I have some good news.  Inflation is coming down and the recovery will be slow.  This means one thing:

Low interest rates.

How long for is an educated guess but it could be quite safely until end of 2011.  This is excellent news for current landlords.  Low interest rates mean either:

1. Really great cashflow or
2. Quicker repayment of repayment loans

Now the first is obvious.  Most buy to let mortgages are interest only so lots of landlords are experiencing really good cashflows.  I would struggle to find a landlord that is not doing well.

The second is not so obvious.  If you obtained commercial finance then you will know that it is always repayment and usually over a shorter period of time of 15 years.  I have secured loans and mortgages that are repayment with one commercial lender and I was analysing one of the statements the other day.

It was for a 15 year £100k loan I got around 5 years ago.  The balance is £64k and my loan repayments are fixed at £1497 per month but the interest is 2.5% above base.  At current rates this loan is going to be settled 5 years early.

So lets just say the low interest rates remain for the next 5 years I will end up owning around 40 properties with no mortgage.  I did not expect that! 

Low interest rates are really great for anyone who is in debt.  It is really really bad if interest rates are high but can I ask you do you think we will ever go back to interest rates being greater than 6%?  It is a tough call to make but if you do call it and make a decision then you can expect to become wealthy in the long term.

If you take on debt, ride it out for 20 years then you will make more than you could ever make from your salary over the same period.  Trust me and play with the figures.

A person who earns £25,000 per year will earn £690,000 over a 20 year period in absolute terms.

If this same person had £1m in borrowings with £1m worth of property then the value of the properties will be £1.8m in 20 years.  That is a profit of £800,000.     

So working 20 years you make £690,000.

Investing in £1m worth of property and then do nothing for 20 years you make £800,000.

What would you rather do?

The correct answer should be borrow as much as you can and buy as much property as you can!

If that was your answer then speak to us.

Ajay

Posted on: 30th Mar 2010