Buy to Let Property Investment Income at Retirement

Reply to the comment left by "Claudio Valentini" at "09/10/2014 - 15:10":

Many thanks

Reply to the comment left by "Mark Alexander" at "09/10/2014 - 18:34":

Hi Mark
Many thanks.
We will speak again in the future.
Regards
Ken

An interesting discussion. I look at each property individually and (on my spreadsheet) look at the income profile and forward capital values over my expected lifetime in the same way as I look at alternative investments such as shares. I play with that spreadsheet looking at alternative futures. It a great game. But I'm afraid I have genes to look after so IHT is also in the equation ... The biggest issue is the age effect on the availability of reasonably priced finance. Maybe I should have used companies earlier but at the time I thought company finance was more costly than individual finance.

Reply to the comment left by "Mike W" at "09/10/2014 - 23:38":

Hi Mike
Thanks for the comment.
Are you suggesting Commercial Banks in lieu of individual BTL mortgages ?
and is it affordable ?
Regards
Ken

Reply to the comment left by "Mike W" at "09/10/2014 - 23:38":

Hi Mike

What makes you think age would not be a factor if borrowing is via a limited company?

I can assure you that the underwriting will still be based on the directors/shareholders and that age is still a factor.

The downside is that due to their being less lenders willing to consider BTL lending to companies, competition is lower hence rates are higher. There are also several tax issues when the owners want to release money from the company for personal use. Furthermore, the more creative forms of finance such as Equity Finance and Lifetime mortgages are not available to companies either.

Companies can be great for developers and traders but rarely are they of benefit to BTL landlords.
.

Reply to the comment left by "Mark Alexander" at "09/10/2014 - 18:34":

Hi Mark
Can you help with some clarification ?
1. Claudio suggests remortgage to max - the whole portfolio.
2.Your previous article suggests reduce LTV to 33% then consider Lifetime Mortgages.
Which would be best bearing in mind age restrictions with Lenders ?
Also how much cash buffer would be reasonable ?
Regards
Ken

Reply to the comment left by "ken ward" at "11/10/2014 - 11:08":

Hi Ken

I suppose it depends on what Claudio means by remortgage to the max. There are 85% LTV deals around but many of them are not cheap. I certainly wouldn't want to redeem any of the low rate trackers either if I was you. Also, what's the point of remortgaging to the max is less you are ready, willing and able to reinvest the money raised to provide a greater return?

I can't really answer your questions fully for you because I don't know what you want out of life. I can only tell you what I would do if I was in your shoes and I've already done that.

Just bear in mind that when you approach the age of 75 you are probably going to have to seriously consider remortgaging a big chunk of your portfolio and that will mean repaying those nice cheap tracker deals which may not be set to expire for a few more years. You finance costs will increase and your rental profits (cashflow) will decrease as a result. If you postpone restructuring your finances beyond your 75th birthday then you will find it much more difficult to do so, and it may well end up costing you more in the long run because your choices of lenders/products will diminish quite significantly, potentially leaving you only with those which are very expensive.

If you can get a 25 or 30 year mortgage at a decent price across your whole portfolio now you might want to consider biting the bullet and going for it. If you borrow the max that may well screw up your cashflow but if you end up with a million or so in the bank you might not be too worried about that. Choices, choices, choices!

Some questions you may want to ask yourself are:-

a) what is most important to you for the rest of your life?
b) do you want monthly cashflow or would you prefer to have a big pot of cash in the bank?
c) do you want to continue to do what you always done or do you want to change your lifestyle?
d) Do you see the need to buy any more properties?
.

Hi Mark,
I have a question regarding the advise given...

If Ken releases equity in his properties by re-mortgaging, then he'll be paying interest on the loans at say 3-4% but only earning interest on the cash at say 1-2%. Then presuming he is a high rate tax payer, he'll be losing another 45% of the interest paid back to the taxman. Have I got this right?

If he's not intending to buy any additional properties using the cash to create more investment income, then wouldn't he be better off reducing the highest cost loans with any spare cash he has whilst continuing to live on the existing rental income?

Regards....Paul

Reply to the comment left by "ken ward" at "10/10/2014 - 09:24":

Hi Ken

One misconception is that commercial banks offer 'worse' (usually perceived as more expensive) mortgage deals than traditional BTL lenders. The truth is (refreshingly) quite different. The commercial banks ALSO offer pretty much standard BTL deals right now too, but because they have a commercial view on the matter they offer much greater scope to refinance larger portfolios and allow for larger portfolio owners to finance far more creatively too.

As Claudio says, leveraging is a useful financial planning tool for proactive investors and allows for greater flexibility with cashflow and capital growth by using considered strategies.

To assess the full market (standard and commercial mortgage providers) I recommend that a professional financial adviser who specialises in BTL's should be your first port of call. This NACFB Member Firm's not bad (and they're award winners in this field too!) > http://www.property118.com/member/?id=314 🙂

Reply to the comment left by "Paul Mullally" at "11/10/2014 - 12:18":

Hi Paul

Income is taxable whether it is rental income or interest earned, unless the cash is invested into a tax free savings vehicle of course. There are several types, e.g. ISA's.

If liquid assets are invested into deposit funds there may well be a differential between the rate paid for borrowing and the return on the deposit. However, there are many forms of investment to consider so there are no hard and fast rules, e.g. winnings on premium bonds are not taxable.

Purpose of loan also needs to be factored into the equation. For example, if Ken is capital raising then he can borrow up to 100% of the price he first paid for the property and still offset interest on that part of any loan regardless of what he spends the money on. If he borrows more than he can't (usually) offset that interest against rental profits.

HOWEVER, let's paint a different scenario. Let's say Ken owns some of the properties in his own name. If he sells these properties to his wife at the full market value there would be no CGT payable because transfers between spouses are exempt from CGT. For the purposes of borrowing (not sales to third parties) a new "base cost" applies which means that all borrowing in Ken's wifes name (up to the purchase price of the property) can be offset against her rental profits.

There are many ways to skin a cat!

Therefore, it is important to seek professional advice, not just from a broker, chartered tax adviser or accountant, but also from a financial strategist such as myself. Paying fees to the right team of professional advisers isn't cheap, however, it can often result in significant savings in the grand scheme of things.

PS - no advice has been given. We are merely discussing 'potential'. I never provide any form of guidance in isolation of all of the facts always recommend clients to liaise with their other professional advisers so that we can work as a team.
.