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  • Property-a-holics

    Owning BTL property outright the way to go?



    I've been chewing this one over so much over the last 18 months, even to the point where I started paying down some mortgage on a BTL at £500 a couple of times a month to bring down the LTV to the minimum required for the best mortgage deals. No big shakes in terms of £ paying down, but a regular drip drip.

    But then I stopped.

    As my mortgage isn't a drawdown/back that one-way traffic is a difficult habit to get into, which is why I was doing it at £500 a time, as that's not enough money to do much damage with.

    But it still doesn't get round the fact that I want to own outright for legacy purposes plus keep the income going ad infinitum (hopefully!), but is that an out-dated thought process these days?

    If you've got a couple of BTLs (that's me) then I don't think it is, but if you have say 100, it may be tough to ever pay them down, maybe impossible, plus I'm sure there will be a few dogs in that portfolio that will be the first to go if needs must.

    So what's your plans? Pay down, pay off the minimum to keep the asset going and kick the can down the road, or 100% be selling when you can't extend the mortgage any more? Or a combination of the above?

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    Unless you are a landlord with a large portfolio aiming to be mortgage free is 100% the right thing otherwise the rewards are just not worth the work involved.

    Let’s assume you pay £200k for a property at 75% LTV, so you have put in £50k.

    Assume the property value doubles over 20 - 25 years and you sell at £400k.

    Assume CGT stays the same, you will pay just over £50k in tax leaving circa £150k, add your investment of £50k making  £200k, but what is that £200k worth at today’s value, probably about 50%, so £100k of which you had £50k to start.

    £50k invested in other areas may give similar returns.

    I have ignored rental returns as anybody buying now is unlikely to see a significant income after allowing for mortgage interest and other expenses.

    Some areas will provide opportunities for buying bmv and adding value but I don’t think many landlords are able to benefit from such purchases.

    i expect the following posts to tell me I am wrong and it’s all about return on investment but each to their own model.


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    To ignore rental returns is to ignore the investment  model which the vast majority use 

    and @  £300 net pcm thats  90K over 25 yrs you have air brushed  out of your equation

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


    I have explained why I have excluded rental profit from my calculation,  I don’t think many would see any significant rental income profit after expenses and tax if purchasing in much of the SE at this time.  I accept that MK produces great rental income,  £300 pm rental profit after mortgage interest, voids, agents fees, insurance, maintenance cost and tax on a £200k purchase price, great if you can achieve it.  I still think for a landlord with just a few properties aiming to be mortgage free makes sense.

    An added advantage of being mortgage free is if rents fall it is easier to adjust to the reduction in rental income.

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    Well of course it’s each to their own. But I want cash flow - I don’t want to have to bail out my business month-to-month and I have no intention of paying down my mortgages as long as interest is in any way tax deductible. I will only consider this when I can no longer get finance, and probably only from capital gain.

    This is not least as I want to grow my business. And spare cash is for this purpose. For me, paying down is giving up...

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    I only have one rental property, unencumbered, which is due to complete in the next few weeks. The funds from the sale will allow me to purchase 2 properties outright. I could purchase more by mortgaging but I don't accept the lenders terms.

    With an unencumbered property I can do what I want, within the law. With a mortgaged property I am bound by the lenders conditions. With this freedom I have the advantage of being able to offer letting arrangements prohibited by many BTL lenders.

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    I think it is prudent to own one property outright.  It reduces risk and there are other advantages:

    The power of owning a property with no mortgage on it

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    For me it makes no sense whatsoever to pay down the mortgage. I use the bank’s money for 2-3% per year and inflation will take care of the rest.

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    I'm not sure how this process works of 'inflation taking care of the rest'. Inflation could lower the LTV of a property but it will never pay it off.

    It's capital gains after all that has lowered the LTV in a big way, not inflation.

    Example: A property bought at £300k in 2010 is now worth £500k.

    Original 75% mortgage meant £75k (25%) of my money input, £225k on mortgage (I/O)

    Now the property is worth £500k, that £225k on I/O is  now 45% LTV, and I still have my £75k in there.

    Whichever way you cut it, that £225k is always going to have to be paid back one way or another.

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    For me cash is king, why worry about paying it down until you get to retirement? My plan is to keep the IO mortgages as long as possible and then sell one to pay off the other 3 if need be, too many times I have seen people slog to pay it off, when they die the first thing their children do is SELL....

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    My main priority is to minimise the mortgage on the residential so that I can consider early or partial retirement in 10 years time at 55

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