Would you for residential the only real way to make something meaningful through the growth in the property market?
I would have thought no benefit to larger deposit surely, for example:
You have 100k. You could buy a 200k House with 50% deposit, lets say in 5 years you get 10% house price growth (20k) and 4k rental profit a year so another 20k, then you have turned 100k into 140k over 5 years.
If you take the same 100k and buy 2 x 200k houses (25% deposit is standard BTL) and the same 10% growth on each house (20k x 2) and rental earnings (20k x 2), you now have turned 100k into 180k over same 5 years.
Oversimplified but you get the gist. I think the issue would be is if say you had like 70k, then you cant get 2 x 200k houses, but you could put 50k (25%) deposit and use 20k elsewhere, or pay 70k and get a reduced mortgage. HOWEVER I feel th extra 20k reducing mortgage on a 2-3% mortgage isnt as worth as the extra 20k into dividend stocks aiming for say a 5% overall yield, giving diversity too.
The house price growth is so powerful because you keep ALL the gains (and all the losses of course) of whole house price whether you put in 25% or 100%.
Out of interest: what’s with this modern obsession with frequency of payout? What difference does it really make if it’s monthly, quarterly or twice yearly? Suppose it could be handy if you’re actually taking the income and if you’re in the accumulation phase, you can reinvest a little earlier, but am I missing something else? I only ask because I held a high-yield portfolio for many years but frequency of dividend was way down my list of priorities–below size of company, yield, dividend cover, dividend growth record, debt levels, sector diversification and so on.
I was purely referring to the overall gains. If you opt for an interest only mortgage with a low deposit you are purely waiting for the profit to be realised through the value increasing.
If you put down a larger deposit your mortgage can be transferred to a repayment mortgage with no real detrimental impact to your costs, with the right scheme you could gain another property mortgage free especially if you put it in a sipp.
I have a couple of properties mortgage free by following my own unique methods. If you need the income from the property instantly then money split across several properties with large interest only mortgages is a great design short term but this has caught out a lot of investors over the variable interest years. I don’t advise this method at all.
If you have two properties with large deposits on repayment mortgages you are unlikely to receive an income over the amount to cover your expenses and taxes but once the value increases and the mortgage value decreases you can find yourself in a very positive position.
My method is borrow the lowest amount you can afford and pay back the maximum you can afford to pay. This will lead you to own more than just a mortgage.
Its also important to always buy something that you can add immediate value to, this is something many investors miss.
By adding value you have decreased your ltv without adding any additional costs to the mortgage and these can be offset when you sell
Frequency of payments is great for an active investor, having your annual payments come in all at once leads to bigger investment choices.
By having a smaller amount each month you can go with the flow so to speak and make smaller risk buys.
That’s if you don’t use auto invest ofcourse.
Another note is that if you can make 10% a month on your trades and you don’t receive your dividend payments for 12 months you’ve effectively missed out on 11 months trades
Yes the frequency of payouts is really unimportant I would say, unless you are withdrawing income to use and not reinvesting.
Yes if the goal is to have 1 or 2 extra properties for an income in later life repayment can be done, however the general BTL tactic (not for everyone) is put down minimum deposit (25% usually) rent out, save up the rental profit and assess house price growth then when possible to remortageg the house to take out the extra equity down to 25% again add the rental profit and buy another house. Obviously this is an agressive way to expand number of properties.
As you metion the risk is then stretching self too thin, but the exit strategy is then that you own enough properties that have gained in value enough an yield enough that you can offload some to pay down the others. Essentially trying to leverage to quicker results. I havent done this but know of people who have.
Is this a property thread now come on guys need more recommendations for monthly stocks!
Yeah sorry I will stop haha, I think issue is there aren’t many UK stocks that pay monthly
Do you not pay capital gains?
Sorry for off topic again but Solmanfu I wasn’t you answer you in case anyone falls into a trap.
Yes you will…eventually. But for portfolio growth stage you don’t if you remortgage and take equity out. But you will when you sell (or give to a child I believe?), so main thing is to not expand too fast and forever as there is a trap that if you HAVE to sell for some reason that you actually owe more tax on a property then you would get by selling it (as still large mortgage on it). So remortgage to expand assets, then have a plan to stop/slow down which means house prices can increase your equity agin and rental money coming in to mean you can cover tax should you need to sell for some reason.
To link back, dividend stocks are a great offset to property
Mortgages are irrelevant to cgt on the sale price, this is determined purely by the purchase price, costs to the property ie improvements/damages etc, sale costs/fees and the length of time owned against the sale value.
High divi stocks are a great design in an isa or sipp even though cgt is still applied in the same way upon sale the actual dividends themselves only have dividend taxes applied not cgt. So if you buy 100k in a company and receive 20k dividends payments in additional shares over 5 years but the company share price remains the same you only get taxed on the dividends at the prevailing rate.
If you buy a flat for 100k you are taxed on the full income of say 5k a year and then cgt on the gain in value after 5 years if you sell.
In this case unless the property price rises spectacularly the dividend shares would be a better choice and cheaper to maintain overall
can you not use the equity within the property value though to take a mortgage on another property hence living in a debt to the bank and property?
Debt is not taxed.
Reading a book at the moment and its amazing and, pretty much all about using debt to not avoid paying taxes as “avoiding” would be cheating in some sense but, to legally PAY less taxes
No it makes no difference at all, you are purely taxed on the rent in its almost entirety and the “profit” made when you sell.
Using the equity release idea is great for those that want to build a large portfolio with minimal deposits, it’s a very dangerous strategy.
If the banks own more than you do they hold all the cards