Every so often, we look at real-life case studies of APW Prosperity investors, to understand how a range of property options can be used by individuals in very different circumstances.
The couple in this case study were aged 34 and 36 at the time of purchase. As a married expatriate couple living and working in Hong Kong, they wanted to ‘get their foot on the ladder’ of property investment and use it as a tool to build up wealth.
Global Financial Crisis
They had owned property in the past, but due to the Global Financial Crisis were unable to keep up repayments, so in 2007 they handed the property back to the bank. Naturally, they were worried that this would negatively affect their credit rating and would prevent them from being able to buy again. With a child on the way, this concern was felt with particular acuteness.
The couple had been living in Hong Kong for ten years, with one of them working as an international school teacher and the other as a construction professional. Despite the high cost of living in Hong Kong, they had managed to accrue £25,000 over this period, and jointly have a monthly savings potential of £2900.
They had been meaning to buy a property for the past 3 years but had a number of anxieties, particularly about their ability to get a mortgage. They were concerned about being rejected and at the same time were very busy with work and unable to search the market extensively to find suitable properties.
The clients were referred to us by an existing client, and we had an open initial discussion with them to assess their financial situation, and to see if property would be a viable option for them.
How APW added value to the process
We offered to research the market for them and in the end suggested they look at funding a property purchase without the need for a mortgage. Although we couldn’t determine their creditworthiness it would be irrelevant for this kind of property purchase. Their credit score would not be assessed during this approach, and once they owned the property it would make further property purchases easier as it restores some of their creditworthiness.
The property we found for them is in one of the fastest growing locations in the UK, the West Midlands. A one-bed property in the Birmingham area costs GBP99,995. Remember the mantras we speak about often: rental yield needs to be attractive, and the property needs to be near an ‘economic centre of gravity’. With these criteria fulfilled, the property is a viable long-term investment.
Buying without a mortgage
The mortgage solution that we proposed is a 50/50 ‘builders loan’. This is an interest free option, offered uniquely by Prosperity. It’s a very elegantly structured product: the client pays 50% over the ‘build period’ of 24 months, and the remainder of the loan is paid through rental income.
What this looked like in the above example:
One bedroom apartment £99,995
50% downpayment £49,997.50
Over 24 months (per month) £2,083
We suggested that GBP2,830 may be a little too close to their monthly saveable income, so to leave a little breathing room, we suggested they use GBP10,000 of their savings as an initial deposit. This would take the monthly savings to GBP1666 and leave them with a safety net in the bank of £15,000.
The net result here: in 9 years the clients have a fully paid-off property, and after 2 years they continue the savings cycle and buy a second property as a home in the UK.