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  • Buy-to-Let

    My conclusion: Pension vs. BTL? BTL wins if?

    I appreciate your thorough work, got out my calculator and decided to put pen to paper. The yearly cost of a "3.5% mortgage" on a £96,000 mortgage is about £6,200, not £3,360. This is because of  the funny way it is calculated. This will result in a £1,448 initial net loss with a £32,000 equity.

    If this £32,000 had been invested in shares a 5% return could be achieved, resulting in a £1,600 profit.

    No matter how I try I cannot show any profit in this new regime if you borrow at a 75% rate. I achieve an average 4.5% net profit, unencumbered, ltd company.

    Also I do not believe in a 2% capital appreciation in property in my lifetime.

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    I am a NE Landlord and we have seen in my region very little property growth in 10 years

    just an example

    2007 two bed flat was valued at 95K

    2007  Crash  Two Bed Flat Valued at 55K

    2018 two bed flat 75k

    The SE has not seen what we have experienced but I believe they will have simmer experience in the coming years

    For my Business Plan I work on 1.5% growth and I even think that's bold

    This is why I say BTL has a big IF around its future

    Out of interest I was looking at the Standard  Life UK property fund in the past 12 months its done around 8%

    I think this growth rate would have been higher than most BTL property in the past year

    I still have reservations for the PRS for capital growth

    we may get comments from individuals saying oh I have done 10% on a deal ect but I am generalising

    One Swallow doesn't mean summer has arrived





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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    ``The yearly cost of a "3.5% mortgage" on a £96,000 mortgage is about £6,200, not £3,360.

    This is because of  the funny way it is calculated. ``

    Paul`s figure is right pa for an interest only mortgage .

    What is the funny way yours is calculated please  to make it £6,200 ?

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


    Dear Jonathan

    Calculating a repayment mortgage monthly payment is a complicated business and there is no standard formula. One method is as follows


    Hope that clarifies my point.

    Regards

    Peter

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    show off lol

    ps i think that second  P down should be a Z if i remember my maths o level :-)

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

    Peter

    I am still in the world of Hundreds Tens and Units

    That totally lost me lol

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    Not sure how you get £6200 mortgage interest from a £96k loan at 3.5%.  Just rechecked my figures and 3.5% of £96,000 is £3,360.  Perhaps you did principal and interest loan?

    2% capital appreciation is actually below the inflation rate so a fairly conservative estimate over the longer term but everyone needs to make their own assumptions.

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    Sorry Paul, my mistake. Should have seen that you calculated an interest only mortgage, which is quite straight forward. My point is that I am increasingly doubtful if BTL is such a good business. I admit, however, that it is better than pensions.

    Your first line shows a 4.35% return on the capital invested, which is about what I can achieve (4,5% average). The following lines assume a 2% annual rent increase and 2% annual capital appreciation. Nice, however the market can go against you.

    As an experiment I sold at the beginning this year one property and invested the money in shares. Just got my first dividend, achieved 8% so far on my capital invested. No hassle, no midnight calls for lost keys, no weekend calls for boiler breakdowns etc. etc.

    Best regards

    Peter

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    ``The following lines assume a 2% annual rent increase and 2% annual capital appreciation. Nice, however the market can go against you.``

    2% growth pa would take 35 years for house prices to double

    I think it will be a shorter period than that .say 25 years

    ......even with a couple of hefty downturn years  in that of  say 10% I believe 25 years is about right

    They used to say 7- 10 years for prices to double . Most accept that that is unlikely going forward

    25  years to double would mean 2.8% pa

    Buy just 4  @ 75% LTV @ 100K and that quadruples that return . So after 25 years you get ....

    100K = 800K  + 200K at least in rents makes you hit the million with ease when the mortgage term ends

    Re invest that 200K  and do a bit of equity release along the way and you are looking at nearer 2 million

    As a target to aim for ------- 100K investment year 1 to get to 2 mil in 25 years aint bad

    Start at 25 - retire at 50 .  Keep going for another 25 till your 75 and thats 4 mil

    Beats any pension I`m sure

    Personally I m happy to deal with a few boiler breakdowns for that kind of money  .

    When I tire from that though I will give the letting agent a call

    Take off 10% for their trouble and that leaves me 800K short of 8 mil when I`m 100

    BTL is my pension

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


    Wow, that is impressive. I am afraid I have missed the boat, I have no 50 years to wait. I started when we were disappointed when the annual growth was less than 20%. Those were the times! Could you though do me a favour as I am not as a wizard with numbers as you are. Could you do the same exercise, 100K investment with 8% grows pa. compounded over 50 years, what profit would you come up with?

    Regards

    Peter

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