In the world of property investing, equity is the cash value of your home minus the current loan balance or balances. If you have enough equity within your real estate investment portfolio, you can forget about ever needing money again. In order to retire early and take that lifelong vacation you always wanted or pursue your other dreams, there have been a lot of personal finance experts who have trumpeted the virtues of building equity by buying property in order to let it out to tenants.
A lot of people, even some property owners and novice real estate investors, do not actually understand how equity works or how equity can give you your highly sought after personal financial freedom. It can be confusing, because equity can be a sort of invisible wealth that you never actually see or touch. Equity is not cash so you cannot pay down bills, buy dinner or purchase hard goods with it. So how do you release the equity you have managed to build? Is selling your property the only way to convert your paper wealth in the form of equity into cold, hard cash? While many novice investors may think so, the answer is no. A buy to let remortgage can allow the investor to capture the equity in their property putting cash in their pocket without giving up ownership or rental income.
It is undoubtedly true that you can trade your equity for cash by selling your investment properties. To give an example, if the market value of one of your investment properties is Â£250,000 and you have a Â£200,000 mortgage on it, you have built up Â£50,000 in equity. By selling the property you will make around Â£50,000, minus selling costs and any other expenses associated with the sale. You recovered roughly Â£50,000 in equity, but you gave up your monthly income from tenants and you no longer own the property. You have also eliminated any chance of building additional equity in that property.
With a buy to let remortgage, you can tap some of the equity in your property, but keep ownership, allowing you to continue to receive rents and building equity.. You do not have to cash in your chips before you hit the jackpot with buy to let remortgages.
A buy to let remortgage is essentially a refinance package for property. Buy to let mortgages have been available in the United Kingdom since the latter part of the 1990s. Investors can refinance the properties they own and pay off the existing mortgage, keeping the rest. Essentially, the investor collects some of the property's built up equity. Using the previous example, that 250,000 pound property has a 200,000 pound loan already secured against it. You could theoretically take out a 220,000 pound buy to let remortage on that property. Using the buy to let remortgage money, it's easy to pay off the first mortgage and keep the 20,000 pounds or so remaining.
Investors can use buy to let remortgages to create an influx of cash and keep the rental property to boot. It is entirely possible that, given a strong property market in future years, you can refinance your mortgage yet another time, releasing even more equity. An investor with equity in a number of rental properties, using buy-to-let remortgages every few years can give them enough cash over the years to just work as a professional landlord for their existing properties, eliminating the need for a nine-to-five job.