Assessment of Financial Goals with €2m property and 955k Debt

[Alistair]

Hi Fonduster,

Are these all residential BTLs or are there any commercial units in your portfolio ? If you claimed VAT relief at purchase on any of these, then you may have a service income VAT liability given your level of rent roll.

Overall, I think you are quite exposed to, what I assume is, the residential market. If there is a significant downward market adjustment on CMVs, are you at risk of invalidating any existing banking covenants such as <50% LTV ratios that currently qualify you for a lower rate for your cost of funds.

Do you have public liability insurance (in addition to landlord buildings insurance) ? Heaven's forbid, but what happens if you get sued by a tenant (or a tenant's visitor) for damages i.e. slipping on stairs, blown light bulb, CM alarm with batteries removed etc etc etc ? If you are conducting your BTL business as a sole trader, how do you limit or protect any court claim against your overall assets ?

In my view your free cash flow is razor thin and would be too risky for my book given the level of uncertainty the BTL market is exposed to under current government policy.

While you appear to have built a decent portfolio, there is significant underlying risk based on the limited information you have provided. I would strongly suggest you obtain qualified legal and financial advice.

 

[NoRegretsCoyote]

What is your CGT bill likely to be if you sell up?

 

[fonduster]

Hi Fonduster,

Are these all residential BTLs or are there any commercial units in your portfolio ? If you claimed VAT relief at purchase on any of these, then you may have a service income VAT liability given your level of rent roll.

Overall, I think you are quite exposed to, what I assume is, the residential market. If there is a significant downward market adjustment on CMVs, are you at risk of invalidating any existing banking covenants such as <50% LTV ratios that currently qualify you for a lower rate for your cost of funds.

Do you have public liability insurance (in addition to landlord buildings insurance) ? Heaven's forbid, but what happens if you get sued by a tenant (or a tenant's visitor) for damages i.e. slipping on stairs, blown light bulb, CM alarm with batteries removed etc etc etc ? If you are conducting your BTL business as a sole trader, how do you limit or protect any court claim against your overall assets ?

In my view your free cash flow is razor thin and would be too risky for my book given the level of uncertainty the BTL market is exposed to under current government policy.

While you appear to have built a decent portfolio, there is significant underlying risk based on the limited information you have provided. I would strongly suggest you obtain qualified legal and financial advice.

All of these are residential. I had looked into commercial at the time however with the money involved and i had no experience in that area, i decided against it. It took me long enough to understand the legal aspect of residential as well and commercial would take me a long time to get up to speed with.

If the s*** hit the fan similar to the last recession, as a last resort, i could sell my ppr and move into one of my rentals. It wouldnt be my first move however it is there as a backup plan. During the bad times, my current PPR was worth 200k so would be give me circa 3 years cushion.

I do have liability insurance for all of them. i have had to use my solicitor before for them so know i need to protect myself from that aspect. I am not an LTD so the bank can go after all my assets.

Sorry, did quite understand this comment "If there is a significant downward market adjustment on CMVs, are you at risk of invalidating any existing banking covenants such as <50% LTV ratios that currently qualify you for a lower rate for your cost of funds."- do you mind explaining in layman terms.

 

[cremeegg]

If you are conducting your BTL business as a sole trader, how do you limit or protect any court claim against your overall assets ?

When this looked like a becoming a pressing question for me in 2009. I put the mortgage free assets in my wife's name as far as possible and took mine off.

My solicitor said that this would be ineffective as a ploy to defeat my creditors. I think he was wrong as I had no unpaid creditors at that time, i.e. there were no mortgage arrears. Fortunately it was never put to the test.

 

[lledlledlled]

Fascinating thread.
One thing I didn't get, how do you have so many properties before age 30? Must have had a lump sum to begin with?

 

[Bronte]

Always great when a poster comes back. Initial thoughts.

- Don’t buy any more rentals.
- Forget about sentimental in your thoughts on selling PPR
- Sell PPR to buy new home
- No CGT on PPR
- stay as long as possible in PPR to give you time to have paid down more capital on the rentals
- you both are relatively low income, better then not to have a large repayment on your home
- marriage means probably one income
- Marriage means cost of bring up children and having a nice lifestyle
- you won’t have save for education as the rentals will by then pay for that
- Pay as much as you can into your pension. Now.
- Do you really need to spend 20k on one day
- Good you did major renovations on the rentals, don’t let that slide
- you should have separate savings for the rentals, I aim to keep 10k in my rental account for anything unexpected. Keep rental money in a separate account so you really know how you are doing. When you’ve a limit on the account then drip feed the actual income to yourself

 

[Bronte]

Will you be in trouble with your cashflow when the mortgages go to full repayment?

Income 13,095
Repayments 9,800 (my estimate)
Tax 4,833 (income 13,095 less int 3,428 gives profit 9,667 taxed at 50%)

Monthly shortfall 1,538

Give or take rent increases voids, other expenses, etc.

I’m not able currently to do the figures but that’s not good.
Nor is his suggestion of interest only for 20 years when he’s carrying so much debt.

I agree that price falls is not his problem.

He’s also ‘assuming’ it’s easy to get interest only or whatever he might need. That is certainly not always the case as it’s cyclical. NEVER rely on banks,

 

[Bronte]

When this looked like a becoming a pressing question for me in 2009. I put the mortgage free assets in my wife's name as far as possible and took mine off.

My solicitor said that this would be ineffective as a ploy to defeat my creditors. I think he was wrong as I had no unpaid creditors at that time, i.e. there were no mortgage arrears. Fortunately it was never put to the test.

Your solicitor is clearly not the one acting for Ireland richest developer Sean Dunne.

Over the years from articles I’ve read I noted a load of developers putting assets into their wives names. I wondered how that would work out if they played hookey on the wives.

 

[Bronte]

6) Im also looking for other peoples knowledge and experience during the bad times and how cashflow impacted them. I was debt free in the last recession and although i saw rents decrease, it didnt impact as much as others.

I’ve seen rents go up and down, had voids, had major costs, (10k for a roof, 6k to renovate bathrooms, 2k for a boiler, 8k to renovate on tenant leaving etc)bad tenants not so much. Seen banks throwing out money. Seen banks refuse lending. Started at sky high interest by today’s terms. In my case over 9%. Seen 17 % down to less than 2%. I’ve seen governments change the rules from allowing interest relief, to cutting it entirely (remember Bacon anybody) then allowing it again, then restricting it to 75% and now back to 100%.

My principles are that the rents must cover the costs, that money be set aside for eventualities and that I never took interest only. I fundamentally disagree with interest only. Made no money for the first decades. But I am now. Never cared about property crashes. And I’ll maybe sell at the peak. If I get too old or sick.

Your ltv when good, that’s the time to move everything to one bank who might give you an attractive interest rate to get your business.

I advised you before to educate yourself to a better job, same advise now, and same for your intended.

 

[fonduster]

When this looked like a becoming a pressing question for me in 2009. I put the mortgage free assets in my wife's name as far as possible and took mine off.

My solicitor said that this would be ineffective as a ploy to defeat my creditors. I think he was wrong as I had no unpaid creditors at that time, i.e. there were no mortgage arrears. Fortunately it was never put to the test.

I dont know much about this area and but from the news of developers doing the same, i was under the impression it had to be in your wifes name for a certain period of time before you could protect your assets in that way.

 

[fonduster]

Fascinating thread.
One thing I didn't get, how do you have so many properties before age 30? Must have had a lump sum to begin with?

I inherited 2 properties when i was 18. I worked part time while i was in college which covered my living expenses while the rental income was saved.
i then bought my 3rd rental at the height of the recession with cash.
Since then, i again saved cash for a few more years and more recently Sold one of the properties to give me liquid cash of circa 500k. This along with refinancing my 3rd property enabled me to be where i am today.

 

[mtk]

Very interesting thread and nice to see a risk taker been rewarded . I wish I had had the confidence to invest near bottom but never been a risk taker !

I agree pay down debt

Is there a risk of a sein fein government going after landlords ( even more )?

Courious ever much hastle getting rent ? Etc

 

[fonduster]

Always great when a poster comes back. Initial thoughts.

- Don’t buy any more rentals.
- Forget about sentimental in your thoughts on selling PPR
- Sell PPR to buy new home
- No CGT on PPR
- stay as long as possible in PPR to give you time to have paid down more capital on the rentals
- you both are relatively low income, better then not to have a large repayment on your home
- marriage means probably one income
- Marriage means cost of bring up children and having a nice lifestyle
- you won’t have save for education as the rentals will by then pay for that
- Pay as much as you can into your pension. Now.
- Do you really need to spend 20k on one day
- Good you did major renovations on the rentals, don’t let that slide
- you should have separate savings for the rentals, I aim to keep 10k in my rental account for anything unexpected. Keep rental money in a separate account so you really know how you are doing. When you’ve a limit on the account then drip feed the actual income to yourself

- Don’t buy any more rentals. I wont be until my debt is much lower > I would feel more comfortable with a 25pc gearing.
- Forget about sentimental in your thoughts on selling PPR. > Its harder said that done. I dont think ill be able to sell this unless its a last resort.
- Sell PPR to buy new home
- No CGT on PPR > In my case i have had my current PPR for over 11 years however i have only lived in it for 1-2 years. I will have a pro rata gain on about 75k from when it was given to me.
- stay as long as possible in PPR to give you time to have paid down more capital on the rentals > Interesting point. I think i have decided to pay down the other rental of 30k to get the ltv down to 50pc. Would you continue to over pay the debt instead of building up cash again in preparation of my final PPR? To do this, i would still need to refinance in 5+ years to get it however i would have a net saving during those years.
- you both are relatively low income, better then not to have a large repayment on your home > your right. I would be hoping to have no debt on PPR and all of the debt on rentals.
- marriage means probably one income > In our case, i think its healthier for both to work even if its 1 day a week to keep you sane and productive.
- Marriage means cost of bring up children and having a nice lifestyle > Yes, to be brutally honest, up until now, i have never had money worries as i always has surplus cashflow, i want that to continue into the future as i can see what that can do to some of cousins.
- you won’t have save for education as the rentals will by then pay for that > You brought up an interesting point. This is one option where i was still considering if its better to open up an investment or saving account for the children where we would deposit child benefit into their name so that money would always be safe for them. The other route is, hopefully in 20 years time, i could cashflow their college.
- Pay as much as you can into your pension. Now. > I am, will commit 20pc of salary along with the companys 7pc going forward.
- Do you really need to spend 20k on one day > It wouldnt be my first choice for sure as its not my scene however my GF and her mum love weddings and I dont think i could take that away from them. It would be hypocritical of me to do something like that when i know how to spend in my own way as well. Happy wife, happy life so pick your battles wisely.
- Good you did major renovations on the rentals, don’t let that slide > Yep, i did spend a lot of money over the past few years to most of them in very good condition. One option i had considered and have not seen it be brought up in forums is to do work to a property when it isnt necessary just so you can bring down your tax bill. So lets say you could do work of circa 10k to a property. In essence it will only cost 5k to make this property more attract and/or bring up the value of the property OR i could just pay tax of 5k instead. I have not done this yet, however when i see my yearly tax bill, its painful to let so much go.
- you should have separate savings for the rentals, I aim to keep 10k in my rental account for anything unexpected. Keep rental money in a separate account so you really know how you are doing. When you’ve a limit on the account then drip feed the actual. >

Right now my current setup is that i have 2 personal accounts for everything. One for income, one for expenses. Its a mental thing for me where for any of my own personal expenses i would always take out a monthly amount in cash to spend as i find it harder to spend that way while for the rentals, i use my card. I know its not as structured as your own and one of my own friends thats an accountant tells me the same however i usually have a good idea of figures and numbers of how i am spending etc.

i also dont have much in savings right now with how aggressive im trying to pay down my debt however when the time comes when i think i have paid enough(potentially early 2020), i think i will just leave the cash build up in the account. Im not really interested in opening up a saving account as the gains are not there and it requires more admin and paperwork to declare.

 

[Gordon Gekko]

We do need to be careful in terms of being overly cautious around debt.

Prudent borrowing is great way to acquire assets and grow wealth.

It is not always the right decision to pay down debt.

 

[Bronte]

I inherited 2 properties when i was 18. I worked part time while i was in college which covered my living expenses while the rental income was saved.
i then bought my 3rd rental at the height of the recession with cash.
Since then, i again saved cash for a few more years and more recently Sold one of the properties to give me liquid cash of circa 500k. This along with refinancing my 3rd property enabled me to be where i am today.

Tell us more about how you borrowed please. I’m interested in seeing how easy it is to borrow. Because I thought your work salary might have prevented all the mortgages.

 

[fonduster]

I’ve seen rents go up and down, had voids, had major costs, (10k for a roof, 6k to renovate bathrooms, 2k for a boiler, 8k to renovate on tenant leaving etc)bad tenants not so much. Seen banks throwing out money. Seen banks refuse lending. Started at sky high interest by today’s terms. In my case over 9%. Seen 17 % down to less than 2%. I’ve seen governments change the rules from allowing interest relief, to cutting it entirely (remuneration Bacon anybody) then allowing it again, then restricting it to 75% and now back to 100%.

My principles are that the rents must cover the costs, that money be set aside for eventualities and that I never took interest only. I fundamentally disagree with interest only. Made no money for the first decades. But I am now. Never cared about property crashes. And I’ll maybe sell at the peak. If I get too old or sick.

Your ltv when good, that’s the time to move everything to one bank who might give you an attractive interest rate to get your business.

I advised you before to educate yourself to a better job, same advise now, and same for your intended.

A lot of what you said is what my principles are also.

In relation to my job. The one thing i would say is tax acts as a big disincentive for me. During my working life so far. My PAYE has always been at 50pc when you include my rental income so for example right now Im netting about 16/17k from my job. Im not trying to get a high flying job as i see how much some of my friends that earn 70/80k work. I know they net more than me however with the extra work i have on the side, i am seeking a work life balance where i can earn as efficiently as possible and i see property as that route for me. Yields are not exceptional however with time, they will help me. My end goal for my PAYE is to gross circa 50k. Im happy with this coupled with a company that i enjoy with good work life balance. It would give me more flexibility if something did happen however at the same time, a job is just a job for me especially when i work for others to make money. I think if the taxation was different, my viewpoint maybe different however right now, i will continue to work but at the same time, i like my personal life as it is at the moment and dont want to increase my workload/stress load for small money.

 

[Bronte]

Clever, you say the wedding budget is 20k but know it will be 30k.

You need to keep rental income and expenditure in one account or two, but always separate to your own income from work and your own savings. My accountant told me one account is best and it makes everything much easier to manage. Like you I do most transactions by card or bank transfer with little cash withdrawals.

Did not see the logic in renovating to reduce tax bills. In general the tax rule is enhancement is for cgt, not income tax.

 

[fonduster]

I had one difficult tenant so far. Wont go into specifics but he cost me over 10k. Im more careful since then and lesson learned! Due to odds of how many rentals i have, i will have more difficult tenants in the future.

 

[fonduster]

Clever, you say the wedding budget is 20k but know it will be 30k.

You need to keep rental income and expenditure in one account or two, but always separate to your own income from work and your own savings. My accountant told me one account is best and it makes everything much easier to manage. Like you I do most transactions by card or bank transfer with little cash withdrawals.

Did not see the logic in renovating to reduce tax bills. In general the tax rule is enhancement is for cgt, not income tax.

Did I. I normally prefer to keep estimates over budget so you have no surprises. We would prefer a smaller more intimate wedding of only people we care about.

My reasoning behind two accounts is so i can ensure the rental income comes in on a timely manor and is easy to read if i ever need to observe cashflow etc. If i have 100 transactions a month on one account, i normally dont review expenses unless high while for income i would.i see both views. I do cash withdrawals every month for my own personal expense. Its more old fashion for sure, but i follow the Dave ramsey approach for this.

Fair point.

 

[fonduster]

ill check other comments later, just need to head out now.