The 2 year cashflow rule that will build your buy to let property portfolio…

The “2 year cash flow” is one of the most important concepts you’ll learn when building a property portfolio. It’s a simple formula that most people forget to calculate prior to committing to buying a property, yet it will guarantee the long term health of your portfolio, even through market downturns.

In most cases people will work out the initial acquisition costs and as long as they have to the funds required to purchase this they will dive head first into purchasing.

Funnily enough, even though some of these people will consider the monthly mortgage they will neglect things like service charges & ground rent. Whilst this is a problem by far the biggest problem lays in the fluctuations in interest rates.

Capital growth will make you money but not having capital growth is nothing more than a frustration. The real major issue is a lack of cash flow to pay the mortgage and interest rates are the thing that most affects your ability to pay your mortgage.

I have never heard of a house being repossessed due to negative equity but l know 100s that have been due to not paying the mortgage (lack of cash flow).

Now this whole issue is negated if you buy when interest rates are at their highest but you never know this for sure (except in hindsight).

I have a client who every time that interest rates go up 0.25% he has to find an extra £4500 each month. You can imagine how much that would hurt if he hadn’t made allowances.

OK, so l think we both realise how essential it is to consider the cash flow of each property. So now lets consider the mechanics of working it out to ensure you both take full advantage of your capital and don’t take any unmanageable risks.

To read the rest of this article, click thru to my blog: The 2 year cashflow rule that will build your buy to let property portfolio…

~ by Brett Alegre-Wood on July 21, 2007.