Is this the way you'd do it? (Landlords)
Discussion
Another topic for landlords...apologies!
Currently have a BTL, and we want another. We have enough equity in the current BTL to release 40-50k ish which is enough to put down on a second. Then once we have two under our belt we will look to move into a house ourselves (time frame of 1-2 years, just saving, using no equity this time, no rush at all.), meaning the place we are in now also eventually becomes a BTL, making 3 and a home. My plan was to keep repayments up high to pay them all off quicker, this leaves a very minimal profit each year but I'm looking at the end game, no mortgages and three incomes (and the option to perhaps buy more). But would you do it that way? I just want to check that although this may not be a traditional way to do it, it's a way that makes sense still? How did you start and what did you do differently when building a portfolio?
Thanks
Currently have a BTL, and we want another. We have enough equity in the current BTL to release 40-50k ish which is enough to put down on a second. Then once we have two under our belt we will look to move into a house ourselves (time frame of 1-2 years, just saving, using no equity this time, no rush at all.), meaning the place we are in now also eventually becomes a BTL, making 3 and a home. My plan was to keep repayments up high to pay them all off quicker, this leaves a very minimal profit each year but I'm looking at the end game, no mortgages and three incomes (and the option to perhaps buy more). But would you do it that way? I just want to check that although this may not be a traditional way to do it, it's a way that makes sense still? How did you start and what did you do differently when building a portfolio?
Thanks
DomBertone said:
But would you do it that way?
You'll be paying shed-loads of avoidable taxes.If you want to invest for your future, which appears to be the case, tax-advantaged pensions and ISAs make a lot of sense.
- No Stamp duty on purchase - BTLs pay full normal rate plus an extra 3%
- No capital gains tax on sale - BTLs are charged an enhanced rate of 28%
- No income tax or capital gains tax on ISA
- No income tax or capital gains tax as pension accumulates and 25% completely tax free at the end
- No estate agent or solicitor to pay
- No tenants to deal with
- No repairs
It sounds like a massive headache to me and will be verging on a full time job with so much to tend to.
You will pay so much in stamp duty over time, there will taxes to pay on your gains and there is every chance you will begin to lose out if for whatever reason the properties aren't occupied.
Being a BTL landlord isn't as worthwhile as it used to be, it certainly isn't an attractive proposition to me.
But, like others have said, if you're up to it, prepared to pay heaps in taxes and duties then go for it.
You will pay so much in stamp duty over time, there will taxes to pay on your gains and there is every chance you will begin to lose out if for whatever reason the properties aren't occupied.
Being a BTL landlord isn't as worthwhile as it used to be, it certainly isn't an attractive proposition to me.
But, like others have said, if you're up to it, prepared to pay heaps in taxes and duties then go for it.
OP is already a landlord and therefore obviously knows full well what is expected and what tax rate his gains are calculated.
Personally I wouldn't be pulling equity out of BTL's right now with the planned tax changes from now until 2020. But it sounds like you're capable of saving a good deposit. Maybe look at either paying down your existing BTL to get a better return now, and then investing that return somehow.
I personally prefer less individual BTL's with more equity than lots of BTL's with little equity. The former puts you at higher profit margins with less work, the latter gives more scope for capital gain (what are your expectations?) but much more maintenance costs and less freedom to unload in a downward market.
Anything you do with property right now needs deep consideration into what you expect UK property to do over the next ten years.
Personally I wouldn't be pulling equity out of BTL's right now with the planned tax changes from now until 2020. But it sounds like you're capable of saving a good deposit. Maybe look at either paying down your existing BTL to get a better return now, and then investing that return somehow.
I personally prefer less individual BTL's with more equity than lots of BTL's with little equity. The former puts you at higher profit margins with less work, the latter gives more scope for capital gain (what are your expectations?) but much more maintenance costs and less freedom to unload in a downward market.
Anything you do with property right now needs deep consideration into what you expect UK property to do over the next ten years.
Ozzie Osmond said:
You'll be paying shed-loads of avoidable taxes.
If you want to invest for your future, which appears to be the case, tax-advantaged pensions and ISAs make a lot of sense.
All true, but ISAs pay FA.If you want to invest for your future, which appears to be the case, tax-advantaged pensions and ISAs make a lot of sense.
- No Stamp duty on purchase - BTLs pay full normal rate plus an extra 3%
- No capital gains tax on sale - BTLs are charged an enhanced rate of 28%
- No income tax or capital gains tax on ISA
- No income tax or capital gains tax as pension accumulates and 25% completely tax free at the end
- No estate agent or solicitor to pay
- No tenants to deal with
- No repairs
Be aware of the new BTL lending criteria and also residential mortgages are starting to take that into consideration so could you afford both mortgages if it was vacant.
The rent cover is now also at 5.5% so ultimately means your going to have to put in more cash or buy a cheaper option if that's possible.
The rent cover is now also at 5.5% so ultimately means your going to have to put in more cash or buy a cheaper option if that's possible.
battered said:
From where? All the "special offers" I get offer 1-2%!
You may be looking at Cash ISA rates which have suffered severely, along with interest rates generally, since the banking sector meltdown of 2008. The result is that cash in an ISA earns almost nothing and the available tax relief on almost nothing is also "almost nothing".Stocks and shares ISAs are available from many providers including Fidelity and Hargreaves Lansdown, both of which have excellent websites and are very accustomed to dealing with small investors. Good success has been achieved with investment in various mainstream "funds" available within an ISA.
There is, as always with such things, the risk of losses - particularly in the short term. If you click around this finance forum there have been a number of recent threads about ISA investment which may be helpful.
Hi all, thank you for your suggestions. I'm on mobile so sorry for the poor format and lack of quoting, but to try and answer some of these thoughts:
I had worked out that the properties we were looking at would return from 45k around 8% (after costs) a year without considering any capital appreciation. For that reason I wrongly thought it was a much better return than a stocks and share ISA, I will be looking into that as a possibility too now.
In regards to releasing equity, we have 53k left on a 140k flat, and we wouldn't be doing anything until next March, I don't think taking it to 90k is that much of a push? I think by then we would know (as well as you can) if releasing equity is a good idea, but without doing it I can't see a way forward to creating a healthier income anyway.
I mentioned wanting to do it for down the line, retirement...I do...but I also want to reap the benefits earlier. I know you can't have it all but generally speaking I want to create a passive income great enough to one day be able to lessen my actual working hours. We currently save a good amount. And so any void periods don't worry us, neither does taking out the extra equity, I'm certain with rates where they currently are (yes I know they will rise one day) the money is best released and used elsewhere.
I also wondered the landlords who go interest only, what's their end game? What do you do when you sell? Or do you not sell? Can't see a way that replicates that income once you've had to clear your mortgages...maybe I need a workshop!
I think in short, we are ready for a little risk because we really want to try and improve our situation and we aren't getting any younger, I'm just questioning the best way forward, you've all made some great points, thanks.
I had worked out that the properties we were looking at would return from 45k around 8% (after costs) a year without considering any capital appreciation. For that reason I wrongly thought it was a much better return than a stocks and share ISA, I will be looking into that as a possibility too now.
In regards to releasing equity, we have 53k left on a 140k flat, and we wouldn't be doing anything until next March, I don't think taking it to 90k is that much of a push? I think by then we would know (as well as you can) if releasing equity is a good idea, but without doing it I can't see a way forward to creating a healthier income anyway.
I mentioned wanting to do it for down the line, retirement...I do...but I also want to reap the benefits earlier. I know you can't have it all but generally speaking I want to create a passive income great enough to one day be able to lessen my actual working hours. We currently save a good amount. And so any void periods don't worry us, neither does taking out the extra equity, I'm certain with rates where they currently are (yes I know they will rise one day) the money is best released and used elsewhere.
I also wondered the landlords who go interest only, what's their end game? What do you do when you sell? Or do you not sell? Can't see a way that replicates that income once you've had to clear your mortgages...maybe I need a workshop!
I think in short, we are ready for a little risk because we really want to try and improve our situation and we aren't getting any younger, I'm just questioning the best way forward, you've all made some great points, thanks.
Edited by DomBertone on Thursday 21st July 21:23
Dom: I've been involved in property almost all my working life which has now almost ended. Such involvement as I've had with financial instruments has rarely proved much better than nothing whilst property has proved to be a very worthwhile investment of time and resource indeed.
There are times - periods of time - when even the most naive and inexperienced property newbie would have to really work at failing to make a substantial profit from property. But in order to make profit throughout a career in the industry outside those rare but super-fruitful periods what is required is no different from what is required in any other business and probably profession as well. The usual things bring success in property. Growing and gathering experience; expanding network of connection; continual research and increasing knowledge; a modicum of fortune; and the ubiquitous hard work. The last is probably the most important. As per usual the harder one works the luckier one gets. Not really much different from anything else really.
I'm sure, unless you are extraordinarily lucky, it won't be much different in stocks and shares. I'm sure the folk who turn even a modest profit from the investment market don't pick their funds with a pin. And I'm certain (because I know a few of them) the guys who do really well from stocks and shares have all invested and continue to invest a lot of time and effort into understanding the market and its nuances.
I often buy modest property - both residential and commercial- very cheaply. I then spend a bit making it really quite attractive and fully functional. This gets it occupancy, and experience allows me to choose successful occupants who pay a reasonable rent for lengthy periods.
There will never not be cheap modest property. And there will never not be lower incomed or unwaged decent people who appreciate it. Pretty safe bet really. There will also never not be other operators in the sector who become the associates who will always take it off one's hands if liquidity is required.
Property every time for me. Much much less of a gamble and far far more predictable than the paper market.
There are times - periods of time - when even the most naive and inexperienced property newbie would have to really work at failing to make a substantial profit from property. But in order to make profit throughout a career in the industry outside those rare but super-fruitful periods what is required is no different from what is required in any other business and probably profession as well. The usual things bring success in property. Growing and gathering experience; expanding network of connection; continual research and increasing knowledge; a modicum of fortune; and the ubiquitous hard work. The last is probably the most important. As per usual the harder one works the luckier one gets. Not really much different from anything else really.
I'm sure, unless you are extraordinarily lucky, it won't be much different in stocks and shares. I'm sure the folk who turn even a modest profit from the investment market don't pick their funds with a pin. And I'm certain (because I know a few of them) the guys who do really well from stocks and shares have all invested and continue to invest a lot of time and effort into understanding the market and its nuances.
I often buy modest property - both residential and commercial- very cheaply. I then spend a bit making it really quite attractive and fully functional. This gets it occupancy, and experience allows me to choose successful occupants who pay a reasonable rent for lengthy periods.
There will never not be cheap modest property. And there will never not be lower incomed or unwaged decent people who appreciate it. Pretty safe bet really. There will also never not be other operators in the sector who become the associates who will always take it off one's hands if liquidity is required.
Property every time for me. Much much less of a gamble and far far more predictable than the paper market.
OP have you actually asked your mortgage BTL provider currently what if any increased borrowing they would offer on your 2x BTL's?
Previously it was easy value gone up interest multiplier was a low 100-110% and then it was at the current interest rate - not is 125-140% interest cover along with 5.5%. If this cannot be covered off the assumed equity you have to reinvest simply is not accessible.
This has all changed in the last 12months.
Clearly if you are a cash buyer no issue otherwise it means vastly higher deposit to values OR massively higher rental rates (neither of which might be possible). BTL has certainly especially since April turned into a wealthy persons game.
Previously it was easy value gone up interest multiplier was a low 100-110% and then it was at the current interest rate - not is 125-140% interest cover along with 5.5%. If this cannot be covered off the assumed equity you have to reinvest simply is not accessible.
This has all changed in the last 12months.
Clearly if you are a cash buyer no issue otherwise it means vastly higher deposit to values OR massively higher rental rates (neither of which might be possible). BTL has certainly especially since April turned into a wealthy persons game.
Ozzie Osmond said:
battered said:
From where? All the "special offers" I get offer 1-2%!
You may be looking at Cash ISA rates which have suffered severely, along with interest rates generally, since the banking sector meltdown of 2008. The result is that cash in an ISA earns almost nothing and the available tax relief on almost nothing is also "almost nothing".Stocks and shares ISAs are available from many providers including Fidelity and Hargreaves Lansdown, both of which have excellent websites and are very accustomed to dealing with small investors. Good success has been achieved with investment in various mainstream "funds" available within an ISA.
There is, as always with such things, the risk of losses - particularly in the short term. If you click around this finance forum there have been a number of recent threads about ISA investment which may be helpful.
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