Essential Property Investment Calculations: The numbers led approach to property investment and property management

by Robert Heaton

If you have bought well during the recovery phase and used the ripple effect to your advantage, you may well have experienced some strong capital growth by the later part of the cycle. At this point, you might be tempted to re-mortgage one or more of your properties at a higher LTV and pull some of your capital out, thereby allowing you to re-invest and expand your portfolio. If you do decide to re-mortgage, make sure you properly model the impact on cash flows (see Golden rule # 1). The increase in borrowing will increase your finance costs, which will reduce your cash flow. As such, you should do this only if the property has experienced strong price growth and an increase in cash flow due to an increase in the market rent. Some investors, I’m one of them in fact, like to keep a number of unencumbered properties in their portfolio. Having properties without mortgages on them means you’ll have a stronger monthly cash flow to ride out any dip in market rents or an increase in interest rates. You’ll also have a strategic asset you can sell or mortgage if you suddenly need a chunk of cash quickly.