Am i overleveraged?

lalman

I don't mean to spam the board but I think I posted this in the wrong area before - ill delete that post!


I have posted on here quite a bit over the years but been quite for the last 16-18 months since I got married and life expenses have taken hold.
My life has turned upside down but in a positive way in terms of progression.
I got married.
I am now 31, my wife is 29
My father is disabled so we have decided to stay as a joined family (my parents (dads retired due to ill health but gets £1k net via private pension and disability and mum works still but is approaching retirement age 1.2k per month)) and my wife and I both work and earn 45k +5k a year OT (2.5k-3k) and 28k (1.7k) respectively.
My aim has always been financial independence.
I have 2 flats with market value of 135k each with mortgages of 71.5k and 83k respectively (at a interest rate of 2.99%. I have just remotgaged these flats and fixed them for 5 years (interest only now) and I earn 600 per month after tax and mortgage interest.
My wife has 50k (split 50:50 in stocks and cash) – cash is locked at 1.75% due to loyal customer of Coventry BS and the stocks have gone up with the huge rise in equities. We are using this as an emergency fund incase anything happens to one/ both of our jobs.
We have recently wanted and decided to move house to start a family and give my dad some more space too. We are using our savings, a large gift which we intend to pay back and my parents’ house for the deposit.
The house we are purchasing is a new build and we managed to purchase it with a significant discount (32K) due to some unusual circumstances (not having to sell our existing house as part of a chain and completing relatively quickly).
Usual circumstances:
My sister has lent me 310k, I had 30k saved from the last year and we have got a mortgage of 343k (over 35 years at 1.14% 2 year fixed = 992pcm).
I have disclosed that I have received a gift to my Mortgage Company and solicitors.
My parents are in the process of selling their semi-detached house for £225k and will receive 220k after fees etc. They are giving this to me- I know this sounds strange but as an Asian family this is quite normal and I will always continue to care and provide for them as they get older too.
With the 220k I will be paying back my sister 140k and she doesn’t want the remaining 170k back for 17 years – she wants her kids to receive it as a gift (100k each) at the age of 25 when they are abit more responsible and learn the value of money.
My sister doesn’t require the 140k as a side note but I want to make sure that she receives it.
Ultimately this is my situation:
Purchase price and stamp duty = 613k
Mortgage: 343k
Gift: 310k
Savings: 30k
Money from parent’s house: 220k
Once we pay for the house and stamp duty + give my sister 140k back we will have approx. 150k left.
With this money I was thinking of purchasing a flat in a low risk, high demand area in my town for 130k which would return 5.5% yield and use the money to overpay the other two flats.
My wife and I do want to become financially independent and we see 8 flats that are paid off completely as being enough for this. We have been saving prior to the move 3k per month from our 5k net salary so feel we are careful.
We don’t have any loans and credit cards are always paid in full. Even with the new house we are not buying everything straight away but rather saving up and buying stuff bit by bit.
My worry is that if I follow this strategy I will have nearly 500k of debt which can be quite stressful and makes me think ‘am I over leveraged’. I was thinking of paying off the two flats as the debt interest costs more than our home mortgage – and for the little work I put into the two flats – that income would effectively cover the mortgage payments and I could save more money to build a larger buffer/ save up for deposits for additional flats.
I just wanted your thoughts on what you felt was the best strategy in terms of risk and reward over the longer term (10-15 year horizon).

kidmugsy

lalman wrote: »

My sister has lent me 310k, I had 30k saved from the last year and we have got a mortgage of 343k (over 35 years at 1.14% 2 year fixed = 992pcm).
I have disclosed that I have received a gift to my Mortgage Company and solicitors.

But you said it was a loan. Haven't you committed mortgage fraud if you declared it as a gift?

lalman wrote: »

My parents are in the process of selling their semi-detached house for £225k and will receive 220k after fees etc. They are giving this to me- I know this sounds strange but as an Asian family this is quite normal and I will always continue to care and provide for them as they get older too.

Your father is ill. That gift will therefore count as "deprivation of assets" if he becomes a charge on social services.

lalman wrote: »

With the 220k I will be paying back my sister 140k and she doesn’t want the remaining 170k back for 17 years – she wants her kids to receive it as a gift (100k each) at the age of 25 when they are abit more responsible and learn the value of money.

How do you and your sister intend to avoid any potential inheritance tax liability on those gifts? How does your sister propose to cope if you go bankrupt and the £170k vanishes?

If your parents don't own any share of the house how will they be housed if you go bankrupt and the house is seized to pay your creditors?

As a landlord you are a businessman: your chance of becoming bankrupt is not negligible. I'd say you may be putting far too much risk on your parents and sister.