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Thread: BTL question

  1. #1
    Grand Master ryanb741's Avatar
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    BTL question

    Guys are these still worth doing? I was looking at retirement options with how to use some of the SIPP tax free money (when it comes to that time) and here's a hypothetical example. Say you had £200k to spend on a BTL. My thought was buy a 2 bed flat in Central Glasgow for cash. Rent £16k a year. Full management fees 15% (£2.4k). Service charge £2k. Maintenance per year I'd assume £2k. Leaves £9.6k left, 20% tax on that (due to other income elsewhere) and you've got £7.7k to play with.

    Someone told me better to take that £200k and get 4 £200k BTLs on 75% BTL mortgages (£50k deposit each). But working on the above but factoring in an additional £6k per flat per year in mortgage interest (with the risk of interest rate rises) I just can't see how that's better.

    Better than all of these is just keeping that £200k in a Sipp in a tracker averaging 6% per year after fees and inflation.

    What am I missing? Obviously a lot lol.

  2. #2
    Grand Master Passenger's Avatar
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    What's Central Glasgow like, lots- little rental availability? What trajectory is it on? Are folks flocking in or heading the other way? What have prices done there over the last couple of decades?

    6 per cent net hassle free doesn´t sound too bad at all.
    Last edited by Passenger; 24th March 2024 at 16:18.

  3. #3
    Grand Master ryanb741's Avatar
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    Quote Originally Posted by Passenger View Post
    What's Central Glasgow like? What trajectory is it on? Are folks flocking in or heading the other way?
    Just took as an example as it has an 8% yield.

  4. #4
    Grand Master Passenger's Avatar
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    Quote Originally Posted by ryanb741 View Post
    Just took as an example as it has an 8% yield.
    According to whom, based on what?

    Aren´t Bitcoins flying, where the smart money is?

    6 per cent net hassle free doesn´t sound too bad at all.
    Last edited by Passenger; 24th March 2024 at 16:27.

  5. #5
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    1x BTL fully paid off is money in the bank, plus (generally) capital appreciation

    Whilst your 2k repair bill p/a seems excessive, with interest rates being high as they are, a savings account will perform just as well

    Several BTLs dilutes your risk but with mortgage they will just break even. But you then have tenants paying off your mortgages and eventually, free houses.

  6. #6
    Journeyman Ikincooper's Avatar
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    BTL question

    Historically, with investment time on your side (so perhaps before retirement) and favourable taxation it would make sense to leverage your funds via 4 x BTL properties each with 25% down. That way you could enjoy appreciate on £800k of property versus £200k which over the long term should be sizeable.

    Given the limited tax relief now available on mortgage payments and the fact that you (I imagine) would want to enjoy retirement and not deal with problem tenants, I’d probably favour a stocks and shares idea with a S&P500 tracker.

    I say the above as a very small scale landlord, aged early 40’s and with 3 rental flats all mortgages out at 75% LTV. I expect to sell at least 1 of my investments flats in the next 5 years and just through any funds into my pension of an ISA.


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    Last edited by Ikincooper; 24th March 2024 at 17:00.

  7. #7
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    Are you investing for income or (long-term) capital growth?

    As long as the imbalance of housing supply and demand exists, you’d assume residential property would be a good long-term investment. That said, there’s a fairly hostile regulatory environment. In Scotland, a rent freeze was imposed although (unsurprisingly) that’s coincided with rents increasing significantly.

    The LBTT (Scottish SDLT) has a 6% additional rate for second properties so you’ll pay a total of 8% on your £200,000 - £16,000!! So you’ve lost that before you start.

  8. #8
    Grand Master ryanb741's Avatar
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    Quote Originally Posted by David_D View Post
    Are you investing for income or (long-term) capital growth?

    As long as the imbalance of housing supply and demand exists, you’d assume residential property would be a good long-term investment. That said, there’s a fairly hostile regulatory environment. In Scotland, a rent freeze was imposed although (unsurprisingly) that’s coincided with rents increasing significantly.

    The LBTT (Scottish SDLT) has a 6% additional rate for second properties so you’ll pay a total of 8% on your £200,000 - £16,000!! So you’ve lost that before you start.
    Income with a 20 year window.

    Based on comments above I think just sticking it into an index tracker is far less hassle.

  9. #9
    Master mr noble's Avatar
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    The only way to hold BTL or Holiday Lets nowadays is mortgage/debt free or within a limited company structure.

    The government is making sure that there isn’t any profit in gearing them up with debt.

    I’d also say that with £200k to spend, you’d be better putting it into the SPX ETF and maybe a couple of other funds. You’d probably make more than the 4/5% yield your example above makes. You can put £25k into your ISA each year and £25k into your wife’s. And £9k into your kids JISA too. Meaning in 4 or 5 years it’s all inside a tax free wrapper.

    I think BTL has become almost un-investable unless you already own the properties.

  10. #10
    Master M1011's Avatar
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    Bear in mind on a second property you'd be paying extra stamp duty too, plus liable for capital gains tax when selling it. I'm not sure the benefits outweigh just keeping the money in your pension pot to be honest. Bear in mind you'll still get that tax free cash in your annual withdrawals and money in your pension is generally preferable from an inheritance perspective.

    We're intending to move soon and I've thought about keeping our current home as a BTL, but even with the advantages that route offers over just buying a BTL separately (i.e. the stamp duty is already paid on this house, I'd save fees associated with selling it, I'd save fees typical of buying a new BTL etc), I still can't seem to make it stack up as a viable option financially. That said, I'm no expert!
    Last edited by M1011; 24th March 2024 at 18:30.

  11. #11
    Master helidoc's Avatar
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    I have a BTL spreadsheet, and no matter how I plug the figures in it comes out as a firm “don’t bother”

    You have to put energy efficiency fairly front and centre or you can’t rent it out. I was considering holding as a ltd company at one point, but then corporation tax has gone up, and the tax free dividend allowance has been cut by 75%

    I keep looking at it, but I find the numbers far from compelling, I’m in Liverpool and city centre flats or flats close the main park area are similar to Glasgow prices.

    I’ve also looked at Glasgow, as I think the West End is beautiful

    D


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  12. #12
    Master mr noble's Avatar
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    As M1011 said above. Probably best to just leave it in your pension and earn ~14% a year from SPX.

    Is there not a big advantage to spreading your 25% tax free part over a number of years? Rather than take it all out at once on day one?

    Use the tax free bit to bump up that maximum amount you can take out tax free each year, for the first ten years of retirement.

  13. #13
    Master Halitosis's Avatar
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    Wouldn't it be best to just leave the money in your SIPP, don't take the up front tax free lump sum, and instead enjoy 25% tax free on every withdrawal through retirement?

    Edit - sorry I see such has already been suggested

  14. #14
    Even if all the tax breaks hadn’t been taken away you don’t want to start investing in property at retirement age. You need to be starting in your thirties and have decades to ride the capital appreciation. If you were retiring today and did not have kids you wanted to leave an inheritance to then buying an annuity will work for some people.

    And personally I would steer clear of apartments. Service charges are not in your control and can kill the return.


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    Quote Originally Posted by Halitosis View Post
    Wouldn't it be best to just leave the money in your SIPP, don't take the up front tax free lump sum, and instead enjoy 25% tax free on every withdrawal through retirement?

    Edit - sorry I see such has already been suggested
    Doesn't that depend on how much you need or want to draw down?

  16. #16
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    I wouldn’t enter BTL now. It’s just to politically unpopular.

    I just put the money into a range of index trackers in your SIPP.

  17. #17
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    Quote Originally Posted by trident-7 View Post
    Doesn't that depend on how much you need or want to draw down?
    I imagine that the comment was made as to the most tax efficient way to drawdown a pension, usually not being to take the 25% lump sum upfront.

    The below video will explain things way better than I can via a few sentences here. As always, everyone’s circumstances will vary

    https://youtu.be/jiW4i5ErLOc?si=y6JpIH8Yb4Kkg5-f


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  18. #18
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    Quote Originally Posted by helidoc View Post
    I have a BTL spreadsheet, and no matter how I plug the figures in it comes out as a firm “don’t bother”

    You have to put energy efficiency fairly front and centre or you can’t rent it out. I was considering holding as a ltd company at one point, but then corporation tax has gone up, and the tax free dividend allowance has been cut by 75%

    I keep looking at it, but I find the numbers far from compelling, I’m in Liverpool and city centre flats or flats close the main park area are similar to Glasgow prices.

    I’ve also looked at Glasgow, as I think the West End is beautiful

    D


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    The West End is lovely but it's expensive too.

  19. #19
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    Even paying 15% for “full management”, it won’t be as passive as you’d expect. We have properties (owned outright) and my wife is forever having to make decisions about maintenance etc - and chasing the agent to make sure the work gets done.

  20. #20
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    Having a BTL is like having a part time business. Yes it can be managed via a good agent but I’ve never found one that doesn’t need management.

  21. #21
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    Quote Originally Posted by Montello View Post
    Having a BTL is like having a part time business. Yes it can be managed via a good agent but I’ve never found one that doesn’t need management.
    Fair point, from using an agent for all the houses over a decade ago I now manage all but two, it keeps me busy for a couple of hours a week.
    Last edited by number2; 25th March 2024 at 00:22.
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  22. #22
    Grand Master Onelasttime's Avatar
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    Tomato sauce on the bottom, then the bacon, tomato, lettuce, and finally, mayonnaise on the top.

  23. #23
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    by the time you get to take the 25% you'll be mid 50s (assuming you are a bit younger atm). Spreading the lump sum over 4 BTLs is just inviting huge amounts of stress for very little benefit. The rule changes mean that the tax and legislative burden is higher than ever and I doubt you'd spread it across 4 as the BTL mortgage rules for deposit are governed by lenders assumed yields that a massively higher than you are likely to achieve.

    Either buy 1 outright or leave it invested; as an experienced landlord I'd sell all of mine now if it wasn't for the tax liability and having to kick out all of the tenants. Or at least get down to 3 or 4 mortgage free properties to neutralise the tax issues.

  24. #24

    BTL question

    Quote Originally Posted by westberks View Post
    I'd sell all of mine now if it wasn't for the tax liability.
    Presume there will always be a tax liability whenever you sell, you are never going to escape that, and this is just a necessary evil associated with making a good return on your investment?

    Or if not, when do you plan to sell and realise your capital gain without a tax liability?

    I thought the Government had given an incentive by reducing CGT on residential property from 28 to 24%. Seems a bargain to me when compared to higher rates of income tax.

    When it comes to tax on wealth, you do realise that you may have an even less tax friendly government in 9 months time?
    Last edited by noTAGlove; 25th March 2024 at 10:52.

  25. #25
    Grand Master Passenger's Avatar
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    There's always tax liability...never let the tax tail wag the investment dog...I to plan to reduce mine to the point where I just own the star performers outright, within this decade, the aim to simplify where we can by 60.
    Last edited by Passenger; 25th March 2024 at 11:49.

  26. #26
    Grand Master wileeeeeey's Avatar
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    Some really good advice on this thread. I was close to buying a first BTL last year but couldn’t make the figures stack up. You need to own them outright, have a jobless wife at home with them in her name, or go Ltd company and scale viciously.

    A family member is converting a BTL into a proper HMO shortly. They own the house outright and will spend just under £200k. The house forfeits its ability to buy a residents permit for life (other considerations too) but they project an extra £2k per month.

  27. #27
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    Re: risks, dont forget there may be cases where the tenant doesnt pay, trashes the property or uses it as a canabis farm.

    Also dont forget it wont be looked after like you would, so if the bath is leaking, so what, smoke alarm battery dead, meh just remove it.

    As others have said stick it in a fund/tracker and never have to worry about a Section 21!

  28. #28
    Grand Master wileeeeeey's Avatar
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    Yep, my mum is almost 10k down after having to evict tenants last Feb. The deposit will never cover the loss.

    Year before she got clobbered for major works which originally went in at 23k but were haggled down to 17k after protests.

    Once works started she had 14 days to pay or would have incurred interest.

    Good when it’s good. Terrible when it’s bad.

  29. #29

    BTL question

    Quote Originally Posted by wileeeeeey View Post
    Good when it’s good.
    You mean significant and rapid capital appreciation, and large gross yields in a low interest rate and low taxation environment?

    If so, now is about the perfect time for the proper mugs to start their BTL journey.

  30. #30
    Grand Master wileeeeeey's Avatar
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    Quote Originally Posted by noTAGlove View Post
    You mean significant and rapid capital appreciation, and large gross yields in a low interest rate and low taxation environment?

    If so, now is about the perfect time for the proper mugs to start their BTL journey.
    My mum is ok because she’s a lower rate tax payer and has had it for about 35 years (we lived in it as council tenants for about 15 years).

    If I was to buy it now as a higher rate tax payer with even a 50% deposit it would be a terrible investment.

    Its fully managed for either 12.5% or 15% fee and the agent was emailing my mum over Christmas to ask what to do as the tenants are drying their clothes on the radiators and the closed windows are full of condensation. I would have lost it at them but I stay well clear of that kind of stuff now.

  31. #31

    BTL question

    Quote Originally Posted by wileeeeeey View Post
    Its fully managed for either 12.5% or 15% fee.
    Ouch, that is a massive bite out of your Mums investment return. What do you get for that significant fee, apart from a phone call to tell you about the drying?

  32. #32
    Grand Master wileeeeeey's Avatar
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    Quote Originally Posted by noTAGlove View Post
    Ouch, that is a massive bite out of your Mums investment return. What do you get for that significant fee, apart from a phone call to tell you about the drying?
    FA. After she made me go to court for the eviction process when the flat is nothing to do with me I told her I don’t ever want to hear about that flat or see it again. She can either upskill and be fully involved or pay someone else and hope for the best. She did the latter.

  33. #33
    Grand Master Neil.C's Avatar
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    Quote Originally Posted by Estoril-5 View Post
    Re: risks, dont forget there may be cases where the tenant doesnt pay, trashes the property or uses it as a canabis farm.

    Also dont forget it wont be looked after like you would, so if the bath is leaking, so what, smoke alarm battery dead, meh just remove it.

    As others have said stick it in a fund/tracker and never have to worry about a Section 21!
    That's the main trouble with BTL's, the human factor. I thought about it years ago but the human factor always deterred me.

    A chap I know let one of his houses with six months paid upfront and then no more money. He went down there, used his pass key and a shotgun booby trap nearly took his head off!

    Needless to say a cannabis farm.

    Three foot of wet soil everywhere, holes smashed through walls for cabling - a nightmare.
    Cheers,
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  34. #34
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    Quote Originally Posted by wileeeeeey View Post
    FA. After she made me go to court for the eviction process when the flat is nothing to do with me I told her I don’t ever want to hear about that flat or see it again. She can either upskill and be fully involved or pay someone else and hope for the best. She did the latter.
    It maybe worth her considering taking out a rent insurance policy with legal cover. That way if the tenant doesn't pay the insurance company cover her rent and deal with the legals, obviously they are highly motivated to get the legal process sorted because they are paying the rent until the property is vacant. Also, they are experts in this area of law.

    Never used the insurance but it's there if you need it.

    I use this
    https://www.alanboswell.com/landlord...ent-guarantee/
    https://www.alanboswell.com/landlord...egal-expenses/

    Some letting agents include this in their fee ... my old one did but I never saw the policy so have no idea of the quality of cover.

    Quote Originally Posted by noTAGlove View Post
    Ouch, that is a massive bite out of your Mums investment return. What do you get for that significant fee, apart from a phone call to tell you about the drying?
    As above may include rent and legal cover ... check you agreements ...

  35. #35
    Grand Master wileeeeeey's Avatar
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    Quote Originally Posted by Montello View Post
    It maybe worth her considering taking out a rent insurance policy with legal cover. That way if the tenant doesn't pay the insurance company cover her rent and deal with the legals, obviously they are highly motivated to get the legal process sorted because they are paying the rent until the property is vacant. Also, they are experts in this area of law.

    Never used the insurance but it's there if you need it.

    I use this
    https://www.alanboswell.com/landlord...ent-guarantee/
    https://www.alanboswell.com/landlord...egal-expenses/

    Some letting agents include this in their fee ... my old one did but I never saw the policy so have no idea of the quality of cover.



    As above may include rent and legal cover ... check you agreements ...
    Thanks for the recommendation. I haven’t heard of Alan Boswell but did recommend landlord insurance a few times years back which fell on deaf ears.

    The main issue was the one month deposit from a 10 year old rental value. She got greedy after a few years and took on the tenants directly without updating the deposit and paid the price. Very much a horse to water issue so I stay out of it.

  36. #36
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    Quote Originally Posted by wileeeeeey View Post
    Very much a horse to water issue so I stay out of it.
    Managing a BTL isn't the loose casual arrangement it was 20 years ago, now you have to keep up to date with all sorts of stuff ... Like I said above, it's like running a small business, the returns have to be earned. For those who are not willing to put the effort in I'd stick with index trackers.
    Last edited by Montello; 25th March 2024 at 16:36.

  37. #37
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    Quote Originally Posted by Montello View Post
    Managing a BTL isn't the loose casual arrangement it was 20 years ago, now you have to keep up to date with all sorts of stuff ... Like I said above, it's like running a small business, the returns have to be earned. For those who are not willing to put the effort in I'd stick with index trackers.
    This is it in a nutshell. For me, it’s 15 years (now 9) of unpaid hassle / work before I see any returns. I have a fairly good threshold for hassle.

  38. #38
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    Quote Originally Posted by Montello View Post
    I wouldn’t enter BTL now. It’s just to politically unpopular.

    I just put the money into a range of index trackers in your SIPP.
    This , we have two properties and both have long term tenants but it's still a hassle and what was a good deal at the low rates is a bad return at present, I'd happily trade them for a steady 5% return at the moment.

  39. #39

    BTL question

    Quote Originally Posted by Liner33 View Post
    I'd happily trade them for a steady 5% return at the moment.
    If only you could get a 5% steady risk free return. Hmmmm.
    Last edited by noTAGlove; 25th March 2024 at 17:51.

  40. #40
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    Quote Originally Posted by noTAGlove View Post
    If only you could get a 5% steady risk free return. Hmmmm.
    Cash is THE biggest risk, guaranteed to reduce your wealth in the long term ...

  41. #41

    BTL question

    Quote Originally Posted by Montello View Post
    Cash is THE biggest risk, guaranteed to reduce your wealth in the long term ...
    If you have had a good run at BTL and made some serious capital gains, there has to be a point when you cash in, reinvest for a simpler life, max your pension contributions and go out clicking your heals and smiling on the way out.

    I get the impression from numerous responses that no one really enjoys owning a BTL, but somehow inertia keeps them going. I don’t get a sense of investment excitement or buzz, just a ball ache of responsibility, risk and worry.

  42. #42
    Grand Master Passenger's Avatar
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    Quote Originally Posted by noTAGlove View Post
    If you have had a good run at BTL and made some serious capital gains, there has to be a point when you cash in, reinvest for a simpler life, max your pension contributions and go out clicking your heals and smiling on the way out.

    I get the impression from numerous responses that no one really enjoys owning a BTL, but somehow inertia keeps them going. I don’t get a sense of investment excitement or buzz, just a ball ache of responsibility, risk and worry.
    Hmmm I'd probably beg to differ fwiw but our set ups' possibly an outlier at this point...and as I wrote this morning the aim is to streamline/ simplify before decades end. We did have a bit of fun with part owning a light industrial building in Philly, invested about 25k english, got around 10 percent a year from the rental for about 8 years. Then we sold it, walked away with about 70k english net, which certainly gave me a pleasant feeling.

    Out of curiosity from what investments have you derived excitement/ buzz...not an ISA, Sipp or employee pension surely...
    Last edited by Passenger; 25th March 2024 at 18:37.

  43. #43
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    BtL is not the golden goose it was, we have 9 and planning the exit

  44. #44
    Quote Originally Posted by MCFastybloke View Post
    BtL is not the golden goose it was, we have 9 and planning the exit
    You can say that again.

    My now deceased FIL only had one BTL. Bought it in Winchester for £50k cash in 1993 and cashed his chips in for £230k 15 years later. Early gross yield were massive as well.

  45. #45
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    Quote Originally Posted by noTAGlove View Post
    If you have had a good run at BTL and made some serious capital gains, there has to be a point when you cash in, reinvest for a simpler life, max your pension contributions and go out clicking your heals and smiling on the way out.

    I get the impression from numerous responses that no one really enjoys owning a BTL, but somehow inertia keeps them going. I don’t get a sense of investment excitement or buzz, just a ball ache of responsibility, risk and worry.
    Exit isn’t easy but at some point tax has to be paid. I don’t think any investment has ever given me a buzz …

    BTL don’t add up at present in my area and I’m not interested in buying in an area I don’t know.

  46. #46
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    Quote Originally Posted by noTAGlove View Post
    Presume there will always be a tax liability whenever you sell, you are never going to escape that, and this is just a necessary evil associated with making a good return on your investment?

    Or if not, when do you plan to sell and realise your capital gain without a tax liability?

    I thought the Government had given an incentive by reducing CGT on residential property from 28 to 24%. Seems a bargain to me when compared to higher rates of income tax.

    When it comes to tax on wealth, you do realise that you may have an even less tax friendly government in 9 months time?
    I've already sold a couple and plan to sell more; the tax is a very bitter pill to swallow and I realise that it will always be there in some form or another.

    I'm getting my whole retirement strategy sorted out along with some personal stuff. It's also what I do for a living; so a bit of a busman's holiday for me

  47. #47
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    My wife and I own two BTL properties.

    One we mortgaged personally on a repayment BTL mortgage. It will be paid off by the time we retire.
    The 2nd is a bigger property, which we made a property company and purchased it through. This is on an interest only mortgage. The objective being to maximise the rent to profit ratio.

    The point I wanted to make to the OP is that we have had the same tenants all the way through. People generally don't hop about if its a nice place in a nice area. Not everyone wants to be on the property market.
    We have a great relationship with both tenants, they occasionally need something and thats fine.

  48. #48
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    Quote Originally Posted by andyb28 View Post
    My wife and I own two BTL properties.

    One we mortgaged personally on a repayment BTL mortgage. It will be paid off by the time we retire.
    The 2nd is a bigger property, which we made a property company and purchased it through. This is on an interest only mortgage. The objective being to maximise the rent to profit ratio.

    The point I wanted to make to the OP is that we have had the same tenants all the way through. People generally don't hop about if its a nice place in a nice area. Not everyone wants to be on the property market.
    We have a great relationship with both tenants, they occasionally need something and thats fine.
    Good to hear. We proceed likewise, when something is needed and it's on us, it gets done, it's how to play the game.

    Thinking back on the investment ''buzz'' question, having slept on it. I'll add an unreserved definitely from our London BTL's, for all the Govt's policy shenanigans rule changes, their attempts to foist their border/ migration responsibilities onto to us ie the ludicrous notion we should be checking our tenants immigration status/ grassing folks up, the occasional disaster like the roof blowing off that year the South had some extreme winds, the tenant coming up short on the rent due to them being ripped off by their employer...hard working Poles being abused by a British building firm...Despite these, BTL has played a significant part in enabling our ambitions to escape the rat race early and live here. Job's a good'un...If you set objectives, 'goals for your life and the investments enable and deliver them that's always exciting, a cause for satisfaction, celebration.

    I think if you're not getting that feeling you're plausibly doing something wrong, maybe pursuing the wrong things... Though everyone is different obviously, investment and lifestyle choices are down to each individual, tis all subjective, there's no right / wrong answers or blanket, one size fit's all solutions, everyone's dealt a different hand to start with and the field is not the same everywhere/ equal for all.

    Thinking about more recent/ current developments and opportunities, I'd expect to be hearing from some of our Bitcoin winners/ millionaires, after all that seems to me to be the latest buzz, diamond hands, Lambos', yachts etc??? All sounds far more exciting than the grind of dull old bricks n´mortar...
    Last edited by Passenger; 26th March 2024 at 10:44.

  49. #49
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    Quote Originally Posted by Passenger View Post

    Thinking about more recent/ current developments and opportunities, I'd expect to be hearing from some of our Bitcoin winners/ millionaires, after all that seems to me to be the latest buzz, diamond hands, Lambos', yachts etc??? All sounds far more exciting than the grind of dull old bricks n´mortar...
    When I finally cash in my Bitcoin, it'll go into BTL / commercial property

    Assuming it doesn't go to zero of course

    Make of that what you will :-)

  50. #50
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    Quote Originally Posted by demonloop View Post
    When I finally cash in my Bitcoin, it'll go into BTL / commercial property

    Assuming it doesn't go to zero of course

    Make of that what you will :-)
    And the very best of luck to you Appreciate your candour.
    Last edited by Passenger; 26th March 2024 at 11:44.

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