If you’re trying to determine how to start a property portfolio with no money or have a low starting budget, you’re likely considering a buy-to-let mortgage.
While this is a popular decision among landlords, one of our top tips is to avoid buy-to-let mortgages if you’re a cash buyer and can afford it – particularly if you’re planning for retirement.
The reason we say this is that BTL mortgages are different to typical residential mortgages.
Aside from the fact that BTL mortgages require a larger deposit (usually around 25%), they are also interest-only.
This means that every month, mortgage payments will only cover the interest without touching the overall debt.
Then come to the end of the mortgage term, you will have to pay off the total debt, usually by remortgaging or selling your properties to cover the cost.
Naturally, if you’re planning for retirement and want to make a profit on your property you won’t want to be forced to use your sale to cover the mortgage payments.
You can get mortgage relief if you really need to use mortgages, but you may require forming a limited company to get the best returns.
You will also find it harder to get a BTL mortgage if you are purchasing an off-plan property, due to the added risks that come with buying off-plan.
In any case, when thinking about how to build a property portfolio, the way that your investments are financed is an essential factor to consider.
You can learn more about buy-to-let mortgages and forming a limited company in our buy-to-let tax investment guide.