X

Sign Up

or

By signing up I agree to Property Tribes Terms and Conditions


Already a PT member? Log In

Sign Up

Sign Up With Facebook, Twitter, or Google

or


By signing up, I agree to Property Tribes Terms and Conditions


Already a PT member? Log In

Log In

or


Don't have an account? Sign Up

Forgot Password

To reset your password just enter the email address you registered with and we'll send you a link to access a new password.


Already a PT member? Log In

Don't have an account? Sign Up

  • Property-a-holics

    Getting comfortable with mortgage debt?

    As you may know ive just started my investment in property (Apart from Main residence).  One thing I did was to write a detailed business plan with risk mgmt section as if I was pitching for someone elses cash (Im using my own)

    It seems a bit formal but It really helped me to get down on paper what could go wrong, what were my real costs and potential yields, not the rosy ones.  I built a model and stress tested at 10% 20% price falls, and cost increases.  I expanded it out for future borrowing at 50% LTV and stress tested again  with a series of interest rate rises.

    For me, it helped to put risks in perspective, I also added opportunity cost risk ie keeping money in bank is a 100% chance of losing 1.5% of cash per year against  inflation.etc


    Maybe a bit overkill but for me it worked.


    0
    0

    Open an excel spreadsheet with four columns

    1  Address of property          2  Value            3  Mortgage owing           4  Equity.

    Fill them in. Total them up.

    The total in column  2 will go up in value over time with inflation.

    The total in column 3 will go down if you are on repayment mortgages, or stay constant if you are on interest only.

    The total in column 4 is what you are worth (before tax)  if things go wrong and you have to sell.

    The column 4 total is the one that matters.  Concentrate on that.

    I have a rough idea of what my column 3 amounts to.

    I know without looking what the total in  my column 4 amounts to.

    0
    0

    column 2 may go up or down. For my sothern property it has dropped about £60k over the last threee years. But for one of my northern properties it has gone up about £50k over the same time.

    0
    0

    Just did your exercise....Column 3 was shock inducing...column 4 now feeling quite proud!

    0
    0

    Love it .

    Column 4 brings the comfort and when it does column  3 doesn't really matter

    When you start you know all the figures to the nearest 100

    A few years down the road you start saying to the nearest 1,000

    A few more years on you start saying to the nearest 10,000

    A few more years on still you start saying to the nearest 100,000

    When you get to the point you are saying to the nearest 1 million you know you its time to stop

    0
    0

    Jonathan Clarke. http://www.buytoletmk.com

    My first BTL scared me as we were focused on overpaying on our house mortgage - desperately trying to get that debt paid down & Im not a risk taker. It does require a whole new way of thinking. I do agree with the good/bad debt scenario & don't use credit cards, have car loans etc.  Sometimes I lie in bed & count up my rental debt & it is quite overwhelming if you only look at this. As Bob the Dog says, its the equity column that's important & I have repayment mortgages on everything as that gives me comfort. After that first BTL was on track I felt more confident

    0
    0

    Good post.

    This is one of the major differences between landlords and property investors. The latter understands debt, gearing and risk v. reward and is comfortable with it.

    I remember reading something a long time ago that stuck in mind regarding debt. "If you owe the bank £100, you're in trouble. If you owe the bank £10,000,000 they're in trouble!"

    Ed

    0
    0

    LETS MAKE HOMES by treating landlords as partners, tenants as customers & every property as our own."

    http://www.letsmakehomes.co.uk

    If you can borrow at x% and make a net  x+y% you should borrow the maximum amount you can providing you think that x won't change much and that your capital is safe.  I think those are 2 quite significant caveats though.  Govt policy is a big consideration too.

    At the peak of our BTL portfolio building in our mid 20s we owed well over 100 times my wife's salary, mostly ay 85%LTV.  I never lost one minutes sleep over that.


    0
    0

    Does anyone have a sample spreadsheet they keep track of all their properties to work out specific costs and mortgage payments?

    0
    0