Cash vs Mortgage Guide
For the long-in-the-tooth investors, they know that borrowing money from the bank to buy property can make you more money from your investments than paying cash. The only question that you need to ask yourself is if you are comfortable going to sleep every evening when you owe the bank money, and there are instances when it has gone horribly wrong for some investors.
In general, interest mortgage payments need to be less than 75% of the rental income (many banks will stipulate this as part of their lending criteria), what happens if mortgage interest rates increase? Do you have a fixed interest mortgage? What happens if the rental yield decreases? What margin do you have before they will not cover the interest payments?
With the finance option you can also use the increase in property values to increase the mortgage against the property and invest in more properties (releasing equity). Using the example, the houses have increased by £268,000 and you can ask the bank to release 80% of this and purchase
more properties in the same way, maybe another 4 or 5!
With a well-balanced portfolio, and a good loan-to-value ratio, you have opportune exit routes that can produce a worry-free retirement. If you have a good-sized portfolio with bank finance, then you can sell a part of your portfolio, take the profit, clear the finance on the retained properties, and then simply draw rent as your retirement income.