Reply to: UK interest rate rise not a guarantee, says Mark Carney

[ChimpMaster]

I am sticking my lot on

one BTL
Vaneguard Share ISA....

Projected to be FI @ 55.....

I suppose the question is, how much do you need to be financially independent aka to achieve financial freedom. When I was in my early 30s I thought I could live off a grand a month but then marriage/kids/bigger house all beat that dream down ...now I would say I need £5k/month to pay the school fees and general expenses etc and still have a bit left over for a holiday each year - not a luxury lifestyle by any means, but at least it'll be time rich. £10k/month is my target but I don't know how I'll get there what with the government desperately doing everything it can to keep the middle classes from rising up.

[wantacontract]

I am sticking my lot on

one BTL
Vaneguard Share ISA....

Projected to be FI @ 55.....

[jamesbrown]

Perhaps I'm using the wrong term then. I've no intention of short-term trading. I'm looking at long term investments. Anyway, my account is open, my seed money is in their and I'm researching suitable shares.

Since you mention investments, as opposed to punts, suitable shares = index-linked funds Once you account for the stamp duty and ongoing platform fees (and any management fees associated with active funds), you have almost no chance of beating an index-linked fund, even as a seasoned trader, and this has been demonstrated repeatedly. I've made plenty of punts, with all range of outcomes, but none of them were investments. Stick your money in one or more accumulative tracker funds (i.e. dividends retained) with very low fees and forget about it. Over a long period of time, a large fraction of your gains will come from the re-investment of dividends, and they won't be eaten away by management/platform fees.

[NotAllThere]

Good luck!

Not sure I'd recommend a trading account, that's where I lost a fortune . Trading is very emotional and it's hard to keep control of how you will react. Trading £2 per point compared to £100pp is completely different so what you learn on a demo or on small bets doesn't translate into the bigger trades. Perhaps it's just my experience but I would never recommend people to attempt short-term trading. ...

Perhaps I'm using the wrong term then. I've no intention of short-term trading. I'm looking at long term investments. Anyway, my account is open, my seed money is in their and I'm researching suitable shares.

[_V_]

Agree that taking financial risk when you have a debt on a mortgage is not for me. If you investments tank and are benched, you may struggle to pay your mortgage and risk homelessness.

If you have no debts and a piad off house, you can take some risks in investing. I too like to sleep soundly at night.

[Chuck]

My current plan (as you might have gathered) is to be debt free as soon as possible and then invest after that. Once debt free, then all investments are lower risk, because if they don't make a good return, you are not struggling to service any debts. Also if something were to happen to me, my wife would not be burdened with debt that she couldn't pay on her own.


It may mean I am not be as financially rich as some who are borrowing & investing, but it would possibly mean a lower stress life as well. I guess I'm more of a Mexican Fisherman than an American Investment Banker (if you know the story).

I agree with this. You may not make as much money as you could, but you can sleep soundly at night knowing that there will never be a knock on your door from the bailiffs.

[WTFH]

Question to the masses:
When interest rates are low is it better to borrow or to pay off debt?


Most "investors" seem to recommend borrowing while it's cheap.


But, let's say you had a loan where, at the current interest rate, you would be paying £85,000 in interest from now until it was paid off, but if interest rates rise to 2%, you would be paying £140,000 over the same period.
Does it make sense to pay off the loan early (and hence pay even less interest - possibly as little as £45,000), or borrow more to invest and hope to make more than 140-45k = £95,000 from investing?


My current plan (as you might have gathered) is to be debt free as soon as possible and then invest after that. Once debt free, then all investments are lower risk, because if they don't make a good return, you are not struggling to service any debts. Also if something were to happen to me, my wife would not be burdened with debt that she couldn't pay on her own.


It may mean I am not be as financially rich as some who are borrowing & investing, but it would possibly mean a lower stress life as well. I guess I'm more of a Mexican Fisherman than an American Investment Banker (if you know the story).

[ChimpMaster]

This post finally got me spurred to open a trading account.

thanks.

...and this post has got me looking seriously at buying a second home (not sure I can be arsed to rent it out).

Good luck!

Not sure I'd recommend a trading account, that's where I lost a fortune . Trading is very emotional and it's hard to keep control of how you will react. Trading £2 per point compared to £100pp is completely different so what you learn on a demo or on small bets doesn't translate into the bigger trades. Perhaps it's just my experience but I would never recommend people to attempt short-term trading.

As for renting out property, so long as you do the numbers correctly and are happy with the ROI, then you could lease it out for a long term let, for example to companies dealing with councils or housing associations. Rental is a little less but better than using an estate agent to manage it and rent is guaranteed for the contract term (3 to 5 years normally) with minimal hassle. Think long term but be aware of the proposed tax changes announced in this year's budget. There are huge resources online and some really good books to read about property investment, definitely worth putting time into these.

Again, good luck!

[cojak]

Forget BOMAD and look beyond any doubts and excuses. I know a lot of people (including contractors) that have done very well on their own, heck they’ve achieved more in 20 years of working/saving/investing than their parents did in 60. Of course having a BOMAD would help but it would make you lazy too… as it did with me!

I didn't see ZIRP or QE coming either and I bet against the markets and lost BIG and I tell you what, it f&&king hurt.

Of course a crash is coming. The question is not if, but when - so it’s a matter of timing, which going back to my post above again begs the question: are you just going to cry wolf for the next 5 to 10 years if the crash doesn’t occur until 2020 or 2025 or whenever. Are you going to leave your hard earned cash sitting in ISAs earning a pittance all that time?

I don’t have a penny left in ISAs because a 2% return is an embarrassment and tantamount to allowing the banks to rip you off even more.

You have decent savings that can provide a great launching pad. For example, put down a 30% deposit on a 250k BTL property and your interest-only payments on the 175k loan will be less than 600 a month. You can easily achieve 1,100 rental and possibly up to 1,500 if you know what you’re doing. So profit because costs are anywhere from 500 to 900 quid, i.e. a ROI of 7% to 13% on your 80k investment, before allowing for costs. Simple example but there are many variations on this theme.

Will house prices fall any time soon? Why would they? Interest rates are low and likely to remain low, employment is stable, wages are rising, demand for housing is rising, rents are rising. If you follow the Fed or Draghi’s conferences you will see that they have their finger on the trigger all the time, ready to drop rates into negative territory or to push out more QE: so yes, there will be a crash, but not any time soon.

...and this post has got me looking seriously at buying a second home (not sure I can be arsed to rent it out).

[NotAllThere]

PurpleG, let me tell you something I learned a while ago, something I sincerely hope will help you. I am a pessimist at heart, yes I wish I wasn't because it held me back during the property boom in 1995, it held me back during the dot-com boom and the stock market boom and the next property boom. FFS at one point I had enough money in the bank account saved up, that if I had just taken a chance and invested back then, I could have been rich now... but I thought it was safe to let it just sit there earning 5% interest. All because I thought the sky was going to fall down on me and on the whole world.

I had a plan, a plan to save up until assets globally crashed, at which point - like a financial genius - I would swoop in and AH-HA buy up property and shares dirt cheap! But the world governments slashed rates and didn't allow natural economic course to take place. I couldn't keep up with asset inflation and I could never be in with the rich getting richer. Eventually I just had to jump in.

Yes there will be a bust, but is your plan to just keep on calling Bust until it occurs? Would you miss out on 10 years of Boom to just prove that you were right if the Bust was to occur in 2025? If you call Bust long enough, of course - eventually - you will be right, but at what cost?

I think you're quite a bit younger than me. Don't wait 10 years to only look back in 10 years' time and wish you had invested then. Stop reading Leap2020, the gold-bug websites or whatever anti-capitalist sites you spend time on. Move on, get involved, be a part of what you want to be involved with. Keep working hard, hopefully stay in contracts, and invest surplus funds best you can.

This post finally got me spurred to open a trading account.

thanks.

[PurpleGorilla]

CGT won't apply to the same extent if at any point he has lived in the house as his primary residence. You can claim PPR and in addition to this, Letting Relief, and of course finally you have CGT allowance, should you ever wish to sell the property. Note that if this PPR and Letting Relief is available per person so it's better if the property is in your wife's name as well as yours.

As for the chancellors budget announcements, these haven't ascended though are on the finance bill and yes they will impact investors who have high gearing on their BTL business. Personally I wouldn't advocate high gearing anyway; I prefer to keep below a 60% LTV and have a stable business that grows steadily rather than take extensive risks to grow quickly (though that would have worked great the past 5 years!).

Yes this is our position. The rental is currently our main/only residence. Yes the LTV would be around 60%. Our Interest only is peanuts so the rent (after any tax) would either be income (into an ISA to pay the mortgage off later) or go straight off the capital depending on rates. There is a small fee to turn it into a Letting mortgage, but all in all the Sums look very positive. Don't know how the new taxes will work out, but it shouldn't be a problem. We might retire back here, or keep it as a rental. So not worried about capital gains just yet.

[northernladuk]

Couldn't you just flip your primary residence if you wanted to sell, just like our dishonourable MPs

Not really. They need a lot more information to prove you have lived in it for a reasonable amount of time. One utility bill from the last month or so won't cut it nowadays.

[MicrosoftBob]

CGT won't apply to the same extent if at any point he has lived in the house as his primary residence. You can claim PPR and in addition to this, Letting Relief, and of course finally you have CGT allowance, should you ever wish to sell the property. Note that if this PPR and Letting Relief is available per person so it's better if the property is in your wife's name as well as yours.

As for the chancellors budget announcements, these haven't ascended though are on the finance bill and yes they will impact investors who have high gearing on their BTL business. Personally I wouldn't advocate high gearing anyway; I prefer to keep below a 60% LTV and have a stable business that grows steadily rather than take extensive risks to grow quickly (though that would have worked great the past 5 years!).

Couldn't you just flip your primary residence if you wanted to sell, just like our dishonourable MPs

[ChimpMaster]

https://www.gov.uk/tax-sell-property/what-you-pay-it-on

At the end of the day you're going to have explain your asset disposal to HMRC. I think that would be difficult, for the situation described by the OP.

Believe and read what you want. I'm sure your property empire is performing wonderfully. Anyway, this is OT and I am simply trying to help PG re-frame his mindset to another way of thinking.

[zemoxyl]

CGT won't apply to the same extent if at any point he has lived in the house as his primary residence. You can claim PPR and in addition to this, Letting Relief, and of course finally you have CGT allowance, should you ever wish to sell the property. Note that if this PPR and Letting Relief is available per person so it's better if the property is in your wife's name as well as yours.

As for the chancellors budget announcements, these haven't ascended though are on the finance bill and yes they will impact investors who have high gearing on their BTL business. Personally I wouldn't advocate high gearing anyway; I prefer to keep below a 60% LTV and have a stable business that grows steadily rather than take extensive risks to grow quickly (though that would have worked great the past 5 years!).

PRR : Tax relief available when you sell or dispose of your main home.

You may have to pay Capital Gains Tax if you make a profit (‘gain’) when you sell (or ‘dispose of’) property that’s not your home, for example:
buy-to-let properties
business premises
land
inherited property

https://www.gov.uk/tax-sell-property/what-you-pay-it-on

At the end of the day you're going to have explain your asset disposal to HMRC. I think that would be difficult, for the situation described by the OP.