1st BTL now...am I crazy?

[Douglas Arfempty]

After some advice please gents.

Currently living in a 2 bed semi with a LTV of around 60%.
Just had an offer accepted on a 3 bed detached which shall become primary residence.
Planning on letting out current property by taking out a new LTB mortgage at 75% LTV, which shall release enough equity for deposit on new property.
Will have 2 mortgages sat at 90% and 75% respectively.
House will let for £450 a month. BTL Mortgage interest only at £209 a month (2 yr fixed ~4%).
We've got someone lined up to rent our house out already.
Mortgage advisor said income not an issue (60k joint).

We are thinking long term pension, not that this will be the first of many etc.

With all the recent spotlight on BTL are we crazy for considering this now?

Thanks,

[Eric Mc]

The landscape is changing so what you might have been expecting may not turn out quite as good.

[andy43]

Douglas Arfempty said:

are we crazy

At those returns, possibly yes. House worth, what, roughly 90k? You're only clearing about 3% based on £240 profit a month, and that's not taking into account voids, repairs, insurances, possibly lettings fees etc. If you think long term the house will increase in value then maybe it's worth a go, but it's risky. A new boiler will wipe you out for 6 months for example.
My maths might be way off though

[TFP]

If you're saving for retirement, why not maximise your pension?

[Muffster]

Hi mate I'm fairly similar to you, I've got 2 BTL properties.
Have you read though these 2 threads, it might help shed a light.

http://www.pistonheads.com/gassing/topic.asp?h=0&a...


http://www.pistonheads.com/gassing/topic.asp?h=0&a...

[Behemoth]

andy43 said:

If you think long term the house will increase in value then maybe it's worth a go, but it's risky. A new boiler will wipe you out for 6 months for example.

This is why most invest in property. Essentially, the monthly income covers running costs (including your new boiler scenario) and meantime the asset gradually increases in value over the long term. Long term means just that - 10 years at the very least.

[Eric Mc]

And always ensure you factor in the Capital Gains Tax liabilities that will arise.

[CarlosFandango11]

Eric Mc said:

And always ensure you factor in the Capital Gains Tax liabilities that will arise.

And always ensure you factor in any capital gains that may arise.

[Eric Mc]

CarlosFandango11 said:

Eric Mc said:

And always ensure you factor in the Capital Gains Tax liabilities that will arise.

And always ensure you factor in any capital gains that may arise.

If you haven't got a Capital Gains Tax liability, you probably made a really bad investment.

[ITP]

Or if you just keep it forever, live off the rent in retirment until you die then there in no capital gain tax as it just becomes part of your estate to pass on. I think.

[Eric Mc]

In most cases, that is how it would work out.

You generally only have a Capital Gain when you dispose of an asset during your own life and make a profit on the disposal.

[Ozzie Osmond]

Douglas Arfempty said:

Planning on letting out current property by taking out a new LTB mortgage at 75% LTV,

We are thinking long term pension.

Let's break this down,

1. You are going to substantially increase your borrowings, in order to
2. Invest for your pension.

Would you borrow money to make any other type of investment? If not, why are you doing it for BTL?

Compare:
1. Buy yourself a nicer house to live in with no (or small) additional borrowing
2. Enjoy the nicer house and tax free capital growth on your main residence
3. When you retire downsize the house, pocket the tax free capital gain and invest that cash to generate income
4. At any stage along the way surplus income/cash can be invested in pension and/or ISA with excellent tax relief.

I'm not saying there's any magic answer; simply that there are alternatives. And this particular alternative avoids the exposure of heavy borrowings to (a) future interest rate increases, and (b) future reduction of BTL interest tax relief.

In the brave new world a higher rate taxpayer gets 40% tax relief on pension investment and only 20% tax relief on BTL interest. The pension investor has no exposure to interest rate rises or tax relief removal from cash that's already invested. The pension investor doesn't have to pay Stamp Duty, solicitors or estate agents. The pension investment can be in a UK property fund if the investor really does want to invest in property [not to be confused with the BTL bubble].

There's more than one way to skin a cat.

[33q]

I have 6 buy to lets. I return 6.3% on what I invested but I have doubled my capital value....the oldest is 20 years ago.

I think 3% is tight especially as you are very committed on your own home.

I'm only paying 3% mortgage .... could you not get better terms?

Is or do you think the house is in an up and coming area or is it stagnant with lots of cheap rentals?

£450 is low for a house. I let a tiny 2 bedroom cottage (Notts village so not that far from you) for that amount with only storage rads for heating. Do you think you could get more?

[CaptainSlow]

Eric Mc said:

In most cases, that is how it would work out.

You generally only have a Capital Gain when you dispose of an asset during your own life and make a profit on the disposal.

What is the liability if you give the property away to a child?

[98elise]

Behemoth said:

andy43 said:

If you think long term the house will increase in value then maybe it's worth a go, but it's risky. A new boiler will wipe you out for 6 months for example.

This is why most invest in property. Essentially, the monthly income covers running costs (including your new boiler scenario) and meantime the asset gradually increases in value over the long term. Long term means just that - 10 years at the very least.

I'm a landlord and I know quite a few other landlords. We all let as income, and capital growth is just a bonus. I only buy if I can achieve over 6% yield, which gets me between 12-14% return on cash invested (at 75% LTV). As rents rise those % also rise. As part of a balanced pension plan thats a good return on cash. I doubt I'll ever see the captial growth cashed.

Obviously some LL's will invest for growth, but I doubt its the majority.

[Eric Mc]

CaptainSlow said:

Eric Mc said:

In most cases, that is how it would work out.

You generally only have a Capital Gain when you dispose of an asset during your own life and make a profit on the disposal.

What is the liability if you give the property away to a child?

None. If you give something away you can't have made a gain as you have received no proceeds on a sale.

However, if you die within 7 years of making the gift, the land and property will still be considered to have been part of your estate for Inheritance Tax purposes.

Obviously, if you gift a property to someone, it mist be clear that you have absolutely no rights to that property or income derived from it from the date the gift was made.

[Behemoth]

98elise said:

I'm a landlord and I know quite a few other landlords. We all let as income, and capital growth is just a bonus. I only buy if I can achieve over 6% yield, which gets me between 12-14% return on cash invested (at 75% LTV). As rents rise those % also rise. As part of a balanced pension plan thats a good return on cash. I doubt I'll ever see the captial growth cashed.

Obviously some LL's will invest for growth, but I doubt its the majority.

I'm a landlord, too. Like any business, your cashflow needs to be positive and you cannot risk break even scenarios. Hence the yield equation. But it's not going to be much income unless you own a large number of properties (or a few very high value ones) and it's then a full time job. The wise approach is long term growth whilst keeping ongoing costs healthily covered (>5% net yield if you can get there, certainly over 3%). Returns don't make any sense until you net them, including taxes and financing costs.

[BoRED S2upid]

Why interest only? If it's going to form part of your pension don't you need to pay off the mortgage to enable the income to currently £450 pcm to go into your pension?

Do the calculation on repayment only and if the income still works then go for it. Interest only IMO is pointless.

[33q]

BoRED S2upid said:

Why interest only? If it's going to form part of your pension don't you need to pay off the mortgage to enable the income to currently £450 pcm to go into your pension?

Do the calculation on repayment only and if the income still works then go for it. Interest only IMO is pointless.

It all depends on the cost of finance. In my case I'm paying 3% and that is 2.4% net and will continue to be as I'm a 20% tax payer.

Even on a ISA I can get 3% net over the same period as the fixed rate mortgage so I can make a margin on that.

If I use the repayment amount to put towards a new deposit on another house I think I can do better than 3%.

Like many businesses you have to build up your margins over a number of years

[poocherama]

Eric Mc said:

CaptainSlow said:

Eric Mc said:

In most cases, that is how it would work out.

You generally only have a Capital Gain when you dispose of an asset during your own life and make a profit on the disposal.

What is the liability if you give the property away to a child?

None. If you give something away you can't have made a gain as you have received no proceeds on a sale.

However, if you die within 7 years of making the gift, the land and property will still be considered to have been part of your estate for Inheritance Tax purposes.

Obviously, if you gift a property to someone, it mist be clear that you have absolutely no rights to that property or income derived from it from the date the gift was made.

I hope you're not an accountant spouting this nonsense on the internet.

If the property is not your main residence and you gift it to a child its seen as a disposal by HMRC and you'll be liable to pay CGT on any gains. You can use your/wifes CGT allowance and there are other allowances available. Go see an accountant!

https://www.gov.uk/tax-sell-property