Buy to Let - One for cash or 2 mortgaged?

foxy-stoat

teddysmum wrote: »

We are talking at crossed purposes. My response was to the OP's not realising that saving tax on the rental income is only because you can claim the interest on the mortgage as a loss. If no mortgage is paid, there is no loss to claim.

I think we are yes.

But your last paragraph would suggest that the OP had no clue of basic financial matters - my post showed that by making a loss - taking out a BTL mortgage - would only end up costing the OP around £780 year and by doing so allowed him to keep hold of his £52500 in liquid cash.

This makes basic financial sense in terms of running a business and it will be the cheapest loan he will ever get.

booksurr

foxy-stoat wrote: »

Not really true;

OP buys the flat £70000 cash and gets say £450 a month rent for 12 months = £5400 income less 25%? tax = £4050 net gain

OP takes out BTL mortgage £52500 @ 4% = £175 a month x 12 = £2100 per year
Rental income £5400 less BTL payments £2100 = £3300 less 25% tax = £2475 net gain...plus if he sticks the £52500 in a 1.5% NS&I savings bond he will get £787.50 interest over the year - so total net gain £3262.50. There are better rates out there.

So to have £52500 sitting in a savings account it will cost the OP £65.63 a month - he can do this and after say 12 months take out £20000 and buy another flat and so on.

Personally I would not buy a flat as you have additional costs, ground rent, maintanence, lease renewals and possible sinking fund to pay out. Buy a house and let it - or pay a chunk off your existing mortgage and save the worry about being a landlord.

tax rate is 20% not 25% - once again one of your posts about tax is wrong

that said the principle you outline is reasonable

he will have a higher post tax monthly income from buying the property outright with cash than he would have if he bought with a mortgage given a single property. If he needs extra income per month now then he should buy for cash, if he doesn't need it now and is instead looking long term he should consider the mortgage route to build a property empire.

Using a mortgage means he can then buy further properties splitting his cash into multiple BTL deposits. Obviously doing that is either a road to riches or rags as the risks are much higher since he is exposed to having to service debt every month

foxy-stoat

booksurr wrote: »

tax rate is 20% not 25% - once again one of your posts about tax is wrong

Once again ay...you must watch my posts like a hawk spoting all the mistakes I was making....thats why I put a ? next to 25%.....

silvercar

foxy-stoat wrote: »

Once again ay...you must watch my posts like a hawk spoting all the mistakes I was making....thats why I put a ? next to 25%.....

You're being unfair. If you keep posting tax advice you are going to come across the threads that other people also interested in tax also frequent.

If you post something that is factually incorrect, it will be corrected; not to dig at you but so that the original poster can have correct information.

ThePants999

teddysmum wrote: »

We are talking at crossed purposes. My response was to the OP's not realising that saving tax on the rental income is only because you can claim the interest on the mortgage as a loss. If no mortgage is paid, there is no loss to claim.

Well, you quoted me, not the OP. And you said this:

teddysmum wrote: »

This is not a benefit as you will be paying the mortgage interest that you take from the rent income.

eg £100 interest paid with £100 less in tax= £0 interest paid with £100 more in tax.

And you're wrong, as you've failed to account for the capital.
Cash purchase: you have rental income only, you pay tax on the full amount.
Mortgage purchase: you have rental income plus investment income from the cash left over minus mortgage interest, you pay tax on the rental income minus mortgage interest.

So, if you can get a return on your cash of something close to what you pay on the mortgage, you end up better off with a mortgage thanks to the tax saving.

Stevo2800

A few points to clarify. I don't have an existing mortgage. I own my £330k house outright.

The 'allowed 12 months' is the time from death that you can keep premium bonds invested as Executor, after that I have to cash them in. As I'm the principle beneficiary, its simpler to leave them there, pro-tem. I can always cash them in earlier if I want.

I am not so daft as to take all the Agent says as true. It is precisely why I posted here, to get some other points of view. For example, I won't be buying two properties straight away, for the good reasons posted above.

I don't pay tax at the moment because I spend most of my time caring for my dad, mother in law and grand-niece. I'm waiting for carers allowance to be agreed.

seven-day-weekend

Pixie5740 wrote: »

What sort of tenancy does the sitting tenant have? An Assured Shorthold Tenancy or an Assured Tenancy?

It is possible to achieve 8% returns through other types of investments and given that the government is taking steps to make BTL seem less attractive in might be worth investigating other types of investments before sinking the lion's share of your money in BTL.

If BTL is the best type of investment for you then read Tenancies in Eng/Wales: a guide for landlords and tenants.

I considered this before buying our BTL.

Then I thought that I could lose that investment and have nothing, whereas even if it all goes pear-shaped with renting, I at least still have my property. Like the OP, the home we live in is mortgage-free.

So we bought a two-year-old flat in a decent area for cash. Maybe next year we will raise a mortgage on it and buy another one. The jury is out on that.

To the OP, I would rather buy one for cash, at least to start with, and see how you go.

Pixie5740

Yeah, because house prices have never fallen. :cool:

booksurr

seven-day-weekend wrote: »

I considered this before buying our BTL.

Then I thought that I could lose that investment and have nothing, whereas even if it all goes pear-shaped with renting, I at least still have my property. Like the OP, the home we live in is mortgage-free.

So we bought a two-year-old flat in a decent area for cash. Maybe next year we will raise a mortgage on it and buy another one. The jury is out on that.

To the OP, I would rather buy one for cash, at least to start with, and see how you go.

deciding on what investment strategy to take is of course down to each individual person to assess.

property is illiquid and can take a (relatively long) time to sell

some other forms of investments (eg stock based) are relatively liquid and can sold in the time it takes to make a phone call or press return on your keyboard

therefore no one (you included) can say with certainty what is the best form of investment if the investor is not willing or able to react to changes in their market - property can "crash", but so can shares!

each to their own .....

Stevo2800

It is possible to achieve 8% returns through other types of investments and given that the government is taking steps to make BTL seem less attractive in might be worth investigating other types of investments before sinking the lion's share of your money in BTL.

This has been stated several times, what types of investment are they then? To reiterate, I am Capital & Property rich, income poor. I need a few hundred quid a month to live on. Part time work that I can fit in is very variable. Carers allowance, if I get it, is hardly a king's ransome.