Too much equity – best way to increase income

by Readers Question

10:38 AM, 23rd November 2014
About 4 years ago

Too much equity – best way to increase income

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Too much equity – best way to increase income

We (husband and I) currently own two let properties. Too much equity - best way to increase income

One is worth around £170,000 – with no mortgage on it – currently let for £675 per month gross.

The second is worth around £160,000 with a £63,000 interest only mortgage – repayable in about 10 years and lets for £560 per month.

Both sets of tenants have been in place for over ten years.

We also own our own house which is worth approximately £250,000 and we currently owe £55,000 on a capital and repayment mortgage (interest rate 1.25%) with a drawn down facility where we could access a further £55,000.

We also have around £75,000 in savings at various rates from not bad (in an Equity ISA wrap) to rubbish in the Nationwide (2.5% in regular savings) and 3% in Santander 123.

We are looking to increase the value of what we own and provide an increased income.

However, we are retired and need our income guaranteed due to low pensions.

As we are in our 60’s would we be able to get a new buy to let mortgage?

We are thinking about buying a holiday rental property in Dorset – does anyone have any experience of this type of letting?

Two bedroom houses in our home town start from about £160,000 to £170,000 so would require a large injection of cash and a mortgage.

Should we look at properties further afield?

Any advice would be most welcome.

Thanks

Sue Bland



Comments

Mark Alexander

10:48 AM, 23rd November 2014
About 4 years ago

Hi Sue

You are still young enough to have a wide choice of available buy to let mortgages.

Given that you are looking to invest for income you will need a very different strategy to somebody who isn't looking to retire for a lot of years.

With average running costs (maintenance, insurance, management, voids etc.) typically accounting for 25% to 35% of rental income, plus mortgage rates currently at circa 4% to 5% then you will need to achieve a rental yield of around 8% just to break even if your purchases are effectively going to be 100% financed with new mortgages and remortgages. To achieve these required rental yields you will probably need to be looking at properties which can be rented by the room, e.g. student lets, houses shared by young professionals etc.

Please take a look at this link >>> http://www.property118.com/consultancy-mark-alexander/61522/
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Mark Alexander

11:01 AM, 23rd November 2014
About 4 years ago

Further thoughts, completely different angle!

Have you considered that you may already have done enough to live a wonderful retirement?

I don't know enough about your finances to advise you fully but given your past decisions and prudence you may already be in a position whereby you have more choices than you think.

How much do you need to live on?

Could your rental income and existing capital provide what you need?

There comes a point whereby you need to step back and consider all of your options carefully. Perhaps the time is right to stop investing and to start living?
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Jonathan Clarke

23:36 PM, 23rd November 2014
About 4 years ago

Hi Sue

I would be tempted to sell both your BTL under performing low yield properties and buy 10 higher yield properties on 75% LTV mortgages earning about 40K pa. You would then have say 10 x 130K properties worth 1.3 mil.

With capital growth at about 5% that is 65K pa growth. Add your 40K income to that and your profit each year gross is in the region of £100,000 . With prices predicted to go up around 25% in the next 5 years that`s £500,000 you will make ( part in the pocket , part on paper in equity.) Keep maybe another 5 years again so 10 years in total and then cash in and live off the profits.. I would forget about 3% returns and look towards earning between 20% and 40% gross for every pound you invest - Happy retirement!
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Mark Alexander

23:39 PM, 23rd November 2014
About 4 years ago

If you do consider selling please consider CGT and take advice.

How much did you pay for the properties?
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Ian Ringrose

14:28 PM, 24th November 2014
About 4 years ago

Mark, wrote about a BTL equity release product some time ago, that was paid off on your death and until then let you keep all the rental income.

Maybe it would let you get 1 more BTL and have no mortgage payments.

(I am expecting Mark to now come along and fill in all the details......)

Neil Patterson

16:08 PM, 24th November 2014
About 4 years ago

Reply to the comment left by "Ian Ringrose" at "24/11/2014 - 14:28":

Hi Ian,

Apart from the new JV equity release product that has a maximum 20% LTV and must be repaid after 10 years, I believe all the pure BTL Equity release products repayable upon death or sale have now been withdrawn 🙁

Sue Bland

17:32 PM, 24th November 2014
About 4 years ago

Reply to the comment left by "Mark Alexander" at "23/11/2014 - 23:39":

Hi Mark,

We paid £52,000 for one and £68,000 for the other (the cheaper one has no mortgage on it )

There have been some very interesting comments varying from the "stay as you are and have very little hassle" to "be brave and bold and go for it".
All comments and feedback much appreciated.
Sue

Sue Bland

19:45 PM, 24th November 2014
About 4 years ago

Reply to the comment left by "Jonathan Clarke" at "23/11/2014 - 23:36":

Wow! That wasn't something that had even crossed my mind. Lots of thinking needs to go on here.
Thank you

Joe Bloggs

21:29 PM, 24th November 2014
About 4 years ago

hi sue,
are your existing rents near the rack rent? the low yields suggest you are not charging market rent. this happens often when there are long term tenants in situ (i am guilty of this). this is understandable, but not good business. my advice would be to make your existing rentals sweat a bit more, even if only incrementally.

Sue Bland

17:29 PM, 26th November 2014
About 4 years ago

Hi,

One of them has increased incrementally but the other has stayed static until recently although has additional benefits in being maintained by the current tenant and, due to her age, a recently fitted free boiler (saving us a couple of grand). Her husband previously carried out all repairs, decorating etc so our costs were negligible. Now her son has taken this on. As we have always managed this property ourselves we don't have any agent costs either.
I appreciate your comments.

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