Funding Your Rental Purchase: Step by Step

Whether you’ve got lots of capital and are a cash buyer or you need to borrow money to finance your rental property purchase, there’s a lot to think about.

The right financing can make the difference between a good rental investment and a GREAT one, so it’s worth spending some time working out what’s going to be right for you and your individual circumstances.

Here’s a handy summary checklist to help you decide:

Benefits of buying with cash

• Could help you snap up a bargain
• Gives you peace of mind that you own the property outright
• No mortgage payments mean higher monthly rental profits

Benefits of buying with a mortgage

• You can spread your capital across several properties, rather than putting it all into one
• Leveraging the lender’s money could result in much better returns
• It can help you afford to buy a better rental investment
• You share the risk with the lender
• Mortgages are one of the cheapest ways to borrow money

Do you meet the lending criteria?

• Check your credit score – is it good? If not, can you do anything to improve it?
• Know the lender’s interest cover ratio / ‘multiplier’ and use it to work out whether an application is likely to be approved
• Find out what other lending criteria could affect you
• If you’ve got flexibility in the amount of deposit you can put down, it might help you get a better interest rate
• Speak to a mortgage broker to check you’ve got access to the best deals

Borrowing from another source

• Is the borrowing secured or unsecured?
• What’s the interest rate?
• Do you understand all the terms?

Understand the risks

• Are you happy taking on the debt?
• Are you confident you’ll be able to make loan repayments?
• Do some ‘scenario planning’ – what would happen if you lost your job, the market fell or your tenant stopped paying?

If you’d like to talk over anything about financing, buying or letting property, we’d love to hear from you! Call us directly on 01268 955001 or email pippa@baillie-white.co.uk, and one of the team will be in touch.