BTL doesnt stack up? (sanity check request)

Robwales

Thank you 00ec25 for the immediate response - I will look into it.

saajan_12

Robwales wrote: »

Mortgage interest 4.5%
Annual Mortgage interest only £2,250 (£187.50 per mth)

That's a very high interest rate.. for the first 10 years I expect you'd be able to borrow at a much lower fixed rate ~2% and remortgage every few years until your age stops you getting a new deal. You have a low LTV and low total borrowing compared to your salary. Yes, 4.5% is the conservative number but being too conservative can mean you miss the investments which are more likely to fare much better.

Robwales wrote: »

Taxable income £5,000
Tax @ 45% on income £2,250
2020 Tax relief £450 (20% of interest payment)
Total tax bill £1,800

- House owner / cleared mortgage (id guess value @ £300k) / No other debts
- Wife has zero pension / stamps or salary history so she cannot be the BTL mortgage owner

Can you borrow against your house instead, ie much lower residential rate. If the purpose of the money is clearly to fund the new purchase, you should be able to claim 20% tax relief on the interest payments. Also, you can buy the new property without a mortgage, in wife's name alone or joint names, so wife's 0% or 20% tax rate is used for at least some of the rental income.

jonnygee2

Given your other investments, diversification into BTL is probably a good idea. Your pension looks likely to breach the lifetime allowance at some point. You have plenty of cash to mitigate short term risks like void periods.

Short term yields aren't great but this will be a long term investment and over time, like everything else, returns fluctuate. The advantage for you would be diversification, right now almost everything you have is in equities & bonds (depending on your pension spread?).

But, as you say for the profit it will be quite a bit of work. Given your current savings, have you considered investing a bit more? Maybe 75k buying a house for 150k? At least the resulting investment would be worth your time.

AdrianC

saajan_12 wrote: »

That's a very high interest rate.. for the first 10 years I expect you'd be able to borrow at a much lower fixed rate ~2% and remortgage every few years until your age stops you getting a new deal. You have a low LTV and low total borrowing compared to your salary. Yes, 4.5% is the conservative number but being too conservative can mean you miss the investments which are more likely to fare much better.

For a BtL mortgage? Not residential and CtL...

Crashy_Time

https://www.propertyindustryeye.com/britains-best-known-landlord-set-to-put-portfolio-of-properties-up-for-sale-today/

MiserlyMartin

1.7% after going through all the buying, letting out etc. The work it will need between lets and the risk of bad tenants and costly evictions. Capital risk (Just look at London prices)

Or 1.5% with marcus Goldman Sachs.

I know what I'd choose to do with my 50K.

quotememiserable

lisyloo wrote: »

Do you have a pension via your employer?

Very wise words. Any money you direct into pension instead of taking as pay earns you 30% instantly. You pay 45% if you take it as pay, if you put it into the pension, you'll get a quarter of it tax free, and the rest at 20% if you bleed it out at the right rate. Plus you can invest it in all sorts of markets in the meantime.
It all depends how old you are and when you want the payback, but this is the best deal available.

dividendhero

Just leaving the money to one side for the moment.

While the majority of tenants are decent people, a small minority of them are a massive pain. I've had..

A tenant coming up to me drunk in the pub as if he was my best mate and thrusting his company on me, not really what I want when out for a quiet drink with my genuine friends

A tenant who was in arrears threatening to call the police on me when I had the temerity to call round asking for the rent. Wish he had called them as I found later they were after him!

I'd agreed to let someone park for free on my land, they then complained about the state of their free parking pitch and insisted I should carry out repairs.

I'm sure others on here have similar stories

The_Lambchop

Not an expert but I was under the impression that there were a few other variables in your favour. My understanding is that there is a £1000 property allowance, which means that you can earn £1k rental income untaxed per annum no matter your tax thresh-hold. I also thought that there were tax deductibles such as maintenance and repairs, service charges for flats, insurance etc. which you can deduct from your tax return declaration. Am I right?

wesleyad

The_Lambchop wrote: »

Not an expert but I was under the impression that there were a few other variables in your favour. My understanding is that there is a £1000 property allowance, which means that you can earn £1k rental income untaxed per annum no matter your tax thresh-hold. I also hought that there were tax deductibles such as maintenance and repairs, service charges for flats, insurance etc. which you can deduct from your tax return declaration. Am I right?

No it's an "either or". You can elect to take the £1000 allowance OR you can go down the route of actual tax deductibles. In the OP case almost certainly not worth taking the £1000 over the deductibles