Four Profit Levers in UK character Investing

Four Profit Levers in UK character Investing




Whenever you buy a buy to let residential character for investment purposes, there are only four areas where you can make money which are commonly known as the profit levers. This article assumes that you are buying with a mortgage as most character investors do these days.

PROFIT LEVER 1 – DISCOUNT

Whenever you buy an investment character you should always aim to buy with a discount no matter how small as this will multiply many-fold over the term of your buy when in conjunction with profit levers 3 and 4 below.

But it is important that when you do your research on your possible buy, the numbers stack up already without the discount as you should not rely on the discount you might unprotected to to bring the buy into a positive position.

Also, you should do your own diligence on comparable similarities to ensure that any discount achieved is real and is no due to the price being inflated artificially to permit discount.

PROFIT LEVER 2 – RENTAL INCOME

The monthly rental income is the bread and butter of every character investor and is the gift that keeps giving. This is the money that pays all the bills for the character and the balance, after meeting the bills and putting your contingency into a separate explain rainy day issues, is your profit and can be used as wages for you or saved for future investments.

With rental income, it is important to ensure that you are knowledgeable about the local market rents and to ensure that each year you raise the rent by between 3-5% to keep you in a position to permit future remortgaging of the character

PROFIT LEVER 3 – REFINANCING

Every 2-4 years, you need to look to remortgage your investment similarities with a view to releasing a lump sum income from the additional equity generated on your character.

This is achieved as the UK character market grows steadily and the value of a character doubles, on average, every 8-10 years so you are looking at an annual year on year rise of around 8% so after a few years, you can see a meaningful growth in your character equity.

By drawing out this equity on a regular basis, you receive a tax-free sum which can be used to but other income producing assets like more houses and investments or to use some, or all, of it to treat yourself!

PROFIT LEVER 4 – EQUITY GROWTH

As mentioned above, with the growth in the UK character market, a typical residential character will double in value, thanks to compounding, in around nine years. The equity of 25% that was held initially in the character is retained already with the refinancing activities that will have been carried out.

For a character initially purchased at, say, £100k, there will have been £25k place as initial equity equivalent to 25% of the buy price left in the deal so with the growth in value of the character, this initial 25% will nevertheless keep as the equity portion of the growth, but will have also doubled in value to £50k although this money can only be recovered on the sale of the character and would be unprotected to taxation.

These are consequently the four areas where profit can be achieved on each and every investment character you buy so when you are doing your due diligence, always do your calculations based on these areas of profit.

Remember – you make your money when you BUY a character, not sell it!




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