Buy to Let Property Investment Income at Retirement

by Readers Question

14:12 PM, 8th October 2014
About 4 years ago

Buy to Let Property Investment Income at Retirement

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Buy to Let Property Investment Income at Retirement

** Editors Note – HIGHLY RECOMMENDED DISCUSSION THREAD **

At retirement, what is the best financial strategy to draw income, and why?  Buy to Let Property Investment Income at Retirement

  1. Continue to remortgage to release tax free equity? ( bearing in mind age restrictions by lenders and fees at each remortgage stage )
  2. Reduce overall debt by sales and paying down, in order to increase net rental income? ( bearing in mind Capital Gains Tax on sales )
  3. Any other strategies that I have not yet considered?

Many thanks

Ken Ward



Comments

Mark Alexander

14:20 PM, 8th October 2014
About 4 years ago

Hi Ken

As I'm only 46 it's going to be a while before I get my bus pass and draw my state pension. If I live that long I'm hoping that inflation will have increased my rental income and the values of my properties so that my LTV is a lot lower and my net income is a lot higher. I'm also hoping that CGT will be no worse than it is now and that "equity release" mortgages will be re-introduced on BTL mortgages.

IF all of these things come to pass then I will be able to have my cake and eat it to a large degree.

I wrote an article about this a while back - please see >>> http://www.property118.com/financing-beyond-retirement-age/

I'm happy to answer further questions here.

PS - what is your definition of retirement? Mine is:-

1) to get out of the rat race
2) never have to set an alarm clock for work purposes
3) do less of the things I don't like
4) have the time and the money to do more of the things I do like

On that basis I retired in 2009 😀
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ken ward

14:49 PM, 8th October 2014
About 4 years ago

Reply to the comment left by "Mark Alexander" at "08/10/2014 - 14:20":

Hi Mark
Thanks for the quick reply. My age is 70 years and already retired - I forgot to mention that !
As time is not on my side and I do not have the low LTVs quoted I am still looking for the best option.
Lets hope the Forum provides some interesting answers.
Regards
Ken

Mark Alexander

15:01 PM, 8th October 2014
About 4 years ago

Reply to the comment left by "ken ward" at "08/10/2014 - 14:49":

Hi Ken

Are you able to "put a bit more meat on the bone" please?

For example, average property price and LTV?

Were the mortgages arranged pre-credit crunch on attractive tracker deals?

When are the mortgages due to expire?

What type of properties are they?

Do you envisage significant capital growth on your properties over the next 10 years?

Which lenders are you using?
.

Mark Alexander

15:44 PM, 8th October 2014
About 4 years ago

PS - your answers to the above questions will enable me to better determine the most viable options available for me to recommend and for you to consider.
.

ken ward

17:03 PM, 8th October 2014
About 4 years ago

Reply to the comment left by "Mark Alexander" at "08/10/2014 - 15:01":

Hi Mark
Details, all as requested -
55 props, ave 97k. 70% ave LTV, inc cash and neg eq props.
Yes, approx 50% of them - 26 low rates,10 cash,19 hi rates.
Short term = 2018/19/20 = low rates.
Long term = 2027/37 = 4-5% var.
Single lets,mixture of leasehold and freehold and in different areas.
Could happen - not sure -but will be 80 by then !
Short term = MEx,Bank of Ireland,BM,Paragon 1 only,Capital 1 only.
Long term = Aldermore,TMW,Platform,Woolwich

In addition to the above, main res = 800k - 147k mort - could consider selling to subsidise portfolio to reduce overall LTV and move into one of the barn conversions ,adjacent to main res, and inc in the above portfolio.
Regards
Ken
PS. large cap gains on oldest props.

Mark Alexander

17:13 PM, 8th October 2014
About 4 years ago

Reply to the comment left by "ken ward" at "08/10/2014 - 17:03":

Sorry Ken (Columbo moment) just one more thing .....

Can you afford to live off the net rental income at the moment or do you need to release additional capital to subsidise you standard of living?
.

ken ward

17:37 PM, 8th October 2014
About 4 years ago

Reply to the comment left by "Mark Alexander" at "08/10/2014 - 17:13":

Hi Mark
The current rental income is fine as it is a good mix of cash props and low and hi interest rates.I am also slowly selling off the Leasehold props due to hi sevice charges, etc, as I would not buy these again or remortgage them.
The main problem, as I see it is - low equity, low yield @6.5% ave,and large cap gains liability on some short term mortgaged props.
We are slowly paying down, to reduce LTV, from current cash flow and Sales.
The major equity is only in the main res, and 2 adjacent barn conversions ( separately demised )
Regards
Ken

Mark Alexander

17:51 PM, 8th October 2014
About 4 years ago

Reply to the comment left by "ken ward" at "08/10/2014 - 17:37":

Thanks Ken:)

OK, here goes, these are my thoughts and this is what I would do if I were you ….

1) Selling your home to reduce the most expensive debt is a personal choice thing. The best bit about it is that you will not have to worry about CGT if the property has been your principal private residence since you purchased it.

2) You have between 3 and 6 years before any of the loans need to be repaid. That’s a long time! With these being your cheapest mortgages it is well worth hanging onto them for as long as possible. I suggest reviewing the position a year before each loan is due to be repaid or six months before your 75th birthday, whichever is sooner. LTV’s, CGT rates and long term financing options could be completely different by then.

3) You say you own 10 properties “cash”. Presumably you mean without mortgages? If this is the case, why not shop around now to see what mortgages deals you can get on these properties? It may well be that you can juggle your finances to pay down a significant proportion of the more expensive debt and increase you cashflow as a result of doing so.

4) Consider reducing the mortgage debt on the higher rate loans to 65% LTV and then topping up to 85% LTV (if necessary) with equity finance on a second charge basis – see >>> http://www.property118.com/equity-finance-for-buy-to-let-landlords/44713/

5) You already have quite a lot of properties, do you really want the hassle of owning more? If I were in your position I would be looking to outsource as much of the management as possible and to reduce costs as much as possible. How does a 4% management fee from an established ARLA agent, who I use personally, sound to you? See >>> http://www.property118.com/landlords-money-saving-tips/64261/

6) What I can’t understand is why you are using your surplus cashflow to pay down loans. Why are you not having fun spending it whilst you are still healthy enough to do so? Isn't the whole point of investing in the first place to be able to enjoy life in our twighlight years? Don't lose sight of why you got into this business.

The above is not intended as advice and should not be construed as such.
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Mark Alexander

18:01 PM, 8th October 2014
About 4 years ago

PS - the above suggestions have been provided in good faith and free of charge. If you were to become a client of mine I would be happy to review your portfolio on a far more in depth basis and consult with relevant brokers to provide you with hard facts and figures based on available and alternative mortgage products for you to consider - please see >>> http://www.property118.com/consultancy-mark-alexander/61522/

If you are happy to settle for the level of information provided above please consider making a donation to support the ongoing running costs of Property118 - see >>> http://www.property118.com/donations/43590/
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Anon

9:50 AM, 9th October 2014
About 4 years ago

A classic mistake is to pay down the loans with the least equity regardless of the interest rate. Obviously it makes a lot more financial sense to mortgage reduce debt attracting the highest interest rates first. I've heard how much pressure the likes of MX put on their borrowers which results in them making bad financial decisions such as this. I hope you're not one of them Ken.

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