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We are just about to get into the buy-to -let market.
We are looking at buying a couple of properties using a 35 - 30% deposit and a buy-to-let mortgages.
My wife is a low rate tax payer and we are planning on her declaring the earnings but us both being on the mortgage, I am a higher rate tax payer.
We will be remortgaging our family home to raise the deposits, which we have now paid off. The idea is to have these as an income stream, but mainly to act as a retirement fund, due to us not having a great pension pot currently.
In your opinion what would be the best way to do this and the most tax efficient way moving forward? Interest only mortgages or repayment and putting more cash down or less?
Is it better flipping properties rather than buy-to -let? Or a bit of both.
Always better to ask those with experience, than going in blind. Research is the key.
Steve & Jemma.
Hi Steve and Jemma,Welcome to the tribe and the wonderful world of property investment. In the first instance, you should seek independent tax advice as to how best to structure your property holdings. This is not really an issue to seek advice from on a forum, as your situation is totally unique to you, and requires bespoke advice to ensure solid foundations of your business.The next thing to understand is that BTL and Buy to Sell (flipping) are two entirely different strategies. You can of course do both, but one is much more hands on than the other.See - Buy to let vs. Buy to sell - trying to compare an apple to an orange.Whichever strategy you choose, it will be based on the following:1. The starting funds you have and your access to mortgage finance2. How much time you have to devote to the strategy3. Your attitude to risk4. Skills that are transferable from your current career i.e. if you are an electrician, plasterer etc.My advice when starting out is always to start with baby steps and go for a low risk option, as this will be more forgiving if you make a mistake.See - How to get started in BTL ... in 10 easy steps. Start out small and safe, learn about being a landlord, and gradually raise the bar each time you acquire a new property.Most landlords agree that interest-only mortgages are the way to go.Repayment vs interest only mortgages? I would also recommend that you join a Landlord Association and use their considerable resources and advice. Property Tribes is partnered with the Residential Landlords Association and our members enjoy a 25% discount off membership.I hope that helps for starters and good luck!
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Thank you Vanessa,
That is very helpful. Yes we are looking at low risk to start with, looking to purchase a couple of properties on interest only with long standing tenants in Situ.
I think then at least we don't have to source tenants and we get instant income from our investment.
Slow and steady is our plan, over the coming five years we'd like to build to around six properties.
Thanks for the links to relevant threads, we'll have a read and get started.
Well done Steve. I think buying a tenanted property is a very sensible option for a number of reasons. This was discussed in the video below:Vesta is the new platform for buying and selling tenanted properties. The stock on there is still being built up as it was only launched a few weeks ago, but have a look out of interest to see if there are any properties that may suit you.
``Always better to ask those with experience, than going in blind. Research is the key.``
Very true - I was blind when i started BTL . PT didnt exist . Rightmove didnt exist .
Nowadays everyone is an expert . But not everything they say always contains expertise
Sift through the good and not so good . You decide
The competition is greater but so is the knowledge
I would do BTL rather than flip . Long term assets that only grow in value
Keep them once acquired . Dont give them a way .
Work them hard - remove their equity in say 5 years if you want more cash to buy more
I would do interest only rather than repayment .
Its counter intuitive to borrow to invest but then start paying down day 1
This was the hand that fed you in the first place so stay loyal to the cause
Borrow at 4% - make 14% .on each £1 - If the figures work the more you want to borrow or at list stick
You dont go to all the hassle to get to a holiday destination then turn straight around and come back
Stay and enjoy the view for as long as you can .
My parents advice was - Ooh son you dont want to have debt when you retire
Its ingrained in many of us from birth
But I retired early precisely because I have debt
A mortgage is a perfectly morally acceptable investment instrument .
Maybe 50% LTV but I would go 75% . Be bold . You can always overpay in the future if you get fearful
You say you want two . Do two yes - but prepare for 10 if you get into it
I remortgaged my house to get started . Then did it twice again over the years
An unencumbered residential is in the comfort zone yes but its also dead money
If your home is 500K and no mortgage then thats a gold mine in your living room
Tap the brickwork from your comfy armchair and say - Come on buddy - lets do this together
So start slowly feel your way . One day you may have 10
And by selling those original two at some point that will pay off your ressie mortgage at term in say 25 years
The other 8 you potentially buy when your confidence grows will become your retirement fund for life
Jonathan Clarke. http://www.buytoletmk.com
Pretty much sums up where I am intending to get to and how, first two purchases going through.
Jonathan, I love reading your posts. The optimism (maybe because that's what I want to believe; that the future is bright in BTL?) and the way that you express and explain your rationale.
Thanks for your contributions.
I am not an accountant, but I think you will find that rental income/profit is shared tax wise between the owners of the property. The benefit of shared ownership is in future capital gains.
Full time Landlord in WestYorkshire, mentor and property education to new and inexperienced PRS investors. 25+ years of working knowledge. RLA member http://www.landlordgeoff.co.uk [color=#800080]
Form 17 might be of interest here.
Coming soon Investorsk8.com
Wisdom - an integration of knowledge, experience, and deep understanding that incorporates tolerance for the uncertainties of life as well as its ups and downs.
I did a long post which I felt was too negative.
Answer the why?
Evaluate the how? and due dilligence on the who? ( Trusted advisors and experts)
Research the where? and which? Structure and strategy.
Take action and don't let when? Become a "I wish"
Your Age, Location , financial position , dependants and any inheritance in future, risk tolerance will have some bearing on your success.
Wishing you success and good luck.
I have reservations regarding buying a property with existing tenants, as problems with them may be the reason for the owner wanting to sell.
Yes, you can do DD but it not the same as you initiating the process yourself. The vendor could tell you he has registered the deposit but you don't know if it was in the timetable required. Has the vendor provided the tenant with all the necessary paperwork? The quality of reference may be poor. The tenant may be behind with the rent - how will you know? Is the tenant still living in the property or has he done a runner? Is the tenant causing problems with the neighbours?
The thing I consider most important, and you can't get a reference for it, is attitude. I would never let a property to someone until I had met them and had a conversation (not an interrogation ) with them. Looking for evasiveness, lying, consistence in their background story and general feeling that I could conduct business with them for months if not years.
When someone rings me in response to my to let ad, the first thing I ask is 'how soon do you want to move in?' This allows one of two answers - in a month's time as they have to give notice to their present landlord. It then up to you to decide if you are prepared to have the property empty for a month. Other reply is- today/tomorrow. This should have your alarm bells ringing as to the reason why and opens up the conversation where you can gain a lot of information to see if there is a genuine reason and if it's worth arranging a viewing for them.