?
As soon as you have bought your first home, you should be thinking about buying your second and your third, and your fourth…..
“What for?”, will be the answer from most of you, “we can only pay the first refunds, let alone buy more”.
Let’s look at the way most people buy a home and then look at some alternative methods.
The usual way to acquire a house is to put down a large deposit, somewhere in the order of 10-15%, which on an average £200,000 house will equate to around £30,000.
The next route is to take out a fixed-term mortgage, say 15 to 25 years, where you’ll pay a combination of interest on the outstanding loan, in addition to paying the principal.
In addition to this, most people will take out some other financial service such as an endowment policy along with a life insurance policy during the term of the mortgage, so at the end of the mortgage term, they will not only own house absolutes, but also have a lump sum. It’s not a very large lump sum, as much of the insurance premiums would have gone toward the life coverage purchased.
Now, we’ve all seen how donations have failed terribly lately due to overly optimistic performance, so there’s no guarantee that the above route will produce anything other than a tremendous financial drain on this person over a very long period of their lives, and with no real plans for their future except home ownership, a small endowment, and probably a ridiculously low pension to support them in their retirement years.
However, there is another way. Interested? Then keep reading….
Let’s look at a totally different scenario, where the couple looking to buy their first home took the advice of a specialist from one of the most reputable real estate clubs out there. It is true that these clubs are usually aimed at real estate investors, but isn’t that what we should all be?
Now, let’s take our example of the £200,000 dream home for our hopeful homebuyers. They see a dream home development by one of the nationally recognized home builders. Do you think they could persuade the developers to pay the 15% deposit for them? On their own, it’s not a possibility, but if our hopefuls go through one of these ownership clubs, chances are the developer is now willing to pay 15% as a ‘gift’.
I can see your expression now. “Not a chance,” you say. But it happens, and we can organize presentations to make this possible.
So now you’ve bought your house, and instead of having to find a £30,000 deposit, all you have to do is get a mortgage.
Now, when you move into a house, especially in your early years, the chance of you staying there for the life of the mortgage is highly unlikely. You can change jobs; you may want to move to a different area, or there may be many other reasons why you may want to move in a few years. So the house you’ve bought is just a temporary residence, and you could almost treat it like a rental property, but with one big difference.
Whether you paid the deposit, or received 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, over time, will always rise.
So, since this is a ‘temporary’ residence, why opt for a mortgage that includes a repayment element? Why not opt for what is known as an interest only mortgage? So this is a loan where you never pay any of the principle of the loan, just the interest. You’ll need to repay the principal at the end of the term, but we’ll show you how easily that can be done a little later.
Your situation now is that you are paying the minimum minimum mortgage payment, but you also have a considerable amount of GROWING principal! You don’t have to pay for an expensive endowment policy, although a life policy may well provide your other half with a blanket of comfort.
But now look at another effect, which is called ‘Leverage’. With a no down payment deal, the leverage is huge, but consider the case where he bought a £200,000 house and put down a 10% (£20,000) deposit. If the house goes up in value by 10%, the equity in your house will have increased by about £20,000. Now your initial investment was £20,000, so you will have DOUBLED your investment in 12 months. Not bad huh! Try doing it at your local bank, or even if you dare, at the Stock Exchange!
So let’s say house prices increased by only 5% per year for the next 2 years. This would mean an increase in your principal (equity is the difference between the value of your house and the amount of the mortgage on it). This would mean that you now have an additional £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 his house was now worth £221,000, which he now owns (£221,000 – £170,000), which works out to about £55,100.
wow! £55 that belongs to you!
Now, let’s do something with this money!
With a good clean credit history after the last 2 years (assuming you have not defaulted on your mortgage payments), you may now be able to refinance your home. You can go to your current lender (if you have a penalty period on your mortgage), or you can go to any other lender and negotiate up to 90% (subject to your financial status) OF YOUR NEW HOME VALUE.
90% of £221,000 is £198,900. So you can free up nearly £30,000 of equity in your home. And the best thing about this money is that it is completely tax-free! No capital gains to pay and no income taxes! If you don’t believe me, talk to an accountant.
In fact, many people have done this, but then spent the money on new cars, boats, vacations, and the like, but once the money is spent this way, it’s gone forever.
But how about you go and buy another house, this time as an investment property?
You never know, your friendly developer may be persuaded to give you another gift deposit, in which case you could buy several more houses (your only expense is legal fees, broker fees, and stamp duty, which on a property from £200,000 it 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 these houses? And how, if they all have £170,000 mortgages on them, are you ever going to meet the payments? Assuming a 5% interest rate, that would be around £700 per property per month! £4,200 a month mortgage! Forbidden sky. How would you sleep at night with that level of debt in your name?
A few years ago this would have been impossible as there was no real financial system that would allow an individual to do this. However, you can now get what’s known as a ‘buy-to-let’ mortgage, where lenders typically lend up to 85% of the property in question, as long as the anticipated rental income covers the payments, plus a little. The ‘plus a little’ tends to vary from lender to lender, but you can quickly get an answer from lenders as to whether they will honor the loan. Also, if you are going to receive a ‘gifted deposit’, only a few lenders will offer 85% of the list price, so again you will need to use a real estate club or broker who is used to this. situation.
So now you are the lucky owner of 6 investment properties as well as your own home.
You also have a commitment to pay off 6 investment mortgages, adding up to a total of £4,200 per month!
But, you don’t want to have to pay that, do you? Nope! You have tenants, who very kindly pay the mortgage for you (plus a little for your pocket and 10% or so for a managing agent to take care of the tenants). You can also take out insurance to cover rental loss, damages, legal fees in disputes, so it’s eminently possible for you to become an ‘armchair’ homeowner investor.
However, he now owns 6 investment houses, not one. He has already seen how equity can be built up in his own home. So let’s take a look at each of your investment properties.
If each property was worth £200,000 and you got a 15% gift deposit on each, you’re already looking at around £30,000 worth of equity in each unit.
If each property increased in value by just 5% per year, that would be £10,000 of each unit.
Just look at what you would be earning. You would now own a property portfolio of 6 investment properties worth £1,200,000 of which you would have an instant capital of around £180,000, and this would increase (by just 5%) by around £60,000 each year. Without compounding this increase, if you were to sell all your investment properties after 10 years, you would walk away with over THREE QUARTERS OF A MILLION POUNDS!
So, do you still believe that, whatever it takes, your main goal in life is to pay off the mortgage?
By all means, have this intention, but only after you have made so many other gains that you can really afford this luxury.
This is just one of a series of informative articles published by Geoff Morris.
Other includes:
• “How to generate an income of more than £30,000 per year without leaving your day job” • “How to benefit from non-plan property purchases and what dangers to be aware of” • “How to use a SIPP (Self Investing Pension fund) to grow your portfolio and protect it from the Tax-Man!”
Other items can be viewed by simply registering on their real estate investment page at [http://www.propertyprofits4you.com]