Deciding the way forward for my exit?

by Readers Question

9:33 AM, 20th January 2021
About a month ago

Deciding the way forward for my exit?

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Deciding the way forward for my exit?

Hi, Having been a landlord for nearly 30 years I have a dilemma in deciding my best exit plan. I have a portfolio of 10 properties (2 houses and 8 flats). They are all interest-only mortgages but on good terms. The portfolio is straightforward enough to run and I self-manage and work hard to have a good relationship with my tenants. So all is calm and working as it should.

However, at 54 years of age I need to start to plan my exit plan and how I will convert this portfolio of ten into a reduced amount of hopefully three mortgage-free units that will, in turn, provide an income for my retirement. I would ideally like to retire at 60. I currently work running my own modest facilities management business, so I am financially self-sufficient whilst I remain working. I have no formal pension, so the rentals need to provide an income on retirement.

Four of the flats in the portfolio, which are good renters and attract top rates are on low leases (45 years). The mortgage has only 7 years to run at which point I will need to pay them off or sell to a cash buyer (they will not be suitable for a new mortgage due to the low lease).

I have just struggled through a lease extension on one of them at a cost of £44k including costs. I now need to sell this flat to get the lease outlay back and then serve notice on the next flat in that block to extend the lease and so on until all four flats have been extended and sold. It’s a shame because they are good flats.

After the lease extension costs and mortgages are settled I won’t have more than about £15k left after each sale. The benefit of these flats has been their location and the high rents they attract in relation to their value.

So would the more savvy investors on here have any ideas forward?

1/I am wondering whether there are lenders who will refinance a whole portfolio at a sensible rate and what the hassle and cost of doing that might be?
2/To carry on with the current plan to sell property a year until I have enough funds to pay off the last 3 mortgages in my portfolio and keep those three properties as my retirement income.

These are strange times to make big decisions but decide on a plan I must.

Any suggestions gratefully received.

David

Comments

David Dorset

0:23 AM, 21st January 2021
About a month ago

Reply to the comment left by at 20/01/2021 - 11:30
I am in Bournemouth which is a great area to have BTL in but often a very transient population. My longest tenant is very old, and then next two longest are on benefits. The rest I just don't see as being interested in owning their own home. I see that we now have a couple of generations who have been cultivated to rent. As one of my tenants once said to me when I offered him the chance to buy his flat at a really good price 'renting is flexible, no maintenance, no worries, can move when and where we like' - said by a tenant of 10 years, aged 35.

David Dorset

0:36 AM, 21st January 2021
About a month ago

Reply to the comment left by Tim Rogers at 20/01/2021 - 12:05
Yes i would be open to do that as an option as we have no children and therefore no real considerations towards inheritance. The problem is that I owe approximately £130k on each flat and the mortgages are due to expire in 7 years time so to do that i would need to raise a substantial sum of money. The current rate I have is great and the flats rent for nearly £1000.00 a month - I suppose the primary worry is the looming end of the mortgage and the fact that Rosinca now my unchosen lender who will not provide a further advance for any reason.

David Dorset

0:43 AM, 21st January 2021
About a month ago

Reply to the comment left by Mark Weedon at 20/01/2021 - 12:46
Well I am thinking as I get older I will want less responsibility. But also I have an obsession to clear finance so I would rather have three flats with no finance than 10 with finance. My plan is that my own home will be mortgage free as well so the three, maybe four BTL's will be pure living income. Voids of properly maintained flats here are fairly few and fair between and my income from three mortgage free flats (at todays prices) would likely be £2000.00/£2200.00 after all costs but before tax. I also assume at 60 I would probably still do a few hours work so I would expect to be able to save money out of that and still live comfortably.

David Dorset

0:48 AM, 21st January 2021
About a month ago

Reply to the comment left by Peter G at 20/01/2021 - 13:06
If Capitol gains were a kinder animal then i would like to sell all of my properties and buy a building that could be converted into 4 flats. That way there would be no service charges, no worry of who is buying the flat next door and i could control the maintenance.
A friend of mine says that he thinks it is a good idea to buy a shop with flat/s over and the shop is occupied. Then wait and when the shop renter gives notice convert the ground floor also. He thinks Covid is the final nail in the high street and planning will be much more agreeable to change of use. In this area it is already happening. Again it is a plan i would need to understand as it involves buying the shop via your pension plan or something.

David Dorset

0:56 AM, 21st January 2021
About a month ago

Reply to the comment left by NewYorkie at 20/01/2021 - 15:00
Yes it is a brain teaser spin of the wheel decision. I have several options I could take but it is a case of finding out all the options and then understanding them and then risk assessing. I do think London is in trouble. I don't see the underground trains or office blocks packed full of people again for many years to come That has to affect property values in London and the commuter areas . You may find your Yorkshire prices go back up and if the lease extensions become cheaper and easier then it might all work well for you. With regards to tenants....we can all be at risk of a bad one but my golden rule is do your own viewings and don't tell them you are the landlord. Use the Royal we when you discuss the tenancy, so you speak as a business and not an individual. That way you will get a clear feel for who you are renting to. I would be so nervous to allow an agent to character judge someone i have never met before and are about to entrust to a big investment of mine.

David Dorset

1:02 AM, 21st January 2021
About a month ago

Reply to the comment left by at 20/01/2021 - 16:55
Hi Helen,
Yes agree with all of that. Keep it small and simple. I also think once you are mortgage free you are untouchable to some dishonest new rule or tactic by the borrower, or have to worry about rate changes. And of course once the wrinkles really start and we are 80 plus then selling one at a time is a nice windfall and money in the bank that will last. I have no children so need to pop my clogs without leaving a fortune to HM treasury or equally not reaching 100 years old with no money left!

Paul Shears

6:37 AM, 21st January 2021
About a month ago

Reply to the comment left by David Dorset at 21/01/2021 - 01:02I am in a similar situation financially.
But I simply do not understand why anyone would be concerned about leaving no money in the bank when they die, just because they have no direct responsibilities like relatives. I just don't get it.
I have no debt of any kind and I'm a millionaire with a significant pension. I fully expect my wealth to continue to increase and judging from the genetic lottery, to live much longer that average. So what?

NewYorkie

9:31 AM, 21st January 2021
About a month ago

Reply to the comment left by Paul Shears at 21/01/2021 - 06:37
Being a millionaire is all well and good... today. But I haven't seen a single comment about what happens when the unexpected happens?

I am in the wrong half of my 60s, and up until 2 years ago I was fit and active; rowing, skiing, with no concerns about the future. I then sold up in London and moved to York where I planned to buy mortgage free and refurbish. I had been gradually working towards the goal of perfect work/life balance, and had a 10 year contract (own Ltd co) which allowed me to achieve that. I worked only when there was work to be done, often not at all, and had started to enjoy life. I had no need to touch my pension, and intended to delay my State pension. Like you, I wasn't short of money. Fast forward, and I did buy last February... and then lockdown landed, so couldn't start the refurb for 6 months. I caught covid during a wonderful cruise in the Andaman Sea in January and caught an additional loading during skiing in Austria and was very ill. I lost my (supposedly safe) contract due to covid in March, and one of 2 remaining tenants decided to stop paying rent in March. My partner has an amazing final salary pension, mortgage-free houses, and enough cash to be able to worry about others. Also, both of us had provided for our children in Trusts so no concerns about how much we should leave when we pop off. She then had 2 illnesses, culminating with a minor heart attack before Christmas!

So, my finances have become more complicated and we are now living life in a much slower lane for now. But the final nail, so to speak, was learning that the solicitor I had engaged to progress my eviction proceedings, died on Monday.

I guess the prospect we are being forced to face is, you can go to bed safe, secure, happy and looking forward to a wonderful retirement, and wake up and your world has changed in a flash.

My refurbishment is in its final few days, but there are no tourists queuing up as before, and all my capital is tied up with zero return for the foreseeable. We are no longer scouring the local area for decent property prospects. Our #1 concern is what happens if one or both of us have to go into long term care. Will all our hard work accumulating wealth and property be for nought? Will we ever get to enjoy it, or will it disappear in medical bills and care home fees?

My BTL issues have made me angry and stressed, especially as I'm one of the '3 million excluded'. But in the grand scheme of things, they really are nothing!

Paul Shears

10:43 AM, 21st January 2021
About a month ago

Reply to the comment left by NewYorkie at 21/01/2021 - 09:31
All very fair comment. I get all of that. The health thing is inevitable unless you have lived your life in one of the "Blue Zones".
But my observation is about any preoccupation about what is left over that we, as individuals, clearly do not need after we have gone. There is a view that is shared by my friends, parents and most others, it seems to me, that the ideal objective is to pop off with an empty bank account. Exactly what opportunity cost is there in thinking ahead as you clearly have done but with some inevitable challenges? I just don't see the logic. Indeed your entirely correct and reasonable observations simply support my point.

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