What's wrong with my B2L plan?

[Scruff]

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[b0redom]

They don't seem right to me.
Those mortgage rates seem very low. And given BTL mortgages cost more, I'd say they are pretty optimistic.
BTL mortgages usually want 25% LTV so a larger deposit will be needed.

Oops you're right, I was getting a quote for borrowing £75k on a £105k property. Even so I'm only going off what I found with a quick search on moneysupermarket etc.

£105k for a house is really cheap, even in the north, and likely to be rented by scratters. Don't be surprised if ALL the profit disappears into repairs and defaults.

It's not the bottom end of the market where I was looking (Doncaster).

IMO the only BTLs to consider would be 4 bed family homes, near a train station, for professionals. The rental would be more like £800, and the cost to buy more like £250k. At least the income will be more consistent and repairs cheaper.
Or holiday cottages...

Do you actually do this? I would have thought smaller starter homes (for professionals) would have been way easier to let than big family homes and surely the rental and price are completely dependent on location?

The biggest reason for the BTL boom has been capital increase. This has been somewhat slower for 10 years, and with Brexit looming large I'd be hodling the cash

Brexit's been looming large for years. At the moment I have cash in the bank which is depreciating in value. If not property then what?

And all that hassle for less than a day's rate per month. I just don't get it.

[Maslins]

So is it possible to dump post tax rental income directly into a SIPP and reclaim the tax?

Basically, yeah. It wouldn't be different to any other personal pension contributions. Be a bit careful about the limits (remember personal pension contributions are not only limited by the annual/lifetime caps, but also your "net relevant earnings", which importantly for small biz owners excludes dividends). Otherwise, if you put in £800 (of your own, after tax money), the pension scheme reclaims £200 from HMRC leading to £1,000 in the pension. You then declare on your personal tax return a £1,000 personal pension contribution, which extends your basic rate band, meaning a bit more of your income is taxed at basic rate rather than higher rate. Ie the pension scheme gets the basic rate tax relief for the contribution, you then get the higher rate relief.

[simes]

They don't seem right to me.
Those mortgage rates seem very low. And given BTL mortgages cost more, I'd say they are pretty optimistic.
BTL mortgages usually want 25% LTV so a larger deposit will be needed.

£105k for a house is really cheap, even in the north, and likely to be rented by scratters. Don't be surprised if ALL the profit disappears into repairs and defaults.

IMO the only BTLs to consider would be 4 bed family homes, near a train station, for professionals. The rental would be more like £800, and the cost to buy more like £250k. At least the income will be more consistent and repairs cheaper.
Or holiday cottages...

The biggest reason for the BTL boom has been capital increase. This has been somewhat slower for 10 years, and with Brexit looming large I'd be hodling the cash

And all that hassle for less than a day's rate per month. I just don't get it.

Well,

1. He's nearly right with the 25%... A grand here or there isn't a large point of contention.

2. A Ltd Co BTL I bought seven months ago is on an interest only rate of 2.94%, so again, he seems spot on.

3. I would tend to disagree with the 4-bed houses comment. My portfolio is all one beds, one two bed aside. Someone is always just about to leave home, or breaking up in a partnership. These flats always tend to go first. Four beds are more niche oriented and can lie fallow for a period.

4. While one is working, yes, a day's rate does Not seem worth it - especially while paying for your and the BTL mortgages, kids, school and university fees. But, once all that goes, with a handful of such paid off properties, in retirement, it adds up to a reasonable pension - imho.

[Maslins]

The property is only £105K right now. It's value may go up but so may thresholds, stamp duty probably isn't likely to be an issue, or a significant one.

Given this is a BTL, I'm assuming it won't be the OP's sole property. I believe the 3% stamp duty surcharge applies on all secondary properties, even those below the normal stamp duty threshold. I appreciate many will still not consider it a significant issue as it's not incurred every year...but given it's 3% of the value of the property, not a % on profits (as the income tax sides typically are) IMHO it's worth bearing in mind.

[Lance]

It's not the bottom end of the market where I was looking (Doncaster).

Nice (not nice)

Do you actually do this? I would have thought smaller starter homes (for professionals) would have been way easier to let than big family homes and surely the rental and price are completely dependent on location?

I don't for all the reasons I mentioned. The rewards are too low for the risk. I'd rather invest in a property I can enjoy by living in it.
Small starter homes for professionals in Donnie???? Yeah right.
Wakefield, near the station maybe but it's the arse end of the market. What professionals are going to want that?

Brexit's been looming large for years. At the moment I have cash in the bank which is depreciating in value. If not property then what?

Good question. I'm chucking my surplus at pension but then I can do a cash draw down from that in a few years.

[northernladuk]

3. I would tend to disagree with the 4-bed houses comment. My portfolio is all one beds, one two bed aside. Someone is always just about to leave home, or breaking up in a partnership. These flats always tend to go first. Four beds are more niche oriented and can lie fallow for a period.
.

They can but this is all down to your research. Where I live it's pretty desirable so there are just no family properties coming up. Yes 1 and 2 bedders don't stand empty for more than a day but then there is the churn that young couples move here for the area and then find they cannot start a family or lay any roots because of the cost and they move on.

The 4+ properties command a much better rent against cost because they are so desirable and rare. There are a queue of families looking so they won't stay empty more than a week. When they are rented they will be for years and much more likely the house will be looked after if not improved. If you can afford it, the bigger properties are the way to go here. Other areas, as the OP said, maybe not so.

Understanding your area and spotting niches like this can be much more profitable if done properly.

[b0redom]

Nice (not nice)

I don't for all the reasons I mentioned. The rewards are too low for the risk. I'd rather invest in a property I can enjoy by living in it.

Eh? It's a B2L, I'm never going to live there. I've got a lovely place in leafy Surrey.

Small starter homes for professionals in Donnie???? Yeah right.
Wakefield, near the station maybe but it's the arse end of the market. What professionals are going to want that?

Depends on your definition of professional I guess. It's pretty close to a big hospital. It's pretty close to the airport. It's pretty close to some schools. Am I going to get contractors paying me thousands a month? Nope. Do I care? Nope. As long as the rent covers the mortgage and part funds my pension I can't see a down side. It's unlikely the market will completely collapse and I'll lose everything.

[Lance]

Eh? It's a B2L, I'm never going to live there. I've got a lovely place in leafy Surrey.



Depends on your definition of professional I guess. It's pretty close to a big hospital. It's pretty close to the airport. It's pretty close to some schools. Am I going to get contractors paying me thousands a month? Nope. Do I care? Nope. As long as the rent covers the mortgage and part funds my pension I can't see a down side. It's unlikely the market will completely collapse and I'll lose everything.

fair enough. You asked for advice. I responded.
BTL isn't for me (well not at the moment anyway).
Good luck.

[GhostofTarbera]

Eh? It's a B2L, I'm never going to live there. I've got a lovely place in leafy Surrey.



Depends on your definition of professional I guess. It's pretty close to a big hospital. It's pretty close to the airport. It's pretty close to some schools. Am I going to get contractors paying me thousands a month? Nope. Do I care? Nope. As long as the rent covers the mortgage and part funds my pension I can't see a down side. It's unlikely the market will completely collapse and I'll lose everything.

Go for it then

Personally I would enjoy myself now, rather than when I’m old and almost deed in retirement

Jesues


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