BTL - how does it make money?
Discussion
So, trying to understand how this BTL makes money, i can't see it unless im not calculating it correctly. Not setup in a LTD co. Just a single person claiming as rental income.
Receipts £5,500 pa
Expenses £1,600 pa
Mortgage Interest £544 pa
Profit = Receipts - Expenses - (Mortgage Interest x 20%)
Profit = 5500 - 1600 - (544 x 20%)
Profit = 5500 - 1600 - (109)
Profit = £3,791
Tax @ 40% on 3791 = £1,516
Thus money remaining 3791 - 1516 = £2,275.
However, monthly BTL mortgage payments are around £235 pm, so £2,820 pa, thus making a loss of £545 (2275 - 2820).
How do BTLs provide income if they are actually loss making?
Receipts £5,500 pa
Expenses £1,600 pa
Mortgage Interest £544 pa
Profit = Receipts - Expenses - (Mortgage Interest x 20%)
Profit = 5500 - 1600 - (544 x 20%)
Profit = 5500 - 1600 - (109)
Profit = £3,791
Tax @ 40% on 3791 = £1,516
Thus money remaining 3791 - 1516 = £2,275.
However, monthly BTL mortgage payments are around £235 pm, so £2,820 pa, thus making a loss of £545 (2275 - 2820).
How do BTLs provide income if they are actually loss making?
Consigliere said:
So, trying to understand how this BTL makes money, i can't see it unless im not calculating it correctly. Not setup in a LTD co. Just a single person claiming as rental income.
Receipts £5,500 pa
Expenses £1,600 pa
Mortgage Interest £544 pa
Profit = Receipts - Expenses - (Mortgage Interest x 20%)
Profit = 5500 - 1600 - (544 x 20%)
Profit = 5500 - 1600 - (109)
Profit = £3,791
Tax @ 40% on 3791 = £1,516
Thus money remaining 3791 - 1516 = £2,275.
However, monthly BTL mortgage payments are around £235 pm, so £2,820 pa, thus making a loss of £545 (2275 - 2820).
How do BTLs provide income if they are actually loss making?
Well the simple answer is that your rental income needs to be higher, and your expenses lower, and to not be a 40% tax payer helps too.Receipts £5,500 pa
Expenses £1,600 pa
Mortgage Interest £544 pa
Profit = Receipts - Expenses - (Mortgage Interest x 20%)
Profit = 5500 - 1600 - (544 x 20%)
Profit = 5500 - 1600 - (109)
Profit = £3,791
Tax @ 40% on 3791 = £1,516
Thus money remaining 3791 - 1516 = £2,275.
However, monthly BTL mortgage payments are around £235 pm, so £2,820 pa, thus making a loss of £545 (2275 - 2820).
How do BTLs provide income if they are actually loss making?
Consigliere said:
However, monthly BTL mortgage payments are around £235 pm, so £2,820 pa, thus making a loss of £545 (2275 - 2820).
How do BTLs provide income if they are actually loss making?
The mortgage repayments aren’t a loss! They are paying back the principal of the loan. Yes there is negative cash flow, but that’s not the same as there being a loss. How do BTLs provide income if they are actually loss making?
Think of it as the owner making £2,820 of repayments for just £545
Then add in the price appreciation to complete the picture.
LooneyTunes said:
The mortgage repayments aren’t a loss! They are paying back the principal of the loan. Yes there is negative cash flow, but that’s not the same as there being a loss.
Think of it as the owner making £2,820 of repayments for just £545
Then add in the price appreciation to complete the picture.
Exactly what i was trying to type before I gave up, and phrased better to boot!!!Think of it as the owner making £2,820 of repayments for just £545
Then add in the price appreciation to complete the picture.
LooneyTunes said:
Consigliere said:
However, monthly BTL mortgage payments are around £235 pm, so £2,820 pa, thus making a loss of £545 (2275 - 2820).
How do BTLs provide income if they are actually loss making?
The mortgage repayments aren’t a loss! They are paying back the principal of the loan. Yes there is negative cash flow, but that’s not the same as there being a loss. How do BTLs provide income if they are actually loss making?
Think of it as the owner making £2,820 of repayments for just £545
Then add in the price appreciation to complete the picture.
That money is profit regardless of what you do with it. Paying down the mortgage is just reinvesting it.
I take the profit as income. I don't pay any of my BTL's mortgages off unless I have spare cash for a lump sum payment.
Edited by 98elise on Wednesday 2nd February 10:21
Consigliere said:
So, trying to understand how this BTL makes money, i can't see it unless im not calculating it correctly. Not setup in a LTD co. Just a single person claiming as rental income.
Receipts £5,500 pa
Expenses £1,600 pa
Mortgage Interest £544 pa
Profit = Receipts - Expenses - (Mortgage Interest x 20%)
Profit = 5500 - 1600 - (544 x 20%)
Profit = 5500 - 1600 - (109)
Profit = £3,791
Tax @ 40% on 3791 = £1,516
Thus money remaining 3791 - 1516 = £2,275.
However, monthly BTL mortgage payments are around £235 pm, so £2,820 pa, thus making a loss of £545 (2275 - 2820).
How do BTLs provide income if they are actually loss making?
I may be wrong but I think your calcs are wrong.Receipts £5,500 pa
Expenses £1,600 pa
Mortgage Interest £544 pa
Profit = Receipts - Expenses - (Mortgage Interest x 20%)
Profit = 5500 - 1600 - (544 x 20%)
Profit = 5500 - 1600 - (109)
Profit = £3,791
Tax @ 40% on 3791 = £1,516
Thus money remaining 3791 - 1516 = £2,275.
However, monthly BTL mortgage payments are around £235 pm, so £2,820 pa, thus making a loss of £545 (2275 - 2820).
How do BTLs provide income if they are actually loss making?
You calculate the 40% tax on £3,900 and then add back the 20% tax relief on interest. I think that gets you to £2,449 not £2,275.
98elise said:
LooneyTunes said:
Consigliere said:
However, monthly BTL mortgage payments are around £235 pm, so £2,820 pa, thus making a loss of £545 (2275 - 2820).
How do BTLs provide income if they are actually loss making?
The mortgage repayments aren’t a loss! They are paying back the principal of the loan. Yes there is negative cash flow, but that’s not the same as there being a loss. How do BTLs provide income if they are actually loss making?
Think of it as the owner making £2,820 of repayments for just £545
Then add in the price appreciation to complete the picture.
That money is profit regardless of what you do with it. Paying down the mortgage is just reinvesting it.
I take the profit as income. I don't pay any of my BTL's mortgages off unless I have spare cash for a lump sum payment.
Edited by 98elise on Wednesday 2nd February 10:21
Abdul Abulbul Amir said:
I may be wrong but I think your calcs are wrong.
You calculate the 40% tax on £3,900 and then add back the 20% tax relief on interest. I think that gets you to £2,449 not £2,275.
Thanks im no tax expert so you may be well correct. Good news as its a slightly better position for me!You calculate the 40% tax on £3,900 and then add back the 20% tax relief on interest. I think that gets you to £2,449 not £2,275.
My situation is slightly different, bought a flat to live in in 2006, yup right before the big crash. Not a problem as i needed somewhere to live but it was in a poverty stricken area hence it was something i could afford at the time. Several years later, job opportunity meant i moved to another city - too far to commute so went to sell up, valuations came in which would have left me in serious negative equity, so instead i rented it out.
One thing i didn't realise was when i bought it was there was less than 80 years remaining on the lease - i did realise but didnt know what this meant when selling in the future. Thus as the lease shortens the value of the property hasnt grown as a freehold property or a long lease property would.
The area hasnt improved over the years and at a guess i would be lucky to get 20% increase in what i paid in 2006 - and a lot less potential buyers due to cash only (would be very hard to get a mortgage based on the remaining lease).
With inflation going up, utilities, new NI increase, ive decided to take a look at my finances again and see where i can tighten the belt so to speak.
I am an accidental landlord, it wasnt a strategy just limited options at any given time
One thing i didn't realise was when i bought it was there was less than 80 years remaining on the lease - i did realise but didnt know what this meant when selling in the future. Thus as the lease shortens the value of the property hasnt grown as a freehold property or a long lease property would.
The area hasnt improved over the years and at a guess i would be lucky to get 20% increase in what i paid in 2006 - and a lot less potential buyers due to cash only (would be very hard to get a mortgage based on the remaining lease).
With inflation going up, utilities, new NI increase, ive decided to take a look at my finances again and see where i can tighten the belt so to speak.
I am an accidental landlord, it wasnt a strategy just limited options at any given time
Edited by Consigliere on Wednesday 2nd February 11:28
superlightr said:
If the BTL breaks even thats fine, if it gives you some income then bonus. But its the capital growth that is where the real money is to be made/invested.
Yep, housing has been a great asset/ investment for the last x years. Looking forward? Depends on many factors but mainly population growth in the location of the property....As other people have said, higher rents, lower outgoings, IO mortgages and a better tax setup.
I can buy properties today for a £50k deposit and net £6k a year after all costs. 10%+ return on a safe investment before capital growth is not to be sneered at.
As all of my income is through LTD companies jointly owned with my wife and I deposited directors loans to buy the property, most of the cash comes out at < 20% tax. All above board. I like BTL but I’m not sure it would be worth it if every penny of profit was 40% taxed.
Not everyone is in the sweet spot but I think most people with cash to invest should give it a look over.
I can buy properties today for a £50k deposit and net £6k a year after all costs. 10%+ return on a safe investment before capital growth is not to be sneered at.
As all of my income is through LTD companies jointly owned with my wife and I deposited directors loans to buy the property, most of the cash comes out at < 20% tax. All above board. I like BTL but I’m not sure it would be worth it if every penny of profit was 40% taxed.
Not everyone is in the sweet spot but I think most people with cash to invest should give it a look over.
Edited by dmahon on Wednesday 2nd February 13:50
Edited by dmahon on Wednesday 2nd February 13:51
https://www.rightmove.co.uk/properties/39693668#/?...
Bought this as a total wreck on Dec 6th. Now has new windows, kitchen, showerroom, CH system, floors, doors and full decor
Refurb finished this morning.
Total cost of dungeon + refurb £55k. No loans or mortgages. Guesstimate value £65-70k
Rent (will be tenanted by the weekend) £495 pcm.
First year expected costs +/- £1k
There's yer dinner!!
(should get keys to next one AM tomorrow)
Bought this as a total wreck on Dec 6th. Now has new windows, kitchen, showerroom, CH system, floors, doors and full decor
Refurb finished this morning.
Total cost of dungeon + refurb £55k. No loans or mortgages. Guesstimate value £65-70k
Rent (will be tenanted by the weekend) £495 pcm.
First year expected costs +/- £1k
There's yer dinner!!
(should get keys to next one AM tomorrow)
Groat said:
https://www.rightmove.co.uk/properties/39693668#/?...
Bought this as a total wreck on Dec 6th. Now has new windows, kitchen, showerroom, CH system, floors, doors and full decor
Refurb finished this morning.
Total cost of dungeon + refurb £55k. No loans or mortgages. Guesstimate value £65-70k
Rent (will be tenanted by the weekend) £495 pcm.
First year expected costs +/- £1k
There's yer dinner!!
(should get keys to next one AM tomorrow)
Property has been removed by the agent on RM mate.Bought this as a total wreck on Dec 6th. Now has new windows, kitchen, showerroom, CH system, floors, doors and full decor
Refurb finished this morning.
Total cost of dungeon + refurb £55k. No loans or mortgages. Guesstimate value £65-70k
Rent (will be tenanted by the weekend) £495 pcm.
First year expected costs +/- £1k
There's yer dinner!!
(should get keys to next one AM tomorrow)
Well done regardless!
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