We’re just completing our first portfolio mortgage for an overseas client here in Buffalo. Mortgage Lending on a portfolio is in effect, the ‘magic ingredient’ in an investor’s portfolio. While the costs can be higher than regular bank lending, the lending for foreigners is quite competitive and user friendly, and of course Increases our ROI enormously.

To show the difference, here’s the deal we just did without lending and with lending. The buyer took a $500,000 mortgage over 10 years (30 year amortization) with a portfolio value of $770,000.

Let’s look at the portfolio if you just bought it cash –

-$770,000 – let’s say 14% Gross Yield and 10% net yield.

-Net return = $77,000 per annum on $770,000 expenditure = 10% ROI

So, in short –

With 0% capital growth = 10% ROI

With 5% capital growth = total 15% ROI

With 10% capital growth = total 20% ROI

Let’s look at the portfolio with the lending –

-$1.4m – let’s say 14% Gross Yield and 10% net yield.

-$500k loan so $270k expenditure plus closing costs of $21k = $291,000.

-Net return = $77,000 per annum income minus $35,000 in loan interest (@7% interest rate) on $291,000 expenditure = 14.4% ROI (assuming interest only – return would be higher with amortization)

With 0% capital growth = $42,000 = 14.4%

With 5% capital growth = $38,500 + $42,000 = 27.6% ROI

With 10% capital growth = $77,000 + $42,000 = 40.89% ROI 

So, as you can see, even with this simple comparison, the income increases when less capital is deployed. The effect of the mortgage lending acts as a multiplier for capital growth gains. But even without capital growth the return is over 40% higher in % terms.

If you’d like to look at mortgage options for your portfolio, give me a call or email, and we can look at what’s the best way forward.

For more information and/or to set up an informal chat about your investment requirements, please contact me on alan@abbotsinchcapital.com