Next investment steps or flippant purchase?

by Readers Question

13:12 PM, 14th August 2018
About a month ago

Next investment steps or flippant purchase?

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Next investment steps or flippant purchase?

I am now tentatively looking into making my next investment steps, never one to be happy just coasting, rather striving for the next rung. The backstory….

1. Husband and wife (early 40’s), both low rate tax payers but on the cusp of tipping over.
2. Main residence approx. £400k value with 50% LTV on tracker repayment mortgage
3. Looking to move to a approx. £600k house when one suitable becomes available

4. 3 x B.T.L. properties – all 4 bed family homes, 60-75% LTV. Very good long term tenants – gross rental income £2850 pcm, all 5-6% ROI. Interest only mortgages are long term fixed mortgages. Personally owned.
5. In the South East in an area that is high rental demand with very low availability.

Options:-

1. Buy a fourth BTL house and manage tax in most efficient way –(preferred option if tax issues were put to one side).
2. Buy a BTL flat as a toe dip in smaller investment – (ROI doesn’t seem as good?)
3. Buy a house to renovate and sell on with a view to do more- (Concerned about likely return when SDLT for second home is calculated in to figures.)
4. Pay down residence tracker mortgage in readiness for the move.- (will make new mortgage easier to manage)
5. Pay down current B.T.L. mortgages – (S24 appears to have put to be the advantage of having a high LTV on a BTL.)
6. Do nothing – (sit and wait and perhaps use cash in bank as leverage on new residential mortgage or wait for S24 to be reversed (we can hope!))
7. Blow it on some crazy midlife crisis flippant purchase??

Darren



Comments

Neil Patterson

13:15 PM, 14th August 2018
About a month ago

Hi Daren,

As ever these sorts of decisions are very individual and personal to your circumstances. Please note the pic I chose was not a deliberate hint 🙂

You may like to start with our tax planning page and or consider a consultation with Mark that can be booked from there too. See >> https://www.property118.com/tax/

Mr B2L

9:54 AM, 15th August 2018
About a month ago

Hi Daren,

Why just property? Have you looked at other options? For example, do you and your wife both top out yout £20k Tax Free Stocks and Shares ISA allowance every year?

Liam Strid

21:54 PM, 17th August 2018
About a month ago

Buy a house Darren. You cannot go wrong. Property has served me for years. Fork out on it!

H B

22:43 PM, 17th August 2018
About a month ago

How much do you have available to invest at the moment? Your new residential mortgage is going to be £400,000 so you need to make sure that you have the income to cover it.

You mention that some of your properties have an LTV of 75% - have you calculated the implications of s24 for this leverage? It may be loss-making.

Mark Alexander

5:29 AM, 19th August 2018
About a month ago

I would sit and wait if I was you.

As basic rate taxpayers with a £200,000 Mortgage that’s quite tight.

6% ROI on your three existing properties also sounds very tight. A 1% interest rate rise would probably wipe out your profits completely, but you would still be paying tax on the element of the mortgage interest you can no longer claim as an expense.

Without the full details it is difficult to say with certainty, but my gut feeling is that you should de-leverage by selling at least one of your BTL properties.

Also remember, cash is King.

Winter is coming!

Monty Bodkin

9:24 AM, 19th August 2018
About a month ago

When was the last time you did a rent review?

Existing tenants generally enjoy rents around 10% less than market rates.

Old skool thinking was not to increase rents on good tenants.
In high demand, low availability areas that's gone out of the window with the current, and future attacks on landlords.

Landlords need to be deleveraging and building reserves.

Charging below market rates doesn't make you a 'good' landlord if you go under and have to evict tenants.

Monty Bodkin

9:44 AM, 19th August 2018
About a month ago

Reply to the comment left by Monty Bodkin at 19/08/2018 - 09:24
And just to head off the usual arguments about increasing rents.
This thread is about a high demand, low availability area.

Voids are nearly non existent.
A 2 week void will be recovered after a couple of month's rent increase.
Average tenancy is around 4 years.
A tenant paying an increase to market rate is still saving £2K moving costs.

"Tenants are already paying as much as they can"
-Mine aren't. I know exactly how much they can pay because I thoroughly check them first. Landlords need to be selecting tenants who can easily cover the rent and afford rent increases.

Liam Strid

16:44 PM, 19th August 2018
About a month ago

Reply to the comment left by Mark Alexander at 19/08/2018 - 05:29
I agree on that Mark! Very good advice indeed. Cash is King!!!

Mark Alexander

20:41 PM, 19th August 2018
About a month ago

Reply to the comment left by Liam Strid at 19/08/2018 - 16:44
How can you possibly be in agreement when I am saying it might be better to sell one and you are saying buy another?

Liam Strid

21:52 PM, 19th August 2018
About a month ago

Reply to the comment left by Mark Alexander at 19/08/2018 - 20:41
Mark, Darren, I sincerely apologise for the misunderstanding.
I would buy. I was agreeing with your statement " Cash is King!" It's one of mine.
Good that Darren is getting some well balanced points of views on your wonderful site Mark!

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