How does this sound as an investment?

Dan-Dan

9k loan with 40k in the bank ??
crazy stuff

kingstreet

In answer to the direct question above, what's the gross yield and what are the growth prospects for the propert(y/ies) you are considering?

Moneysaverchris

Dan-Dan wrote: »

9k loan with 40k in the bank ??
crazy stuff

Not really, I'm just demonstrating my ability to pay back what i borrow.
Borrowing is funny really - if you have the money you shouldn't because obviously you have it already and if you don't have the money you shouldn't because you cant afford it, so down to opinion really.

kingstreet wrote: »

In answer to the direct question above, what's the gross yield and what are the growth prospects for the propert(y/ies) you are considering?

The property is worth 130,000
Mortgage is for 95,000

25 years - £539 per month, @ 4.7% interest. All confirmed by natwest.

rental is worth £600-£625 apparently.

and i will make regular over-payments

jimjames

Moneysaverchris wrote: »

Okay i feel we are getting a bit confused here!
Right i have established now that i don't have to register for CGT.
My earnings are -
£30k primary
£20 secondary.
my savings are -
£7500 in one account
£6000 in a another
£40k in another. (all earn't by myself im proud to say)

Debts -
Loan outstanding £6900. - I took this out because i thought why not, wanted a nice car - got a loan and put some money towards it on a really low rate.

So is that easier?

How much is the loan rate?

I find it hard to believe with savings rates at the moment that any loan would be less than the amount you'd get from a savings account so would be better paid off.

I'm in a similar position with a BTL property but different age and also have own house and substantial investments. Just a single property is a high risk. What happens if prices drop and it wipes out your capital? What happens if interest rates go up? £120 difference between mortgage and rent payments sounds quite tight. On a similar property ours is £300 difference.

With £50k income all your earnings from the BTL will be at 40% tax. So you'll be paying part of that rent as tax. Our profit was £1600 last year, if you made the same then you'd be paying £50 per month tax so your £120 difference is now only £70.

Moneysaverchris

jimjames wrote: »

How much is the loan rate?

I find it hard to believe with savings rates at the moment that any loan would be less than the amount you'd get from a savings account so would be better paid off.

I'm in a similar position with a BTL property but different age and also have own house and substantial investments. Just a single property is a high risk. What happens if prices drop and it wipes out your capital? What happens if interest rates go up? £120 difference between mortgage and rent payments sounds quite tight. On a similar property ours is £300 difference.

With £50k income all your earnings from the BTL will be at 40% tax. So you'll be paying part of that rent as tax. Our profit was £1600 last year, if you made the same then you'd be paying £50 per month tax so your £120 difference is now only £70.

Saving's are 3% and loan is 4.6% the difference is negligible.

I don't see how the risks you have stated are any worse than if i bought it and lived in it? eventually how prices will rise so im not bothered about the capital taking one for the team haha.

And yes i understand that but they are also paying my mortgage too so im making more than £70. I also am too pay £800 or so off a month so mortgage should get hit quite hard.

kingstreet

So, the gross yield is 5.67% assuming the higher rental value.

You're going to have expenses of circa;-

£539 mortgage
£60 letting agent at 8% + VAT (min)
£20 insurance

£619 per month.

Only the interest element of the mortgage payment can be offset against the rental income for tax purposes, so of that £619 only £452 is an allowable expense.

As a higher rate taxpayer, you'll therefore pay 40% of £163, or £65 per month in tax. That increases your costs to £684 from £619.

You're going to be paying out more than you receive in rent.

I'd say the only way this could be considered a sensible proposition is if the growth prospects of the property value are above-average.

Finally, your overpayments will be limited to 10% of the outstanding mortgage balance each year and each overpayment will reduce the amount of interest you pay, increasing the amount of tax you'll pay as a consequence.

ViolaLass

Moneysaverchris wrote: »

Saving's are 3% and loan is 4.6% the difference is negligible.

It's a 50% increase and why pay extra if you don't have to? It doesn't make financial sense.

getmore4less

Moneysaverchris wrote: »

Not really, I'm just demonstrating my ability to pay back what i borrow.
Borrowing is funny really - if you have the money you shouldn't because obviously you have it already and if you don't have the money you shouldn't because you cant afford it, so down to opinion really.


The property is worth 130,000
Mortgage is for 95,000

25 years - £539 per month, @ 4.7% interest. All confirmed by natwest.

rental is worth £600-£625 apparently.

and i will make regular over-payments

625*12/130000 = 5.77% gross yield
600*12/130000 = 5.54%

But don't forget to add all the buying costs to the total for buying this will reduce the gross yield.


Running costs
offsetable.
£372 interest on the loan

that leaves £253(228) max and if your income does go into 40% tax leaves you a max of £151.80(136.80)

This will be less once you factor other expences(agents,insurance,safety checks, maintanence...) or loss of income(voids or worse a non payer).

if you manage yourself cutting out agent fees and run a tight ship lets say £53 pm expences leaving £200 gross £2400/£1440

Stick a 1 month void in per year £1775/£1065

For the £35k invested thats a return after tax of 4.1% or 3%(with a void)
(5.6% if you don't end up in 40% tax)
(also this does not include the start up costs which will reduce the return)

Higher running costs and this return is reduced further or could be wiped out.

You say you are allready getting 3% on your savings no risk.

Marginal/risky investment as a stand alone property rental

Make sure the chosen property has capital growth potential.

stylus360

Moneysaverchris wrote: »

Not really, I'm just demonstrating my ability to pay back what i borrow.
Borrowing is funny really - if you have the money you shouldn't because obviously you have it already and if you don't have the money you shouldn't because you cant afford it, so down to opinion really.


The property is worth 130,000
Mortgage is for 95,000

25 years - £539 per month, @ 4.7% interest. All confirmed by natwest.

rental is worth £600-£625 apparently.

and i will make regular over-payments

Are there any limitations on overpayments ?

Steven_Elliott

stylus360 wrote: »

Are there any limitations on overpayments ?

10% per year over payment