£500,000 of debt - repay or go deeper?

Dingo12

Hi All,


Long time stalker, first time poster.


Essentially as the title suggests I have around half a million pounds of debt across a blend of credit and am now wondering whether to go further or begin to consolidate. If consolidating its also where to start repaying as I have thoughts on this.


Just really interested in any thoughts or feedback. I am 28 years old, full time employment and so have a relatively long time left working all being well.


My debt is as follows:


£165k - primary residence (worth £265k) £640 p/m repayment
£120k - BTL investment #1 (worth £160k) £340 p/m (int only)
£102k - BTL investment #2 (worth £147k) £270 p/m (int only)
£55k - Commercial mort (worth £125k) £500 p/m (repayment)
£20k - Student loan
£12k - 0% Balance transfer CC until May 2015


Total: £474,000


On the asset side of things:


£537k of property
£125k business (commercial property, recent valuation)
£8.5k shares
£8k cash
£20k in pension
£3k in antiques


Total: £701,500 (NAV is £227,500)




Cash flow is as follows


In:


Salary after tax/NI/SL/pension etc - £3000 p/m
Income from business - £1000 p/m
Income from BTL (gross) - £1600 p/m


Total - £5600 p/m


Out:


Mortgage - £640 p/m
BTL #1 - £340 p/m
BTL #2 - £270 p/m
Com. Mort - £500 p/m
Groceries - £400 p/m
Entertainment - £250 p/m
Utilities & Comms - £105 p/m
BTL agency and service charges - £382 p/m
Council tax - £135 p/m
CC payment - £410 p/m
Shares ISA - £400 p/m


Total - £3832 p/m


(Surplus of £1768 per month)


So at this point I could either put that surplus into cash or into repaying debt (although debt is coming down as a lot of repayment is factored into outgoings). And I thought I could/should pay the CC debt first and then the residential mortgage (as no tax relief on this). Followed by the business debt.


Or... I could release some equity and expand my BTL portfolio.


Thoughts?

exoteric

This isn't really a debt issue as you seem to be coping perfectly well with repayments and, as you say, have a NAV of £227,500. I'd recommend finding a good IFA to give you investment advice.

eskbanker

Dingo12 wrote: »

Long time stalker, first time poster

Can't help feeling you've been stalking other boards rather than this one - most of the threads here on DFW are typically from people really struggling to get by and needing help, rather than those who consciously incur mortgage debt in order to build and sustain a property portfolio with £700K of assets! I suspect that there aren't many who will empathise with 'what shall I do with my £1768 monthly surplus', so you might find it more sensitive (and productive) to post on, say, the investment board....

Iwillsucceed_2

Hi Dingo!

Welcome!
I am actually very impressed with your money sense/investment ability.
A mortgage whether private or BTL is considered a debt to me, and I don't see why your post would be unsuitable in this forum.
I think, the majority in this forum lack financial education and that is why we are in money troubles. I think we can all learn one or two things from your investment endeavours. You appear to have a large surplus each month ...why don't you keep investing in more BTls?
I guess as you stated, paying off the debt then focusing in overpaying off your private mortgage is a good plan of action.

Good luck!

sourcrates

Iwillsucceed wrote: »

I am actually very impressed with your money sense/investment ability.

Exactly, its not debt advice the OP is asking for.
To my mind its investment advice, so I would try the investment board if I were you, as you appear, on the surface, to be doing just fine, from a financial point of view.

Muhren

I do admire what you have done by such a relatively young age, as it was what I was hoping to do. I would have to agree though, that this would be better off in an investment thread.

Dingo12

Yeah I guess you're right. I suppose I was looking for opinions on whether carrying that level of debt vs. assets was risky - but looking at it it is an investment conversation. Also whether to prioritise 'personal' debt over 'business' debt ie. is it better to repay the higher APR debts (business) or lower APR debts (personal) that don't attract any tax relief. All the debt is personal in the sense that none is held by a limited company etc (all in my name).

hohum

Dingo12 wrote: »

Yeah I guess you're right. I suppose I was looking for opinions on whether carrying that level of debt vs. assets was risky - but looking at it it is an investment conversation. Also whether to prioritise 'personal' debt over 'business' debt ie. is it better to repay the higher APR debts (business) or lower APR debts (personal) that don't attract any tax relief. All the debt is personal in the sense that none is held by a limited company etc (all in my name).

It is risky but that's my understanding of the nature of property investment, and indeed any investment. Your property values may go down as well as up. You have to have the tolerance for that level of risk, and be prepared to cut your losses where you can. I SO don't, but I always am interested in people who are! That level of risk makes me feel a bit sick but that doesn't mean you shouldn't do it, it's more what you personally are comfortable with tolerating.

I'd look at getting professional advice re your portfolio and reducing debt. Mostly because people on the internet are not bound by regulations, and you can't sue us if we give you dodgy advice This would be investing in your portfolio, and if you consider the value of your assets, investing in making the most of them isn't too daft.

If you take your portfolio out of it, and look at your purely personal affairs..........

What are you planning to do when the credit card stops being at 0% in 6 months time? What is the rate when it stops being 0%

At the moment your cash assets won't cover the pay off, and I assume you'd want a sizeable cash cushion given the risk of investments for repairs, tenant stops paying, etc.

So if I were you, I'd focus on ensuring that the credit card will be paid off within the 0% period. After that, I'd focus on having a 6 month cash safety net (but then, as above, I'm not very comfortable with risk). This will avoid you needing to use a credit card in future. Only then would I think about overpaying business debts. Worst comes to worst, you can liquidise your assets and sell the properties. So that would come lowest in priorities for me.

A financial advisor might well have a more tax efficient answer however, and for your situation I really think you're best seeking specialised advice - or posting on a more investment focused board.

[Deleted User]

Iwillsucceed, you're impressed with someone who has half a million pounds of debt ?

enjoyyourshoes

Have you got a BTL net income figure as your total BTL expenditure for both assets is £992 per month.

You have not started to repay those debts so your relying on property value increasing to pay off those debts

What you might consider is dealing with each elements of your investments as separate entities

BTL
Commercial
Investments

then you will see the true picture of each enterprise and you can make capital decisions and investment decisions based on that data. It may inform your choices better.

Andrewboom

I know a guy who chased the last house price boom, buying up houses and mortgaging him self into a mountain of debt (and houses).

His family ended up living in a caravan on the site of his half built dream home. He has however bounced back rather well, but spent 5 years in a caravan for his trouble!

It is good to see that you have also got a business, shares and pension. Picking the right time to stop buying and raising your LTV is key, and always a judegement call.

It all comes down to how much money is enough? and how much do you stress about the debt? If you wake up at night worrying about it I would say it was time to get off the ride. If you have no major concerns about taking further risks, do what you want.