#79 Buy to let, can we?

So having gone through in my last post the investment paths I'm considering and deciding that probably buy-to-let is most suitable for me where do I go from here?

Quite frankly to feel like I am in a position to be able to consider which investment path I head down is delightful having come from £25k in debt and not really being able to see the end of the tunnel.

A couple of things are obvious...

• Purchase price of likely properties.

Granted I haven't done all the research I would need too but having spent some time looking and knowing roughly the areas of interest it seems it would be possible to buy a 1-bed flat for £125k.

• Mortgage options and costs.

Typically it seems LTV for buy-to-lets should be no more than 75%. So for a £125,000 property this would mean borrowing no more than £93k. That would be 74.4%. This is mainly because above this the mortgage interest rates rise dramatically. A £93k loan on an APR 3.6% is £279 per month for interest only or £471 repayment basis.

• Other associated costs when buying a mortgage.

In credit card debt, carpet loan and desire to have £2k in emergency cash fund = £6,300

For solicitor fees, mortgage fee, survey, stamp duty, letting fees = £6,750

Deposit to make up difference (£125k purchase -  £93k mortgage) = £32,000

• Then how long will it take me to have that money available.

I've assumed little in terms of wage growth - assumed that inflation will gobble it up.

I've assumed that I'll continue getting bonuses at the current rate.

I predict I would have the savings to pay off my debt by Jan-2019

Have enough saved to cover all costs associated with the purchase by Mar-2019.

But then not have enough to cover the deposit until March-2021.

Conclusion

In three years so much can change. However, it's clear that by relying on saving up cash to purchase a property we're going to be waiting for many years.

So... is there another way? I've been loosely discussing the prospect of freeing up a slight % of equity in our house. 

Our LTV is currently 72% by releasing £25k we could increase our LTV to 75%. 

Reducing the deposit down to £7k would - according to me predictions allow us to afford to buy a property in Dec-2019. 

Further, I am currenty saving £100 per month into global index fund and have an £8k car loan which I plan to pay off with my bonus in two months time.

If we instead kept the bonus, stopped paying into the global fund and then used that money to pay for the car loan instead we would - theoretically- have sufficient savings to purchase a property next March-2019.

The giant BUT here is if my current provider will allow me to borrow more - my wage hasn't gone up - and if so are there any penalties which would make it unwise.

Having said all of that, the idea that there is even a possibility that we could afford to purchase a buy-to-let next year is pretty damn exciting!!!!!!!!!!!

So next steps...

1. Next post review numbers for how I think it should stack up annually.
2. Run my financial plan again to make sure I'm not fooling myself with a missed calculation.
3. Double check I am not being too optimistic on the purchase price or purchase fees.
4. Wait until March when I will receive bonus and potential pay-rise. Factor this into financial plan.
5. And only then discuss with by bank on the possibilities in release extra money.

#78 Worried about... not planting a seed

So, off the back of a previous post about how I was worried about the impact a rising interest rate would have on us because of our mortgage  here's my other concern. I worry - worry is probably the wrong word, I think a lot about - what decisions we can do now which will benefit us in 5,10,25 years time.

I believe in the next couple of years we are approaching a junction and we should decide which route we want to take. At the moment I haven't decided upon any and so I 'flitter' between them, thinking and planning one way then a week later focusing on another. Not only is this inefficient but it'll mean we end up with dipping our toes into a number of approaches but not really going head on and maximizing any of them.

So at the junction that we're fast approaching what options are we considering?

1. Paying down the mortgage. 
2. Investing in equities. 
1. Global tracker fund.
2. Dividend paying portfolio.
3. Invest in property - buy to let.

Obviously they aren't mutually exclusive however my expectation is that we'll only be 'successful' if we are targeting and putting most of our emphasis on one of these.

The internet is full of financially based advice on the pros and cons of each and against each other, but I am looking at these from a personal perspective.

Paying down the mortgage

Pros

Cons

·         De-risk any interest rate impact. ·         Returns are known and guaranteed. ·         Being mortgage free. Best case end-state. We are mortgage free. So we would keep a far higher % of any and all income received.

·         It’s not investing its debt repayment. ·         If we have a planning time horizon of 25 years an investment would ideally grow whereas our debt in real terms will decrease over time anyway. ·         It’s quite boring. No it is very boring J ·         I think I would struggle to get buy-in from the Mrs as she sees a mortgage as a long term commitment that will be paid back in due course. ·         If investing each month we would expect to see growth month on month and year on year – certainly in the early part of investing journey we’ll keep hitting new and exciting milestones.  However, with debt repayment – starting as high as we are – the difference for the first 1,2,5 years will probably be so negligible that we would struggle to maintain motivation. It’s a silly physiological quandary really. If we were closer to the destination motivation would be higher. But for us I think it would be a very real one.

Equities – Global fund

Pros

Cons

·         Over a long term planning horizon it is very likely to provide a decent return on growth ·         Compared to Buy-to-let there is no set-up fees and minimal on-going fees. ·         I have started. I have a global fund set-up and all it would take would be to tweak the monthly direct debit. Best case end-state. Investment pot grows and we become wealthy on paper. We can then being to look at drawdown options.

·         Boring. I have the time and the importantly the inclination to be heavily involved in my finances. Reviewing them each month etc. This approach to investing is best left alone for 10+ years. ·         Investing in equities is a risk. Albeit a Global Fund is lower risk than Dividend Portfolio. At some point in the future there will be a market downturn. I am not sure how I would cope if my savings I’d built up for the last X years were suddenly wiped in half. I think my tolerance to losing money would be pretty low. ·         The Mrs would not buy-in to this due to the above risk. She makes me feel like a cowboy gun-slinger happy to throw my money around where. On a serious note – having something that she is bought into is important as for me being able to share, discuss and have one common goal is going to be a major contributing factor in making a success out of it. ·         No physical ownership.

Equities – Dividend portfolio

Pros

Cons

·         Fun. I’ve been spending a bit of time lately researching companies yields etc. Have built up a spreadsheet to see what would be required to build up a portfolio receiving dividends most months. It is exciting. There are lots of blogs out there which show how exciting it is and how rewarding it is to see the dividend returns grow year on year. ·         There would be immediately visible returns which I can monitor and graph. ·         Compared to Buy-to-let no set-up fees, minimal on-going fees. Best case end-state. We have an investment portfolio which pays us a separate income.

·         I know nothing about investing. I could be investing in businesses which are 5 minutes away from going bankrupt and I probably would miss the signs. ·         Over time dividend receipts would grow, but based on the above point the chances that this counter acts any capital losses is pretty much 5050. ·         The Mrs would not buy-in to this due to the above risk. She makes me feel like a cowboy gun-slinger happy to throw my money around where. On a serious note – having something that she is bought into is important as for me being able to share, discuss and have one common goal is going to be a major contributing factor in making a success out of it. Interestingly I actually think she would be less against this approach than against the global funds as she would see – or I could tell her about the monthly receipts and see how they re-purchase shares.

Buy to let

Pros

Cons

·         Physical ownership ·         It has always been something I have wanted to do. In fact it’s been on my bucket list probably from the age of 18. ·         I have the time and inclination to support the investment. Often the time involved in a buy-to-let is seen as a con, for me personally, it’s a pro that it would be something I can get stuck into and spend time on. ·         We’ve twice purchased a house and spent a small amount of money and a pretty large amount of time on making it appear nicer. My Mrs has a decorative eye and I am able to work away for many hours to deliver on that. So we’ve got some experience and knowledge. ·         I am a firm believer that property over the long run will always go up. Population is only growing from what I can see. So I see this as a low risk to my investment. Best case end-state. We have a BTL property/portfolio which either we have capital growth in or receive rental as income.

·         Significant set-up cost. For fees alone it’s likely to be in the region of £8k for a £125,000 property. Due to this I cannot start it immediately. It would take a couple of years to have the required capital. ·         In terms of severity of impact this is the riskiest of the options. Worst case scenario: we buy a BTL property, rates rise dramatically and we are unable to sell or rent the property at the same time as our family home mortgage rate rises. We’d be royally screwed.

What's my conclusion?

Undertaking this  -albeit it may be pretty dull reading - has been really useful for me in focusing the mind.

There is one other thing which I have considered. The potential down-side to option 1 - repay the mortgage can be largely mitigated by the fact that in 4 years time when this risk would be realized it would be possible for my wife to go back to work. She may not want too but if the reason for undertaking option 1 was the risk of losing the house then I am pretty confident she would be able to find a job which mean that did not come to pass.

Having that in the back-pocket as it were, I am being drawn between option 3 - dividends and 4 - buy to let. The fact that the buy-to-let would require me to save for a few years to gain the capital but the dividend investing is available now leans me to no.3 However, and I really think these may be the crucial factors, I have always wanted to own a buy-to-let so even the act itself would be a success in my eyes, and secondly the Mrs would be behind it. This would be important as having her supporting it would enable us to be on the same page when it comes to spending decisions etc etc.

What's my next steps... I have pretty much ruled out no.1 mainly because I want time to be on my side for growth and we have the fall-back of the Mrs working int he worst case. Even though no.2 Global fund is the only one of these approaches I am currently doing it feels like it isn't really 'active' enough to satisfy my desire to be involved. 

No. 4 - buy-to-let is a very serious commitment so now I'll go away and run through numbers playing in excel to see what the next 2 or 3 years could hold. But if I can come up with a plan to have several milestones other the next 2 years to enable us to get on the property letting ladder in 3 years time... then I think that's looking like the winner.

It feels a bit crazy to be making such significant decisions, but really it is important that - although it may be vastly different to what other people choose to do - we have a clear goal and plan to get there. Currently it feels a little like we had a goal to buy our first house, then we had a goal to have a family forever house - now we've got that it feels like we've not really got a plan for the next step and if we are not careful we'd just sleep walk putting money all over the place with no strategy.

#77 We bought a car

Well not quite strictly true yet.

We've paid for a car and am going to pick it up on Saturday.

We've made the decision to spend a little more than I really wanted too to get a car which will hold it's value a little longer as it's done so few miles.

So on Saturday I'm spending £10,950 to buy a 2012 7 seater Ford S-Max which has done only 10,000 miles. To get this price I'm having to fly up to Scotland and drive the 7 hours back!

With the Mrs being set on having a car with 3 iso-fix points in the middle row we really didn't have much choice and I had no interest in buying a car which will have clocked over 100,000 miles in less than 24 months of us owning which was pretty much the norm for this amount of money.

However, I'm not excited. I'm just disappointed that we're spending all this money - financed by an £8k loan which we expect to pay off in March when I receive my bonus and the £2,950 in cash savings we had.

So just as we crossed the hurdle of having more liquid savings than debt we've plummeted back to the other side again.

It's going to be a tough couple of months but we've shown we can get our heads down and improve financially so we're just going to have to do it again.

And this time when we come out we'll have the 'forever' family house, the 'pretty much forever' family car and hopefully given those are normally the two biggest expenses we can keep the positive momentum going slightly longer!!

#76 Worried about... the future interest rate

Currently our mortgage is a giant £363,298, and £1,258 per month.

This is on a fixed 2.2% for another 4 years, until March 2022.

There is a risk that if the interest rate goes up it can have a dramatic impact upon how much our monthly repayments will be.

Using Martins Money Supermarket calculator I've worked out what our monthly repayments would be if we saw different interest rates upto 5%.It does not make for great reading.

	2.2% (current)	2.50%	3%	3.50%	4%	4.50%	5%
Monthly repayment if interest rate changes...	$1,261	$1,313	$1,400	$1,492	$1,585	$1,682	$1,784
how much more per month than now	n/a	$52	$139	$231	$324	$421	$523

So even the best rate we're able to get in 4 years time is only just over 2% higher than now, at 4.5%, we'll be having to pay an extra £421 per month!!

Given this I think we're going to really need to prioritise the mortgage overpayments and set some pretty stretch targets.

I'm going to set an aspirational aim of paying off £30k by the time the fix ends. 

This would have the below affect on possible scenarios...

	2.2% (current)	2.50%	3%	3.50%	4%	4.50%	5%
Monthly repayment if interest rate changes...	$1,139	$1,186	$1,265	$1,348	$1,432	$1,519	$1,611
how much more per month than now	-$122	-$75	$4	$87	$171	$258	$350

This would improve the outlook quite alot.

But it's a lot of money to pay off in 4 years given we're only targeting £600 over the course of this year!

What will we have to do to hit that £30k?

Frankly it's only going to be possible if I get regular bonuses in 2019, 2020 and 2021 and if we put those bonuses into the mortgage.

The bonus for 2018 is going to be put-aside (assuming it is received) to pay for the new car we need.

Once the car is paid off I'll set up a direct debit to start paying little bits off the mortgage and keep nibbling away at it.

Right now it feels like an insurmountable mountain but then again so did the £25k in debt we were carrying 2 years ago.

The new journey begins here.

#75 Random iPhone App Experiments

I recently signed up to 2 new apps both of which are interesting concepts. I'll see how I get on with them over the next 6-8 weeks and pop back with an update.

App number 1. Get Chip

An app which is connected to your current bank account, monitors your income and expenditure and 'learns' when and how much little bits of cash can be moved from your account into a savings account with Chip. Savings are then paid at 3%, increasing via referrals to 5%.

Why did this interest me?

I consider myself to be on-top of my finances, checking daily and keeping a thorough record of my spending. I always assumed that when I have available and spare cash no matter now small that I would move it into a savings account. But looking back, I haven't ever actually done that. I save up to move over in bigger chunks.

The premise being that if you save small and regularly then I simply will not notice that the money is being moved out and into an ever-growing saving pot - which is receiving a decent interest return.

I had two concerns.

1. What happens if it takes me into overdraft? Their T&Cs state that if I go overdrawn and therefore incur fees because of a Chip transaction then they will pay the fees and a £10 good-will gesture. Concern mitigated.

2. I'm giving a new app, which I know very little about access to my primary bank account. This I only managed to get over because I read about the app via BBC. If I had stumbled across this only in the app-store I'm not sure I could take the plunge. Concern accepted.

What do I expect to feel/happen?

I'm really interested to see how this app works and learns and what it feels I can live without and therefore save. I generally have no pre-conceptions on the experience and really if it can save little bits here and there without me noticing that can only be a good thing.

What has happened so far.

I've signed up and it has moved £12.94 into a savings account so far with a further £10.34 pending to be moved across.

P.S. If somebody signs up with the referral code N9SJ6N will increase my savings interest rate by 1%. :)

App number 2. StepBet.

Again a referral from BBC led me to this and gave me the confidence to part with some money.

This, I admit is very unlike me. I've jumped into something and 'spent' £30 without doing much due-diligence at all.

However, it does fit very nicely into two things I am interested in. 1. Betting and winning money and 2. being motivated to do exercise.

The premise of this app is that you join and it takes a reading from your Apple 'health' App - which I have now discovered is constantly monitoring and storing my activity without me ever even opening up the app before. Once it's synced to your Health app - or other fitbit or similar - it calculates what it deems to be a challenging step count for the day and what it deems to be a stretch aim for steps per day.

Then you pay a fee of $40 and if you achieve each week for 6 weeks 4xstep challenge and 2xstretch step challenge each week for 6 weeks then you receive back money from a pool of people also in your challenge.

The amount which you receive back is dependent upon

a) you successfully complete the challenge. If you do not you $40 is down the drain.
b) as the money is pooled, the winning funds are divided by those who succeed. So if only half of your group ( a group is full of random people) succeed you split the winnings with them.

I think the idea that I could lose $40 is going to be a huge motivator for me :)

Whats happened so far?

The app has calculated that my daily step goal (to be achieved 4x per week) is 8,772 steps in a day and my stretch goal (to be achieved 2x per week) is 11,072 steps in a day.

I went on a small 2k run yesterday and did over the course of the day 9,878 steps and so I'm confident with stepping up my running I will be able to achieve this. It's fun though!

I am in a group of people with 341 other strangers with a prize pool of £13k. If we all succeed I get my money back. If half do I should double my money etc.

Interesting it certainly is.

They try and make a community out of it, but my immediate thought was and is... I hope you all fail and I succeed so I can make maximum money. Which is pretty awful of me!

Wish me luck in letting an AI bot save me more money and walking/running far enough to win a bet!!!!

#74 Review of 2017

Financially 2017 has to be considered a successful year.

We now live in a house we feel we could comfortably live in for the foreseeable, and have moved from debt repayment to wealth creation.

1. We increased our savings exc pension from £310 to £6,247.51!
2. Total savings inc pension has increased from £14,391 to £28,549.52
3. We've paid off the entire house loan (was £5,653).
4. We've spent less than we've earnt in 10 of the 12 months in 2017
5. We stuck to budget in 2 of the 12 months, and were within £50 on 3 further occasions.
6. Our net worth, which is really a wrap up of all of the above, has increased from £147,900 to £160,800.01

Having said all of that when I look back at my goals for 2017 it doesn't look as rosy. I guess some most of this can be put down to changing priorities throughout the year.

Financial:

1. Pay off the remaining £7,628 of debt.
1. Failed. Still have CC debt remaining.
2. Increase wealth excluding Pension to £3000
1. Completed.
3. Overpay on the mortgage by £600. Equivalent to £50 per month.
1. Failed. Didn't put a penny towards this.

To do:

1. Get a will for the family. 
1. Completed.
2. Complete one item from my bucket list
1. Completed. Played a complete season of Saturday 11-a-side football before I turned 30. 

Physical:

1. Get weight to below 14st
1. Failed. Nearly 15st now.
2. Run 13.1k without stopping (half marathon distance)
1. Failed.

~~~~~~~~~~~~~~~~~~~~~~~

What do we know is going to happen in 2018...

1. We're going to have our third child. 
2. We're going to need to buy a new 7 seat car
3. I expect to receive a bonus in Q1.
4. HMRC debt needs to be re-paid. So our Savings Exc Pension will drop by £1k but our debt will drop in parallel.

What are the aims for 2018?

Financial

1. Cash savings to reach £3,398 or in other words one months salary
2. Savings exc pension to reach £10k
3. HMRC debt to be re-paid in January
4. Carpet debt to be repaid in 2018
5. Overpay on the mortgage by £600 or equivalent to £50 per month.

Well-being

1. Some sort of physical piece here. To be confirmed shortly.

Other

1. Tick off one item from my bucket list.
2. Some charitable giving.

#73 December Finances

So, did we stick to the budget?

Nope. We spent £884.57 more than our budget!!!!!!!!!! Shocking.

If no, why not?

We spent a fortune on Christmas and days out seeing family and friends. We had a great time, don't regret a thing but now back to the more sensible business of being good with our money.

We also had a had a couple of big outgoings not related to Christmas including sons birthday party booking.

Did we earn more than we spent?

No. For only the second time in 2017 we spent more than we earnt. £571.27 more to be precise.

This really was an expensive month.

Any positives / milestones?

1. Savings in shares (either directly or through work sharesave) increased beyond £3k for the first time.
2. Cash savings also increased over the £3k threshold for the first time.
3. Therefore also Shares + Cash savings increased over the £6k threshold.

Lessons / thoughts?

Christmas was expensive. I had almost 4 weeks off work with family so it all came to a head at the same time.

Effect on overall debt?

Student loan remains paid off :)
House loan remains paid off :)
Every day card balance is £1,983.58
0% Carpet loan balance is £1,386.58
HMRC debt - due 31/1/18 is £1,080.68
  

   

Total Debt  Exc Mortgage = £4,450.73

~~~~~~~~~~~~~~~~~~~~~~~~

Wealth Accumulation

Summary:

Asset	Value	Increase
Pension Value	£22,302.01	£321.75
XO Shares Account	£67.06	£4.36
Company Dec '19 Sharesave	£1400.00	£100.00
Fidelity Global Index Tracker	£1,264.11	£118.58
Cash (Matched Betting Liquidity)Betfair	£1,939.32	£216.49
Cash (Emergency Savings)	£0	£0
Cash (Annual Bills)	£1068.57	£0.17
Company Dec '20 Sharesave	£200.00	£100
Trading212 Equities	£230.44	-£9.56

Cash Regular Saver

£76.00

£50

Total

£28,549.52

£903.80

~~~~~~~~~~~~~~~~~~~~~~~~

Net Worth

£160,800.01

An increase of £709.94 since last month.