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I think we all like a bit of Capital Growth
It makes us feel safe and that we are making money for doing little
we have all seen the generations in the past buy a house for a couple of thousands of pounds and then when they pass away the property is with tens of thousands more than they paid for it this has even happens in the North East
But lets come back to England in the 2020s
Can the past 50 years bring the same Capital Growth to our Business and Investments ?
I am sure we will not see the returns of the past 50 years
But I have enough confidence in property Investment which makes me purchase more property
My own thinking has changed from the early 2000s and I now stack deals very differently from the early days of my business
Let me show you what road my mind goes down now and where I think good money can still be made it involves paying down debt and it has 1.5 % capital growth as an assumption. Over the next 10 years you will see from my figs that you will still be doing very well out of property investment :
Purchase price £80,000
Capital Growth 1.5 % per year
25% Deposit £20,000 plus costs
The desired results
Value of property in 10 years = £92,900 so a gain of around £13,000
If a Capital and repayment mortgage is used, Mortgage amount £40,700
By using Capital and Repayment your original £20,000 is now worth around £52000 .... so your capital invested has done very well even with very low Capital Growth
The above is now the Model I use and have used since 2015
I am now into my 4th Year of using such strategy via my company and the results are going right to plan
It is good to see Debt going down per property and Buying with a 8% yield is my bench mark always means I am buying at the right price
If you have the cash for good deposits and you buy right and forget about Capital Growth for Now, You can stack a deal which will give you the returns
This strategy works in the NE - it's safe, simple and conservative in expectations and its profitable even with out capital growth ????
The events of the past 50 years are not going to be repeated so I believe Property investors need to change their strategy
Some will say "NO DL! Don't go down the Road of Capital and Repayment You would be better if you used the money for more deposits" !!
I am not sure in 2019 this is a safe route which I will not be taking in 2019 ...(*Moderator note: Inserted DL's recent video about the state of BTL .... *).
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.
Nothing wrong with having both
My old properties are mostly on interest only and they will stay that way
but since 2014/15 I have used my Capital and repayment strategy in my company
Slowly working towards financial freedom
Yes I am growing equity in each property with each repayment
and I am sure thats a very good thing to do
``Nothing wrong with having both``
Spreading your risk is fine but there are limits in my book
Mathematically the cash saving you make pcm by having IO ones you are putting into shares
These are the healthy returns you state you have been making.....
``Jupiter European 3 yrs 54% 5 years 90%
TB Evenlodode 3 years 48% 5 Years 74%
Trojan 3 years 19% 5 years 42%``
So the returns of Jupiter @ 18% pa are far in excess of the 3% or so pay rate you are saving by paying down within the C&R mortgage.
So I cant understand why you do that strategy
Much better to invest surplus cash in those funds surely and then pay down at a time of your choosing
Faced with a choice to make 3% pa or 18% pa most people would go for 18% surely
Jonathan Clarke. http://www.buytoletmk.com
its simple really i do both JC
think of my of a Shop
any shop owner would sell there Tins of Beans (Yeild ) Pay for there Stock (Capital and repayment ) and invest in Pension and save funds for more stock (Deposits ) and I have a reserve Account in My ISA
So I take advantage of every aspect of Business
so the funds you have highlighted are use by Pension and ISA
Personal contributions to Sipp allows me to have a hedge against S24 ie 40% Tax
Company contributions from company are totally Tax free for a Director Until the Income stream is taken
I have given great thought about what I do JC
My old BTL which I own in my own name will not grow any further because of S24
A director can have there cake and eat it it has got to be planned and from what I can see its all working well
Pension funds are rising
ISA fund is rising (Deposits) if required
Capital Growth is ok when I buy BMV 8% benchmark
and LTV is dropping via capital and repayments
what is there not to like JC
``what is there not to like JC``
I dont like losing the difference between 3% and 18%
I am sure you have thought in depth about it but ........
In simple terms:
Why pay £3 to the lender today when you can make £18 yourself
Pay him back his £3 tomorrow ( if you must) but the beauty is you get to keep the £15 profit
If you think I am wrong in strategy JC why do you keep looking at my comments and views ???
I must be writing something which interests you
I put forward suggestions because of the changing world we are living in
You on the other hand for some reason hang on to a past time in BTL
Your view is Borrow as much as you can and every thing will be ok I dont fully understand why you cling onto this view
a great number of landlords are having second thoughts on BTL
some are selling
some are moving into a company
some are de leveraging paying down debt
I never see you come up with strategy idlers you never comment on company strategy
are you using a company for future purchases are are you still buying in your own name
``If you think I am wrong in strategy JC why do you keep looking at my comments and views ???``
To let people know there is an alternative and to challenge you
I enjoy it
Your strategy is not wrong as such - its the mathematics I am interested in
Business is emotions and maths. Its a heady mix between the two
I just give the figures and ask you why - make 3% rather than 18%
You really must re read all my posts to get the answers to the questions you ask
But to repeat . I am not buying in my own name or a company at this time
I did buy a couple for cash a year or so ago just so the rent paid the s24 bill
One in my own name one in a company name .
I`m deleveraging but only through inflation and CG eroding debt
I am not paying down
I will sell one a year if needs be and use CG to partially cover S24
But cash flow will cover that bill in the main for now
I am not transferring into a company as i dont want to pay CGT and SDLT
I have looked at alternative strategies but I dont want to risk the largely untested
Sec 24 or an equivalent may also hit companies so that migration could be an expensive mistake
S24 may be withdrawn in a year or two like what happened in Ireland
So I`m biding my time .
I dont say borrow as much as you can per se as that is irresponsible
But if you can borrow at 3% and make 18% then thats what you should do
The question then is how big a contingency fund do you feel comfortable with
Mine used to be 2% against debt now its 15% because of the changes
You may want to review the now far tighter BTL lending regs first - as well as S.24.
The traditional "piggy back" method of growing a portfolio needs substantial cap growth over a fairly short interval.