My New Property Investment Project

26 Apr 2007

10th September 2007 UPDATE : I’m happy to say that this project has now been complete. I raised just over 15k. You can read about it here, I Raised My 15k (Plus More)

Ok, folks, I’ve actually come up with a new project. I thought of this project while I was in the shower; cleaning the sweat off my soft bollocks that I accumulated whilst at the gym. So, here’s my plan…

Currently, I have a mortgage debt of about 150k (I want to kill myself every time I remind myself) on one particular property. However, the mortgage policy I have on my property is interest-only, so I’m not actually paying off any of the debt, I’m just paying off the interest on the debt. The reason I never initially went for a repayment mortgage (where I chip away at the loan amount every month) was because my rental income wouldn’t have covered the monthly mortgage payments, so I would have had to pay out of my own pocket. I wanted a repayment mortgage, but due to financial circumstances, as I just explained, I opted for the interest-only policy.

Currently, the only way I will make any money on my property is if the property value increases (which it has, since I purchased it). I don’t really like that strategy, I prefer the idea of reducing debt with rental income and increasing equity with appreciation.

As I understand, most high profile landlords don’t actually get repayment mortgages, purely because it’s more financially feasible to get interest-only policies. Ultimately, I COULD save for another property instead of submitting myself to this project, but I think I want to get more experience first, and then maybe look to increase my portfolio.

I figure, if I raise about £15k, and reduce my loan to approximately £135k, I can change the interest-only policy to a repayment mortgage. By reducing the loan amount by £15k, the monthly costs for a repayment mortgage should drop significantly, and my rental income should cover it. Makes sense, right?

Mortgage lenders generally don’t mind if you switch mortgage types, especially if you’re switching from an interest-only to a repayment. I know this because I switched mortgage types when I first applied for a mortgage- you can read about that process, changing mortgage repayment method.

I already have a few ideas in the pipeline that will help me raise some cash. The plan is to document my savings for the next few months. I’m hoping, and estimating, that it will take me a maximum of 5 months. I think I’m being realistic. No, really! And believe me, saving that amount of money won’t be easy, so i’ll have to think of some money making ideas.

I’m going to set up a separate bank account this week, so I can keep a thorough track of the balance. However, as it stands:

Current balance: £0.00

Wish me luck all! Oh, if any of you wonderful people actually want to donate me some money, to help aid this project, just HOLLA! Don’t feel shy.

You can follow the full project here Project 2- Reducing My Mortgage

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