Telegraph: I Have 3 Btl - Should I Buy More?

[rantnrave]

'I have three properties at age 33 and £3,000 a month to save, do I get another buy-to-let or invest in shares?'

For many with money to save there are two choices: put money into property via a buy-to-let, or invest in stocks and shares via a pension or Isa.

Mark Meikle, 33, is at such a crossroads. He has two buy-to-let properties in addition to his own home and cash savings. He has no other significant investments or pensions.

Mr Meikle works in medical equipment sales, and earns just over £50,000 including bonuses. After mortgage payments he has around £2,800 a month surplus from his salary and rental income. His earnings should rise in future years.

He has £35,000 in cash in a Santander 123 account, and several thousand pounds of premium bonds and shares.

He said: "I seem to have accumulated a bit of money and I don't know in what direction to go. Do I continue trying to invest in buy-to-lets, or do I diversify and look at other long-term investments? I know I'm not maximising my Isas or my pension pot so I know those are areas I probably need to consider."

“More debt and more property is a very high risk strategy”

Alison Treharne, chartered financial planner

Mr Meikle lives with his girlfriend, who is an IT adviser and has three properties of her own, including two buy-to-lets.

One option is for each to sell the home they live in and for the couple to buy one together. This would avoid the additional home stamp duty surcharge that applies to second-home purchases.

If Mr Meikle keeps his current home and lets it out, he will need to change his residential mortgage to a buy-to-let mortgage. His aim is to retire debt-free before 65 on £3,000 a month. His only debts are his mortgages and he pays his credit card off in full every month.

"If I come across a good investment I'm happy to say, let's put it all in there. I know I can build my cash reserves back up to in excess of £5,000 in a few months," he said.

"I've been reading a lot about government-backed bonds for wind farms. I've also looked at guaranteed rental yields for student accommodation, and new technology start ups."

Gary Smith, financial planner at Tilney Bestinvest, said:

Mr Meikle's pension funding is woefully inadequate and he is not taking advantage of the tax reliefs available to him. He intends to increase contributions and I'd encourage him to do so. This needs to be balanced with his wider objectives, and he should consider investment Isas.

Mr Meikle needs access to capital, as his circumstances are likely to change, with the potential of moving home and having children. A retirement target of £3,000 a month from 60 should be achievable if he retains his two buy-to-let properties, secures permanent occupancy and the mortgages are repaid.

But the main element should be pensions. The most advantageous aspect of the pension funding exercise would be an immediate uplift of 25pc on the amount put in (through basic rate tax relief). He would also receive an employer contribution.

He will also be able to claim higher rate tax relief via his annual tax return. There may be taxable consequences when funds are drawn, but thanks to 25pc of the pension fund being accessible tax-free, and the other 75pc likely to only be taxable at 20pc at most, it is very tax efficient.

If he retires early, he may be able to use personal allowances to generate tax-free income for a period.

Mr Meikle should consider saving into Isas, as he will see tax-free growth and can use this to generate a tax-free income in retirement. Using a broad spread of investment vehicles should enable him to get the income he wants in the most tax-efficient manner possible. He should consider adopting different levels of risk in his various investment vehicles.

Given that he won't be able to access his pension funds for at least 23 years, and, as he will be making monthly contributions, he should consider higher levels of risk to maximise long-term investment growth. This could involve investing almost entirely in shares.

As he can access the money in Isas immediately, he may prefer a medium level of risk there. This might involve a mix of shares and bonds in developed markets.

Mr Meikle is considering investing in student accommodation for the "guaranteed rental yield" but I'd urge caution as often yields are lower than promised.

Many packaged student accommodation funds (often registered offshore) have had liquidity issues and investors have been "locked in" and lost money. He should also be careful before investing in wind farms or tech start-ups, as investing in individual sectors increases risk.

Alison Treharne, chartered financial planner at Shore Financial Planning, said:

Buy-to-let has worked well for Mr Meikle. But it is not risk-free and he also risks a lack of diversification. He will lose tax relief on the mortgage payments gradually from 2017 so by 2020 the tax will be almost double what it is now.

His properties may be a useful source of income in retirement but will be taxed under capital gains tax rules (18pc or 28pc) if they are sold in his lifetime, and there is the possibility of inheritance tax at 40pc if left in his estate on death.

He and his partner are heavily exposed to the UK property market. Why take even more risk with this one narrow asset class? More debt and more property is a very high-risk strategy. They can sell their main residences and not be subject to capital gains tax rules if the sale is within 18 months of moving out.

From 1 April 2016, Mr Meikle would usually have to pay a three percentage point stamp duty surcharge if buying an additional residential property.

But he won't pay the extra 3pc if the property replaces his main residence and that has been sold. If buying a new main home, he should take out a repayment mortgage with no longer than a 26-year term, so it is paid off by his target retirement age.

The couple could see their finances as one entity and spread capital and assets. He gets no interest on his Santander 123 account above £20,000, so his extra £15,000 could fund a Santander 123 for his partner, with up to 3pc interest.

That is a good cash emergency fund, especially if they plan a family. They each have a personal savings allowance of £500 or £1,000 depending on tax band, so that interest would be largely tax-free.

If they marry they can consider if keeping properties in one name or joint names suits their tax position better. Mr Meikle pays 40pc tax on the rental income as his salary and bonus already makes him a higher-rate taxpayer.

In the future, property could be transferred with no tax implication between them as spouses. But there may be a period when one or the other isn't working when it may be better to have the rental income in the non-earner's name.

Using both capital gains tax allowances (£11,100 a year) would help when selling property, too. As family responsibilities rise, he should consider what income and life assurance protection is needed.

As for his partner's buy-to-let properties - I would sell them over two tax years, before interest rates go up, the property market falters and capital gains tax rates get worse. They could use any equity released to help buy their "forever" home in the fewest moves possible: the cost of moving is now heavy with stamp duty and legal costs.

http://www.telegraph.co.uk/money/special-reports/i-have-three-properties-at-age-33-and-3000-a-month-to-save-do-i/ Edited May 18, 2016 by rantnrave

[SarahBell]

Mr Meikle works in medical equipment sales, and earns just over £50,000 including bonuses.

and excluding bonuses?

[RentingForever]

Yes, you should buy a hundred more. As many as you can. And then when your inevitable bankruptcy occurs you can stand as a moral lesson in greed, rentierism, short-term thinking, debt addiction, and basic lack of economic sense.

[sisyphal]

Good advice really.

Surprised somebody is (ostensibly) so well off yet has so little knowledge though.

The actual article is longer than quoted with more bearish stuff like:

As for his partner's buy-to-let properties - I would sell them over two tax years, before interest rates go up, the property market falters and capital gains tax rates get worse. They could use any equity released to help buy their "forever" home in the fewest moves possible: the cost of moving is now heavy with stamp duty and legal costs.

[rantnrave]

The actual article is longer than quoted with more bearish stuff...

Somehow that part didn't copy over - I've now amended my original post (although I can't edit the thread title - they actually have three properties, of which two are BTL). Thanks for pointing that out!

I also thought the advice was refreshingly good. Real change of message from 'you can't go wrong with bricks and mortar' etc

Given his age, he's on the wrong side of the great property divide - some BOMADing in there to acquire two BTL?

Doesn't say where he is in the country either.

Edited May 18, 2016 by rantnrave

[Si1]

Are they with mortgage express?

[North London Rent Girl]

Yowzer, early 30s, just over 50 grand with bonuses, 2 BTL and girlfriend has two of her own. Unless his girlfriend is independently wealthy or they bought when they were 15, these two are in real trouble. How have young people become so indebted? I can't watch, this is going to be like the pile-up in the Blues Brothers.

BTW I plainly just don't understand the model - so nobody advises using any of that 'extra cash' they have to pay down their massive debt on their four BTL properties? Or their residential mortgages. What, nothing - none of it? The boundaries between having money and having debt really are dissolving into a soft smudge, aren't they?

[North London Rent Girl]

They both have 3 BTLs but they live together and both have their own homes ?

It looks like it - like Woody and Mia, wow, these two really are living the high life.

[spunko2010]

Something off with the numbers/earnings. £50k 'earnings' would be about £30k take home. Yet he has £2800 every month spare. Hmmm. Even if his take home is £50k after tax, I doubt he'd have that. And £35k in a savings account? Hmm. Either he spends nothing at all, literally, or he's not being fully honest.

Edited May 18, 2016 by spunko2010

[interestrateripoff]

Of course buy more what could go wrong!

[billybong]

The slight change in slant is interesting but otherwise it's standard fare pushing financial sector products in return for advertising revenue.

[19 year mortgage 8itch]

The slight change in slant is interesting but otherwise it's standard fare pushing financial sector products in return for advertising revenue.

It's shouting "This Millennial is living the boomer dream! The rest of you are Loosers!" (Sic.)

And I still think selling medical supplies is a euphemism

[sPinwheel]

I'd suggest a minimum of 10 btls.

[rollover]

Yowzer, early 30s, just over 50 grand with bonuses, 2 BTL and girlfriend has two of her own. Unless his girlfriend is independently wealthy or they bought when they were 15, these two are in real trouble. How have young people become so indebted? I can't watch, this is going to be like the pile-up in the Blues Brothers.

BTW I plainly just don't understand the model - so nobody advises using any of that 'extra cash' they have to pay down their massive debt on their four BTL properties? Or their residential mortgages. What, nothing - none of it? The boundaries between having money and having debt really are dissolving into a soft smudge, aren't they?

Are they maths teachers?

[Fully Detached]

There must be tens of thousands of people out there like these two, each with multiple houses and only living in one. When they finally realise the game is up it's going to be a lot of fun watching them all hit the market at the same time.

Sell them over two separate tax years? Yeah, see how that works out for you when their values are dropping 1-2% each and every month and your mortgage interest tax relief just went out the window.

[Venger]

Yowzer, early 30s, just over 50 grand with bonuses, 2 BTL and girlfriend has two of her own. Unless his girlfriend is independently wealthy or they bought when they were 15, these two are in real trouble. How have young people become so indebted? I can't watch, this is going to be like the pile-up in the Blues Brothers.

BTW I plainly just don't understand the model - so nobody advises using any of that 'extra cash' they have to pay down their massive debt on their four BTL properties? Or their residential mortgages. What, nothing - none of it? The boundaries between having money and having debt really are dissolving into a soft smudge, aren't they?

They don't feel indebted, or in trouble. Far from it. Want to have even moar. Top of the world for them.

Perhaps think of the renter-saver tenants such people have taken supply from, and caused prices to rise for.

Stomach for HPC.

[Ah-so]

The impact of the removal of interest rate technology relief is not brought out very well. As a higher rate tax payer with two btl properties, this could have quite an impact.

[Monkey]

6 months ago it would have been

"Remortgage all the properties, and with your existing savings buy more properties to rent out"

Sentiment has really changed

[Venger]

6 months ago it would have been

"Remortgage all the properties, and with your existing savings buy more properties to rent out"

Sentiment has really changed

I couldn't care what it was 6 months ago (and this forum noted every change from the tightening of stamp duty at the top in 2012) if the suggestion is those who've gone for financial capture to deny other people home-ownership, are innocent, with some mad-head journo piece to blame.

("Begin the bailout - protect the HPI - put the BTLers first - missold into it".) No; full responsibility.

Section 24 known since Budget 2015, yet these BTLers want moar.

A lot of measures have been introduced, but still the HPI has raged on. When it unwinds, it's going to unwind.

2012. There are two aspects with respect to property related taxes :

- The new stamp duty regime

- The cap on tax relief of 25% of gross income

There are three aspects to the new stamp duty regime :

- The 15% stamp duty being imposed on properties valued over £ 2 million held in offshore vehicles after Budget Day

- The Chancellor's warning that he will impose retroactive and large annual fees to properties held in offshore vehicles before Budget Day

- The new 7% stamp duty on properties valued over £ 2 million

The behavioural effects on the market are not certain but I can see the non-dom universe looking at the changes in the non-dom tax regime (the previous changes with respect to income as well as these changes with respect to property) and seeing that the financial advantages of remaining in the UK are dwindling. For the non-oligarch cohort, the decision to remain in the UK versus repatriating becomes increasingly difficult.

My expectation is that this market segment will behave in the same fashion as any other market which has topped out. Supply will increase, volume will decrease for quite a while before prices begin to crumble.

Many of us think that the entire market pricing structure is driven by the high priced segment, as all other properties are priced based on compromises versus the ideal (location, size, commuting etc). When the top end crumbles, everything else will follow.

[Monkey]

Venger, i think you missunderstand my post.

I was mainly pointing out that it seemed that no one was offer the advice to heavily leverage themselves more in property now, as 6 months ago they may have. I am not exonerating who this article is about of blame for their actions. Mearly showing that in this article at least it has gone slightly bearish.

[Exiled Canadian]

Someone should point the chaps at 118 in the direction of this article as it might give them a chance to exit a few properties - greater fools are becoming an endangered species.

[Bruce Banner]

BTL has become the modern equivalent of a savings account, for the prudent.

[btl_hater]

You have to wonder how much of these sort of stories are true...

[olliegog]

and they are not even within sniffing distance of being a 'boomer' age

Part of their problem will be that they have never ever known a property crash or that (heaven forfend) house prices can fall.

I am sure they and others of their generation will be the first to squeal when their portfolio loses value - but, but - they were missold and told the value of the houses would only go up (for the next 30 years )

Edited May 18, 2016 by olliegog

[robo1968]

Mr Meikle works in medical equipment sales, and earns just over £50,000 including bonuses.

and excluding bonuses?

I used to play football with a load of medical salesman, up until that point I never knew they even existed.

The NHS really looks after them., all had top end cars and big salaries.