Should you use credit cards, overdrafts and personal loans to build your portfolio.
Brett Alegre-WoodChairman, YPC Group
Hey guys
One of the great things about building a portfolio in the UK is that you are not confined to just your income and rent you receive to fund your portfolio. You have access to any number of sources of capital including 0% credit cards, overdrafts and personal loans that will give you up to £25,000 unsecured or more if you secure it against one of your existing properties.
Now before I continue let me say that I am not a big fan of consumer related debt, nor do l think that using high interest rate debt is necessarily a good idea. However if you are building a portfolio then you have the choice of employing any and all means to build that portfolio and credit cards and personal loans is a great way to do this - as long as you manage it.
The first point l make is a one of language. As a society we attach so much negative emotion to the word 'debt'. So the first thing I do is drop the word 'debt' and replace it with 'capital'. Successful people use capital to build wealth.
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The only difference between this capital and say cash is that this capital will affect our cashflow in the form of repayments.
The second point is that even if you borrow £25,000 for your portfolio, you can only invest about £15,000 of it as the other £10,000 must be used for repaying the debt of the following 2 years. (£400 per month by 2 years of repayments). If you don't understand this please go back and read my 2 year cashflow rule.
The third point around this is one of emotion. You may not see much happening in the form of growth for some time yet you will see you repayments coming out each month. It's a nerve racking experience at the best of times. Often times you will label your property investment as a poor investment rather than accepting the high risk strategy you have adopted.
Make no mistake it is a much higher risk strategy than other ones but as always the rewards are greater.
So the final point around using this form of capital is 'Be careful!' if you use it you must pay it back.
It's so important to run the numbers upfront in order stay on top of the cashflow.
Live with passion,
Brett Wood
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