Help with re-mortgaging and BTL calculations

Crashy_Time

Pixie5740 wrote: »

Indeed, can you cite some sources please?

https://www.amazon.co.uk/Nothing-Down-Estate-Little-Money/dp/067150469X


The last comment, from 1998, nails nicely what is going to happen :rotfl: of course they couldn`t foresee the lengths the bankers and governments would go to rather than let capitalism work as it should work.

Crashy_Time

Thrugelmir wrote: »

That was an era when rapidly rising prices made it possible. Normalisation of interest rates is going to come as a major shock to people in the future as well.

If JC keeps on improving it may be nearer than we think?

martindow

Crashy_Time wrote: »

If JC keeps on improving it may be nearer than we think?

What would Jesus do?!

Crashy_Time

martindow wrote: »

What would Jesus do?!

He would get interest rates up to about 2.5% for a start
.

getmore4less

Skag wrote: »

I own a BTL property outright, value 330k.
I want to raise equity to fund a second BTL with interest only repayments for 15 years (capital to be paid after the property is sold at the end of the mortgage period. For the sake of the calculation, the assumption is that it will gain in value, CGT will be paid, and mortgage capital will also be repaid). Also, I haven't included duty stamp, solicitor, and other costs. Running costs are also not included, if anything they will impact the following numbers negatively.

I did the following calculations and it turns out I'd be better off not going for a second BTL. Unless my calculations are wrong?

Existing property
Value: 330k
Raise 61% equity (re-mortgage): 200k
Monthly rent: 1800
Interest: 4%
Mortgage monthly repayment: 1500
Gross income: 300
After tax income (assume 40%): 180

To be acquired
Value: 350k
Interest only mortgage of : 150k
Monthly rent: 1800
Interest: 4%
Mortgage monthly repayment (interest only): 500
Gross income: 1300
After tax income (assume 40%): 780

If we assume that I'm getting 1800 from the first one, less 40% tax I'm better off now than I would be if I acquire the second one.

Simplify it,

you can effectively ignore the first property and assume 100% on the second one.

Before you add the costs of buying but adding stamp duty you in for £368k that raises £1800pm

Gross yield of 5.87%

with the debt at 4% not a lot of margin to cover costs and tax.
slight increase in rates and you are cutting it very fine.

as a high rate tax payer you can assume you lose (0.2*0.04) 0.8% on the lack of full interest relief, that drops your cashflow gross yield to 1.07%

the best you can hope for from that after tax is 60% 0.64% net.

but since there is a tiny investment of your own money as you are gearing with 100% debt your ROI will be quite good even if in real cash terms it is low.