Freeing Up Cash for Purchases

Almost daily there is a news story from some part of the world that claims landlords are looking to expand on their portfolios and buy, buy, buy! This may be because we are coming towards the bottom of the perceived dip in market prices, or it may be that investors are losing faith in other assets. Whatever your reason, though, if you’re thinking of expanding your portfolio, there’s one thing that really counts: cash.

Why does cash matter?

If, as is the case in 90% of property purchases, you’re looking to take credit (i.e. a mortgage) to purchase a property you’ll need to lay down a deposit. This can be as low as 5% if you have a good credit rating, but the more you can put down, the cheaper your mortgage will be in the long run. The key, therefore, to getting a good return, is putting down the biggest deposit you can afford and securing the cheapest mortgage possible.

Existing Sources of Cash

If you have cash in savings or in other investments, your property deposit might be the ideal time to use it. Remember to account for the opportunity cost of the returns you’ve foregone in moving these assets and if you’re earning highly from a share portfolio then it may be best left along. However, it’s usually cheapest to tie in whatever cash you have available to you before looking elsewhere. Equally, chase up any monies you are owed, whether that’s from your tenants, the taxman or even your landlord insurance provider.

Liquidating Assets

If you don’t have huge amounts of savings to spend then your first option is to sell off a little property. Releasing equity may help you fund a new purchase or, possibly, several new purchases. Oddly enough, it may be possible to use other sources to maximise your deposit: using funds from an overdraft for a few months might work out cheaper in the long run.

When looking to free up cash, always thing of the other side of the debate and do remember that you will need some cash to keep running your existing portfolio. It’s around this stage that most landlords turn to a financial adviser to help them keep things in shape, so don’t be afraid to ask for advice.