Buying Properties With Cash

Buying Properties With Cash

If you are wondering whether buying properties with cash is a good idea, you need to watch this video. Recently, Samuel has been working closely with high net-worth individuals and celebrities to help them diversify their portfolios. He was astounded by the number of them who wanted to invest by using cash only. Buying properties with cash isn't necessarily the best option regardless of your status or level of wealth. Samuel says you should be using mortgages and if you want to understand why, watch the video!

Imagine two scenarios which are almost identical. Both involve a 30 year old investor with £1,000,000 to spend in the UK property market. The only difference is that they choose to use cash in the first scenario and a mortgage in the second. Let's think about how that would play out.

Scenario 1

In the first situation, they buy a house worth £1,000,000 and get a 10% rental yield. That means they're making £100,000 per year minus some expenses but there's no mortgage interest payments to worry about. It's a nice income and they wait for the value to rise so that the property can be left to their children. In the UK, property values will rise as we are over-populated and have a shortage of houses. Typically, the house prices double each decade. That means his £1,000,000 house will be worth £4,000,000 in 20 years. So, his legacy to his children is a £4 million property. Nice!

Scenario 2

What happens if they opted for a mortgage instead? Instead of buying one house, they would buy 4 houses worth £1,000,000 each by putting down a £250,000 deposit on each. That means they have 4 mortgages worth £750,000 each and they are officially in debt. Bad news, right? Wrong! In 30 years, each house will be worth £4 million which gives the total portfolio a value of £16 million. This is the power of leveraging and good debt. The mortgage debt would be £750,000 multiplied by 4 which equals £3 million. Subtracting that from the portfolio value gives £13 million. That's more than three times the net worth of the chap in the first scenario.

Magic! Watch the video to hear more about the cash vs mortgage argument.

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