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I would like advice on how to stress test your portfolio. I have recently agreed 3 new BTL each roughly 100k.
100k, 75%LTV, int only 5 year fixed 2.6%, 150ish per month leaving me with a positive £300-400 cash flow per month per property
However, if after the 5 years interest rates have gone up and the next product I get is 6 or 7% does this totally obliterate my cash flow? In other words any interest rate increase of note will make any BTL income extremely difficult if you are highly geared.
Perhaps I am missing something obvious or am I right?
``A lot of property groups, gurus, mentors, etc bang on about gearing but it can leave you really exposed. It’s just something for them to seem knowledgeable.``
What happens though if you actually are knowledgeable
Gearing is a valid strategy and yes you can leave yourself exposed if you do it wrong
Do it right though and its makes you wealthier quicker
In the past I geared @ 85% when my mortgage rates were 7% and that was fine
Because i was making 20- 40% on each £1 I borrowed , I banged on about gearing to people
Some people listen and take action , some say thanks but no thanks . Fair enough
2% rates are better of course but 7% is not a show stopper.
The figures shouldn`t hold people back .
Its the fear of those figures though that can sap the spirit in some
Jonathan Clarke. http://www.buytoletmk.com
``I agree but you must have had very healthy yields to make 20-40% roi with 7% rates. ``
Yes about 10% . Max was 15% But the ROI is not determined on yield alone of course
Some i would have and did do on 5% yield if the buying price was right
``Out of interest if you was starting now what yield would you look for for A.75% ltv B.60% ltv?``
Yield I look for will maybe be between 6% - 8%
The LTV is not really a factor in determining that percentage
Its more a question of
Can I add value
Can I buy at a good price
Yield on debt is more important to me than yield on purchase price
Possibly yes if the attraction of the deal was significant and i had to lower the LTV to get the multipliers for the loan criteria to work
Yield on debt is explained here
My favourite calculation though is ROCE = Return on cash employed
With leveraging and equity release its fairly easy over time to reach infinity yield on a new purchase
Infinity yield is the mouth watering statistic i like to acheive
This makes property beat all other asset classes by a country mile in my view