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How to Buy a House Without a Mortgage

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Last week I mentioned that I would tell you how to buy a house without getting a mortgage. Let me give you a real life example of one of my deals.

I bought a house in Burnley. Letís run this as an example of what you can do and how you can do it. Obviously the figures for you will be different, but you need to start where house prices are low, but rents are not too low. What is important is not necssessarily the prices I have used here, although they are real, what is important is the principle.

The first point to be careful about is that you have to start with as small an outlay as possible and aim for as high a rent as possible after having done any necessary upgrading.

Before I get going let me deal with one probable complaint about the example. My example uses a cheap house, but the house you want to buy probably costs a lot more. Let me remind you that this is an example about how to do things in such a way that you get where you want to be within a relatively short time. You donít start with the mansion, you work up to it.

Okay, letís get started.

I needed £30,000 to buy this house. You can get an 80% buy-to-let mortgage, which means you need to put up £6,000 of your own money, and then you will have a £24,000 debt at roughly 5% interest. However, that will get you into a dead-end situation. There is no way forward using that method. Well, there is. You pay off the mortgage over twenty years and then you can get onto the next deal. Thatís no way to operate. You live in a capitalist society, make use of capitalism. Get that money working. Hereís what you do.

If you go to the bank to get a loan to buy a car you will probably find you can get a loan of £9,000 quite easily, probably at a rate of about 6%. You can do this with three banks. (Obviously you need to have accounts at three banks which have been operated with money going in over a period of at least six months, and preferably for about a year. You can always set up direct debits from one bank to another so you roll your money round. Remember, the further you roll your penny the more money it picks up.

Okay, so you've been successfully running these three accounts for ten or twelve months. You managed to have each account holding about £1,000. Now you go in and ask for your loans to buy this car. You now have three loans of £9,000, or £27,000 available, plus £3,000 in cash. You are now in a position to buy this property in Burnley.

Okay, so you have bought and done up the property. Now you rent it out, getting £130 a week for it. You can now get it valued, and get a loan secured on it. Your existing loans are costing you roughly £135 per week. Okay, you are losing £5 a week, but you do have a mortgage-free house, so what do you expect? You are at least in the position of being able to buy your next property straight away.

Your house now values up at about £35,000 because you have tarted it up. You get an interest-only 80% mortgage on it at about 5%. You now have £28,000 in your pocket and you can buy the house next door, only you donít. You go upmarket. You push yourself. You go to a better area where the rents are higher and you can get £145 a week.

Your new mortgage is costing you £1,400 a year. Your new rent is bringing in £7,000.

So for the first few months you had a hard time because you were running at a small loss, but by starting things the right way round you are now running with a nice little profit. You aren't going to be able to retire for a long time yet, but you are now well on your way. You have a nice little business. You own two houses, have a plus figure coming in, and a totally mortgage free property. So you mortgage that second property and buy something else, going upmarket again.

The important thing in the equation is to get the cheapest possible house for the largest possible rent within your means. Within five years you will be doing very nicely, and can chuck in the day job. Do things the other way round and you will be ready for your second mortgage after about twenty years, and by the time you retire you will have perhaps two properties.

You could add in the use of credit cards to help you buy a more expensive property.

Normal thinking is to use credit cards for consumer spending. You find something you want to buy but you donít have the cash to purchase it so you use the credit card. The problem with this is that if you canít afford the item in the first place, then you most certainly canít afford to pay for it and pay the credit charge on top, so you are, putting it bluntly, a total idiot.

The way to use credit cards is to use them for capital expenses, and pay your consumer bills with cash.

There is no earthly reason why you should not be able to get cards with £6,000 limits. You would need five such cards to get £30,000. Although not all issuers allow you to take out cash up to the limit on the card, so six cards would be a better option. Some lenders only allow you half of your credit limit in cash. You need to be careful therefore when you apply for cards. Telephone the issuers and ask them some searching questions. Ask what their policy is over credit limits. Ask them how you can use the cards and whether you can take out cash, and up to what limit. You donít want more than a couple of cards that donít allow cash withdrawals up to, or almost up to the credit limit.

You also need two cards that you can use for shuffling. Shuffling is the way you handle credit card debt. No professional will simply use a card up to its limit and then calmly pay the interest. The professional shuffles. To do this you need to telephone the issuer, probably every three months, to check what promotional deals they are offering. As mentioned above I regularly get interest free deals, and deals at low interest rates. You are specifically looking for deals at 5.9% or less, but you should be hoping to get some at 0%. First, check out the opening deals. Then check out the transfer deals.

A judicious combination of car loans and credit card cash will buy you a cheap house with relative ease. Naturally you dont buy a wasting asset (the car).

By using a combination of bank loans and credit cards you can probably buy two properties a year without much trouble, and then get normal mortgage finance on those mortgage-free properties to expand. Within five years you can not only chuck in the day job, but you could also start to live to a much higher standard. However, the sensible person takes a view on this. The object of the exercise is to reach a certain level of income before you start to use it. In the early stages of growing your business you should be putting up with a poor life, working hard, and ploughing all your money back into the business. When you reach what is for you your magic income, then you can start to relax and spend some of your gains.

You should now be able to see the importance of rolling your penny through as many hoops as possible so that as it rolls through each hoop it picks up more money which can be channelled into your pocket. The more convoluted the deal, the more possibilities there are of extracting profit at each point of convolution.

Remember the golden principle. Money is your servant. Put it to work. And then put other people's money to work for you as well. You will be surprised how quickly you start to become wealthy.

Next week we'll look at buying investents.

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