Steering to Gearing

Whether you’re a first-time, seasoned or curious investor, your next move must be planned and meticulous. 

If the past two years have taught us anything, it’s that we simply don’t know what’s around the corner and being shrewd with your investments can at least keep you ahead of the curve.

As a seasoned investor, you may be familiar with “gearing” your deposit. Simply put, this is splitting your starting capital (deposit) into smaller chunks. With this set in motion, rather than lumping all of your deposit into one property, you will find that with these smaller chunks, you will be able to purchase multiple. 

You may have started the process for an extra income stream, for capital growth or pension provisions for the future. Whatever your initial goal, you’ve now spread your risk and return over not one property, but multiple.

With buy to let mortgages available from as little as a 25% deposit, you will quickly find with the right planning and preparation, gearing could be easier than you think. 

But I only have 25% for one property. This is where you evaluate your motivations for becoming an investor and landlord. Are you limiting your options to one particular location? Are you perhaps pricing yourself out of this location? Are you maximising your return? Could you make a better return by reviewing your plans.

If your plan is to make a steady return, not phased by rapid growth and the potential to increase your portfolio, then stick to what you know. If your plan is to expand your portfolio and open yourself up to multiple income streams, you may be wise to look at other areas and locations.

Most starting investors stick to what they know, limiting their options to a location they’re familiar with, typically near to where they reside. Whilst this has it’s benefits from being on hand for maintenance, to being aware of the demographic and your target market, you could be limiting your returns.

Letting Agents aren’t a bad thing and with most charging from 8%-12% pcm management fee, you may be wise to broaden your horizons to areas outside of what you know, maybe hundreds of miles away, where your deposit is better geared and the returns multiplied. Your portfolio will be managed for you, and your income passive.

We will cover in a later article about locations and how to maximise your deposit but for now, our takeaway would be to not necessarily stick with what you know and that by dividing your deposit up into bitesize chunks, your returns could be maximised.