BTL objective sorted – strategy not quite

by Readers Question

9:14 AM, 20th November 2014
About 4 years ago

BTL objective sorted – strategy not quite

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BTL objective sorted – strategy not quite

I’ve just acquired my first BTL property which will provide me with an additional income in retirement. My plan is to retire in the next 4-5 years, downsize the family home and use the residual equity to acquire a second BTL and take this income too. I’m happy to let the capital growth look after itself as I intend to pass these properties on to my kids.

I need to formulate a strategy to acquire a third property as I have 3 kids and want to give them one property each but I’m not sure how this can be achieved.

I’ve always thought I should be mortgage free in retirement but the more I read I see that this isn’t always the best strategy, although I’m sure lenders put a ceiling on the age of borrowers.

I’d welcome any advice you can give. My first property is on a 57% LTV.

Thanks in advance.

Philstrategy



Comments

Neil Patterson

9:22 AM, 20th November 2014
About 4 years ago

Hi Phil,

In building a strategy the devil is in the detail.

What is the value of your first BTL and what is the rental income?
How much net profit are you making?
How much does the mortgage cost per month and is it interest only or repayment?
How much working liquid capital do you currently have?
If you did down size how much equity would this release?
How much capital growth do you think you will get in your area over the next 4-5 years and how much rental appreciation.?
How many properties will you need in total?
How much income would you need from the portfolio?

All these question will help you start to formulate a strategy.

Carol Thomas

13:05 PM, 20th November 2014
About 4 years ago

Hi Phil, it is also very important to look at the arrangements for your rental properties in respect of your will.

Mark Alexander

14:08 PM, 20th November 2014
About 4 years ago

Hi Phil

Once you have answered Neil's questions I will be in a better position to provide some suggestions too.
.

Phil Ireland

22:04 PM, 21st November 2014
About 4 years ago

Hi,
I'll answer your questions in the order raised:
1. £280,000 with a monthly rental income of £1,100
2. Net monthly profit is approx. £630 (after mortgage payments and letting fees)
3. £380 monthly mortgage payment on interest only
4. Approx. £4,000
5. Approx. £250,000
6. Capital growth estimated at £60-80k over 4-5 years and rental increases in line with RPI
7. Two in total, so only one more ( I already own outright a holiday
home in Spain which can be sold at some future date so that I can give one to each of my 3 kids)
8. I estimate approx. £20-£25k per annum from the two combined.

Another factor is that my wife doesn't work and so has unused tax allowances. The BTL property has been established on a tenancy in common basis with a 90/10 split in favour of my wife to minimise our tax liability.

By the way, I'm 58.

I hope this additional info helps.

Phil.

Phil Ireland

6:55 AM, 26th November 2014
About 4 years ago

Hi guys
Any feedback or suggestions yet?

Phil.

Jonathan Clarke

22:56 PM, 2nd December 2014
About 4 years ago

Hi Phil

If you have 250K equity after you have downsized I would be buying more than one property to achieve your goal of 25K pa income .

I would buy say 10 x 125K properties at 80% LTV
Mortgage at 5% = £416 pcm
Rent @ 675 pcm
Gross cash flow £259 pcm x 10 x12 = 31K pa income

You would then have a 1.25 million portfolio increasing at say 5% pa = 62.5K pa
62.5K + 31K = 93.5K pa gross return . That`s a gross return of around 37% on your 250K investment . Keep for say 10 years then sell off ( if you must ) one a year to maximise your CGT relief until you have the 3 you want for your kids.
.


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