BTL Opportunity (doesn’t) knock

Excuse the brief yarn before we get started…..it happens when you get old, a bit of reminiscing becomes essential.

I was dragged around a lot as a child, to places that I didn’t want to go, to see things I didn’t want to see, and I am sure I made myself known on this matter, numerous times. I now appreciate these very same outings, and the experiences, and I am now suffering at the hands of my own children who think the same as I once did. Self interested little brats that they are……exactly like me (not now you understand, I am entirely un-selfish now….obvs). Touche kids, touche my parents…..

Anyway, back to the point, during these outings, I would frequently have to stand outside a certain type of shop front, whilst my parents delighted in consuming the contents of those window displays… yawn. They were of course, Estate Agents….. Fortunately for my children I have the internet, so now they just have to disturb me from my phone when they want my attention (“Daddy Daddy, my legs broken”….”yes yes you will live…..and the house around the corner is up for sale and look at that bathroom….they want how much for it….”).

I received an email recently which was advertising a property very close to one of my existing BTL houses, and it was my ideal BTL, it was a 2 bed, very rare, and very rentable. I immediately thought about the opportunity, I couldn’t help myself, despite the fact I have pretty much sworn off any further investments in property unless millions of pounds happens to land in my lap. It hasn’t by the way, still waiting.

If you have missed the trials and tribulations of the BTL market recently, needless to say, things have changed somewhat. There is increased regulation on things such as “revenge eviction”, deposit protection, gas safety. All commendable things. There is also pressure being applied financially to make BTL less attractive as an investment. There is the Section 24 “Tenant Tax” which aims to remove mortgage interest as a deductible expense, leaving us with a tax credit instead, and there is the tightening up of the mortgage market, and in particular the “stress rates” and “interest cover ratios”.

With this particular property in mind let me tell you how those last two things will impact on decision making for an “encumbered” landlord like myself.

this is the plan for this house should it have been purchased a few (3-4) years ago.

Purchase price = £220,000

Mortgage required (with a 25% deposit being put down) = £165000 *quite a generous deposit for a few years ago.

 

Interest only payment at lets say 3% = £412 a month

Rent expected = £750 a month

Gross profit then would have been = £338 per month.

This would not have been a high yield investment by any means, especially as the above doesn’t include agent fees, refurb costs, purchase costs, insurances etc etc. But, there would be a fine selection of brokers/mortgage companies happy to help you buy it.

Now, were I to buy this house now (assuming it was the same price….), it would not happen without some serious changes of the financing. I have used a couple of calculators from different mortgage vendors and found that to borrow that amount of money (£165,000), using the stress tests and interest cover ratios as they are now, I would need somewhere between £800-850 a month rent. This is way above market rate in this area, so it just does not work anymore.

What needs to change to make it work?  I need to put down roughly a 35% deposit, £77000, to make the numbers work on the expected interest cover ratios. And one of my reference sites even suggests that if you are trying to grow your BTL investments beyond 3 properties, you will be hit with even higher interest cover ratios (145% instead of 125%), and you would need a whacking great £99000 deposit.

All of a sudden passive tracker investing looks way more attractive.

So its not something I will do anything about, if I had £99000 I might spend some of it on a holiday for the hard done by kids and wife, then stick the rest (trust me it would be about £98950 if I could organise a holiday that cheaply) in a bank account until I can squeeze it into our ISA allowances….

The relative pros and cons of the way the BTL mortgage market has been controlled, and the way the tax man has changed the way he taxes BTL are a bit subjective depending on which side of the property ownership fence you sit on. Obviously I would have an easier life without these changes, but I still consider myself lucky to have got into the market before these changes, and I can still keep the investments.

 

Thanks for reading.

 

Serus

 

Renting and BTL

I haven’t had the inspiration to post recently, and I have been too busy to think up some inspiration (which isn’t a thing really is it, “thinking up inspiration”…). As in real life, I don’t particularly like to waste everyone’s time with things that aren’t important. I mean, I like the odd jolly jape, a laugh and a joke, but you have better things to do than read my cr@p.

So, having filled some of your time with said cr@p, sorry, I will proceed. What I am going to do is tell you all about the recent (re)rental experience with one of our properties, and probably excite you with tangents all the way….

Now as previously mentioned here one of our tenants vacated in January, and we have been busy bees “correcting” a few issues with the house. Some roofing work, general decoration throughout, deep cleaning and tidying the garden etc etc. Nothing particularly out of the ordinary for a rented house, but with a smattering more of attention to detail than some would give it. It has cost about £2k (not including lost rent).

As a side note, this is when you realise how people who have no experience in being a landlord differ from those of us that have. Those that do not (perhaps wisely, an entire blog post on its own) consider what we have just been through highly unusual and very expensive, and “should it not have been done/paid for by….” thinking the tenant should have paid for everything to be spic and span. “Nuh huh…..not a chance” says the vast majority of landlords. Fair wear and tear covers a lot of ground, and the longer you rent for without changing the tenant, the easier it can be to waive the costs of bringing the property back up to standard away as fair (wear and tear).

As a responsible and reasonable landlord (and person), I am probably too soft. Conversely I probably also have standards that are too high. But, if I want to get over my guilt at being one of the hated few I feel I must make an effort. I like to provide a nice house for people, I like that they are impressed at the sight of it, that the bathrooms are clean and white (where they should be), and that the carpet is not stained in odd places (and in fact looks like new, which it is in places!). This rental property is frankly better decorated and kitted out than my own home….

Back on track anyway, I have spent the last week on the hunt for a new tenant or two. I have a lovely 3 bed property, all set for a couple, with kids or without, young or old, its a nice area and is on the edge of a nice town, it would suit a large slice of the renting population. Heck if you were that way inclined you could make the commute to London or Birmingham reasonably easily on a daily basis (another post in the making perhaps, but generally, its a NO from me).

When I say I have been on the hunt, I haven’t really, I have been overwhelmed with interest. We used a cheap service that got us onto Zoopla and Rightmove. There were so many applicants (nearly 20 after a week) that it was probably more than a sane, working individual could reasonably handle, but I made the effort to speak to the first deluge on the phone to whittle down the candidates and arrange some viewings. After that I sobbed quietly to myself as viewing requests came through every few hours over the next few days. It appears to be a landlords market, at least where this house is.

Viewings were arranged, lots of lovely people saw the house, I chatted with them personally about their situations, their aspirations for their housing going forward, jobs, kids, cars, the neighbours, the schools, all sorts. I was an actual tour guide for my very own tiny part of the UK. All the while, I was meticulously making notes in my mind, and learning from each one what to ask the next one (it has been a while since I had to do this, so I was a little rusty).

In the end out of the first eight or so viewing requests, I met four and had three good candidates for the property. All wanted it, and all have what I think (now, watch me change my mind in a month or two) it takes to be good tenants. Good jobs, relationship stability, local family connections and/or other things.

Each was different to the other, it wasn’t 3 young couples with children, it was very varied, just like in life, but each had pluses and minuses, and each was weighed up as such over a number of hours (unconscious and conscious thinking), with additional thoughts being invited from close friends/family.

The upshot of this is that a few days ago I made one couple happy, and two potential tenants not as happy (probably not happy at all to be honest) and they have now passed vetting and credit checks, and we have a move in date organised. Hurrah.

On the investment side then, we are going to be back on track soon. The bank account for this house will start going in the right direction (and subsequently the profits, once we reach a comfortable buffer level in the account, can go into our ISA`s), not least because I have now rented at the market rate, not the “market rate with a discount” that I set almost three years ago now, and fixed for the recently departed tenant. And hopefully the property will be looked after and enjoyed for the next few years by these tenants. I would love them to stay forever, but being realistic, they will hopefully move on to their own property, or at the very least a bigger one, and good luck to them when they do (again, this is my thoughts now, come back in circa two and half years when we part badly!).

On a broader note, regarding being one of those BTL landlords, and possibly being part of the problem, contributing in a small way maybe to my new tenants not being able to buy themselves….It is something I have considered, not before the experience started (5+ years ago) but since.

Would I actively go out and pursue BTL as an investment now, knowing what I know now? Probably not from the moral side of things…Is it still a worthwhile investment? Yes I think so, and I think it will be going forward for my family and I.

Basically I have a Guardian v’s Telegraph fight going on in my head!

Thanks for reading

Serus

 

 

 

 

A year on (ish)

It has been about a year since I first discovered FIRE, the concepts, side hustles, safe withdrawal rates and assorted things! Like most things in my life (this does not include my relationships), I am not 100% committed to it, but I have taken the ideas and concepts and started adding them to my life, my finances and my ideology (A man has to have an ideology at some point in his life!).

Speaking of ideology, I have to admit that I rather enjoy sharing my new found knowledge with people. This might be because I am an annoying blowhard who likes the sound of my own voice (hopefully not), but in carefully chosen situations I will talk to people about personal finance.

I have read on some FIRE blogs that others have shied away from sharing knowledge with friends and colleagues, and I understand that. Firstly, it isn’t the most fascinating conversation some times, although if you are in the technology world, it almost seems glamorous and normal. Secondly, most of us are British, (with British Values lol) and its not the done thing to talk about money.

I try and remember back to talking to older people when I was just starting out, and I think in my own way I took on board what some of them said. I didn’t listen to my parents at all, but if an older work colleague told me something, and it made sense, it was valued information. I like to think this is something I can do for others.

Apparently Samuel Taylor Coleridge said

Advice is like snow; the softer it falls the longer it dwells upon, and the deeper it sinks into the mind.

I don’t have anything but Google to back that quote up, but I like its intention, not withstanding its source.

I try not to preach, I like to think I have the ability to guide, like a less informative, less educated, less funny, and a lot less wealthy Martin Lewis. I have had fascinating chats with younger people just setting out on their journeys with mortgages etc, conversations with people much closer to retirement, and even some with my peers that are juggling childcare, careers, mortgages, family problems etc etc.

 

I don’t actually go straight to FIRE with people, that is for a more advanced conversation, and I certainly don’t list my wealth, tax bill, earnings etc. I do like to talk to them about what is relevant for them, and try and impart knowledge or “best practise” or a recommendation of a service to use.

My favourite piece of advice relates to this Escape Artist Post and new parents, which because of my time of life I meet quite a lot of (parents that is, not escape artists!). The premise, if you don’t click the link, is to turn a 25 year olds £15k of savings into a million quid pension pot by the normal retirement age, without adding anything further to it for 40 years ish. Please read the article, it is quite enlightening regarding compounding and stock market performance. Anyway, for new parents, if you tell them that they can open a SIPP for their baby, save only £50 a month in it for 25 years (there are 300 months in 25 years, x £50 equals £15000), then stop paying in and it could very well become a million pound retirement fund, well that blows their minds. We usually go through the next bit of explaining a SIPP and a JISA and when/if they can get to the money, and what it can be used for, but I really feel this is a gift that parents can give. Importantly, one that you may well “give” long after you are gone from their lives.

Maybe I am wasting my time, maybe they don’t listen, but its nice to be able to help where possible.

Anyway, on a side note, I do now keep a track of my net worth, my bank accounts, my spending (to a certain extent, not properly yet, and by “my” I mean “our”). My net worth took an awful hammering since just January, if Zoopla is to be believed (like Wephway I use these values to guide me, they are reasonably accurate in terms of rent at least, but the housing market can be a bit of a beast as far as sales values), because I am far too heavily weighted with property wealth currently. Mind you, with the last few days of the stock markets, my very very new ISA`s aren’t looking too clever either, its just they are too small to notice in my figures.

On wards and upwards, thank you for reading

 

Serus

January….

Well that was that, Christmas and New Year over, back into work with a bang.

I started back at work on the 2nd of Jan (not too much work happened sneakily from a tablet on the sofa watching Christmas telly….honestly!), and worked through the next weekend and week until the 12th of January. Not for a laugh you understand, but because that’s the way the self employed sometimes roll.

A massive advantage of not having a HR department involved, is that I don’t get pulled up by them for working too much. Another massive advantage of not having a HR department is, well, not having a HR department.

As I have mentioned before, I am unmanageable….

So apart from my work piling up, with everyone wanting everything now, I have got a few other things to process and keep me busy over the coming few months. So this is just a few short takes on those and other issues you might be interested in.

House(s)

We have a tenant moving out this weekend. They have had the house for over 2 years, so things will need to be done to it to get it to a rent-able standard. We have a house account with plenty of money in it for a months (or more!) void and necessary repairs, so that’s not an issue at least. Importantly, I am going to rent it again. I hadn’t really made my mind up until very recently, and well I might change it again, but the intention is to re-rent.

This next rental will obviously be at a higher “market rate” rent, which is good, because with the new mortgage rules (rent has to cover 145% of the mortgage payment at about 5.5% interest) coming into place, the current rent was not really high enough to meet most of the markets demands, so we have suffered with a sub optimal (but still good!) mortgage deal.

I have previously managed to find my own tenants easily through local Facebook groups, and I would assume and hope this will work this time as well. Unlike the last two tenants, the new ones will have to go through Rental Guarantee Insurance checking, which may limit my pool of applicants, but I really like the insurance idea, for what is a relatively small fee, especially when managing myself.

The tenants in the other BTL house are asking for some minor works to be completed, for which I have my handy man lined up, so he will be busy with both houses and I will help where work and family life allow.

I am not sure how much work is required, what percentages etc, before something is not counted as passive income, but never let anyone tell you that being a landlord is easy or passive!

Crypto

I am in the IT industry, so I have been watching BitCoin for a while, probably a while longer than most. I wasn’t however sensible enough to buy any years and years ago. I did investigate mining some, which I wish I had done earlier, but there you go.

What I have been doing for a while is mining Ethereum, and my cost base for this mining operation is based on a price of less than $300 per ETH so I am currently quite pleased with the market direction. It has been a fascinating technical project if nothing else, and a lot of the equipment wasn’t expensive or hard for me to lay my hands on keeping in mind my industry.

I won’t bother to profess knowledge of the future Crytpo market, it does all feel a little fake, my mining efforts, despite the fakeness, do provide a relatively cheap entry into the market, and relatively easy exit with the possible sale/re-use of the mining assets (computer equipment) for other things. To summarise, I really haven’t put anywhere near a significant amount of cash into it, I am probably not going to get a significant amount of cash out of it, but I like the tech and the idea…

chip (Lower case on purpose, as is the way)

Love this app, and love the idea. Whilst I should be capable of saving myself, and indeed I am capable and do save, this app (I want to call chip, “this little guy”, no idea why!) has managed to squirrel away £300 for me, without me noticing since late October. It probably means I could save more the regular way, but I love the way its slowly leeched out of my account. This is not to say it hasn’t told me what it is doing, its just it feels like magic. In my book this is a win!

So much so in fact that I became an early investor in the start up company that runs it via crowdcube. I haven’t stuck my life savings into it, its a small amount, and definitely a punt, but I get EIS tax relief on it, I am eating my own dog food as it were, so why not.

Re-moaning

I have to have my say…Sorry.

I am a remainer, I have become a remoaner, ready to tell anyone, at any point that I fully blame Brexit for all the worlds problems. If I find a Brexiteer in my presence I sneer and argue and become a liberal elite tw*t citing liberal elite BS about liberal elite issues that “normal” people couldn’t possibly understand.

Quite….well not quite.

Occasionally I feel that passionate (read cross, angry and downright shouty) about it, and remainers are sometimes described as above, and sometimes that’s unfair, and sometimes its fair.

I am however British, and middle class, so I don’t usually want to upset anyone, ever.

Brexit (some parts of it, not all of it, and not every Brexit voter) seem a little intolerant of European people (free movement) and European rules and regs.

1, There aren’t many that can profess to being pure British, what even is pure British (or English!), go back far enough and I think people wandered onto this land via land bridge from land that is now Europe, and before that they probably wandered there from somewhere near the African continent we have now. Since they first settled on this land, people have come and integrated, and we’ve had wars and conquerors and Kings and Queens, etc etc etc. So what makes you British, how many generations does it require? And are we not just the sum of all of these (foreign) parts? What about new parts to keep things fresh and moving forward? What about our access as “explorers” to our closest neighbours…..I don’t know…..

2, How small do we want to get? People complain of the European parliament, so lets leave it. But they also complain about the UK Parliament, they complain about the County Council, the Borough Council, the Parish Council, the village idiot, the street pariah, the next door neighbour, the next door neighbours son, the next door neighbours sons dog….I mean really, where are going to stop, do we need to be fully indivualised, without any interference from an outside source before we are happy? Think big, think community, think the human race, don’t think them, don’t think us, think everyone.

I realise that the above aren’t wholly Brexit issues, but come back to racism, intolerance, Little England syndrome etc, but….

…..I’m just a bit….hmmmm….disappointed in the whole thing.

On a lighter note

To lift the gloom a little, I have a birthday coming up in Feb, we have Valentines day, some other family birthdays, and this is the beginning of a new year, although the weather isn’t that special, the days are getting longer, spring and summer are in front of us not behind us, and things could be a lot worse.

I am sure that everything will come good in the end (for everything I have control over at least), there isn’t really any other choice. I will enjoy my family, friends, and customers, those little day to day interactions with all are what makes a life I think. Human interaction, can’t beat it.

Thanks for reading

Serus

 

 

 

 

 

Don’t FIRE your partner

There we go, didn’t I say I would stop polluting the bits and bytes of the internet when I got busy! Brief respite for you. My pleasure.

Now, without getting too personal, I have a problem with my wife.

This woman is perhaps the greatest being on this planet, at least as far as I and my boys are concerned. She saw through all of my character flaws (or didn’t notice!) and if not chose, then settled for me as her long term life partner, co-habiter, vital chromosome to her children, blank cheque book (errrmmm, unsecured banking app on my phone seems more appropriate in 2017) whatever other terrible cliches I can come up with.

Honestly she is great, anything misogynistic above (“Blank Cheque Book” being very untrue) I apologise for. Suffice to say, I got lucky.

You have a good idea of my feelings towards her now, but I do have to talk about one particular aspect of her that could do with improvement. When I say this, again, its knowing that we all have a list of improvements we could make, and my own personal one is loooonnnnggggg. Anyway, to put it bluntly, her financial education was rubbish, and her knowledge and attitude towards it now and going forward is not getting much better.

I don’t think she is unusual in this, I have known a fair few people, men and women, who struggle, and perhaps, like with computers, it isn’t always necessary to know the inner workings of things, just so long as it does what you want (sorry, laboured analogy). The big thing between us of course is my saving and investing plans (ok lets call them ideas), and her lack of errr…..ambition in that area?!

When it came to my light bulb moment of FIRE, and the browsing of websites far and wide on the subject (note to self, post list of blogs I lurk around) I was immediately keen on the idea, and comfortable with the concepts. As mentioned before, FIRE might be a bit ambitious for me, but certainly a bit more active care taken in the planning and implementation of saving and investing would be wise.

Mrs Serus however, well she is not too keen. Its not that she doesn’t like the idea of saving, and wouldn’t dream of stopping me investing etc, its just more, well she just hasn’t got the mindset (yet….if I am lucky). My first conversation with her about FIRE, investing, passive income, budgeting etc went down like a lead balloon… My second attempt was to talk to her about CHIP, the auto saving app/bank/financial site/startup  and that was met with a look of panic….(my first link! anyway, if you wish to sign up to CHIP then when it rather painfully asks you for a referral code, it was so subtle in my case I missed putting it in and had to go to live chat, tell them its KDC01K, and we can both get 1% extra interest on our accounts).

One thing about my wife, she has a very high EQ (emotional quotient), she is brilliant with people of all ages, and in all situations. This is somewhere near the top of my list of improvements, to get somewhere near a 10th of her EQ. I am reasonably intelligent, as is she, I am not going to blow our Mensa trumpets, we don’t have them (I dont think they give them out!?), but my EQ is not good. I am fairly ok at communication, my wit and charm gets me by in a cheeky sort of way, but it isn’t natural, its learned behaviour. So its quite possible that someone better than me at talking to my own wife would be able to communicate things like this better…..

Anyway, her idea of finances is, get money, put a little away, spend the rest, so long as there is more in the pot than you need to spend, that is fine. I have over a long period (pre-FIRE, just behaviour I picked up from my parents), encouraged the use of savings pots. We have successfully saved for a wedding, sofa, kitchen, new house(s), saved to cover maternity, but nothing really long term.

My first step was to encourage saving and budgeting. So not having a bill for a car service or insurance, that you hoped didn’t coincide with another expensive item so you could pay it out of “now” money, but having a savings pot, all there and ready topped up and drained as necessary, with a rough goal of covering all expenditure over the year. For this it would and does require pre-saving. My simple idea of getting a few hundred quid a month, directing it into some individual pots (savings accounts), building it up, then paying out of that for expected expenses was met with disbelief. My idea of saving money from her bank account before any expenditure came out (ie just after pay day), was met with incredulity, and not a little bit of upset and confusion. “Why would I save like that, I just get paid x, spend y, and then save z (the amount left)”……My next idea of CHIP, a cheeky little chappy that could drip feed savings into an account just for her, almost so she wouldn’t notice, well that was deemed more like witchcraft.

Where does this get me? Well my next step is to work a little on my own with this. Lead by example. I have setup a savings account that I am going to drip feed an amount into for my car expenses. I have CHIP leeching away a few quid here and there for a purpose that I haven’t yet decided on. When I deem it to be a success, I will try and demonstrate the concept to her in a better way. Graphs, PowerPoints, shiny presents bought with the savings…..whatever motivates her and captures her interest best (hint: not the first two things in that list, and apologies because “shiny things” makes her sound vacuous, which she is not).

For now, in public at least, I will go back to moaning about lights not being turned off when people leave the room, doors not being shut, food not being eaten and my own personal favourite, children not knowing how lucky they are…..yes, in other words, I am going to be my Dad.

Thanks

Serus

 

Burnouts…..

OK, the title is meant to refer to Cars, and burning and FIRE, sorry, tenuous link.

So in a previous post I was going to talk about my obsession with flashy cars. Well actually I was going to talk about cars and their impact upon saving, but really my cars are flashy, and I enjoy them being that way…..

My name is Serus, and I have a car addiction. I have always had this addiction for as long as I remember, and it is very difficult to fight.

With the above sentence I am not belittling actual addictions or the treatment of them, but when you don’t smoke, drink, gamble or take drugs, there are few actual addictions left to talk about.

My problem with cars stems, as previously mentioned, from my father. This is not necessarily his fault. Who knows what I will be blamed for by my kids when they get older, maybe a car addiction! Anyway, he liked his cars, we talked about cars, watched motor racing, and crucially, many years ago when he was able to afford it (way before I remember anything), he swapped his cars every two years; always with new.

AAARGGGHHHHH….collective teeth grinding, spending all of that money on the “forecourt tax”, well yes. I have that problem too.

My car history started in the worst way I think. Brand new car for my first car. Spoilt! Well yes, but it also came along with a car loan payment (so my parents spent the “first car” money of a few hundred quid on a deposit and left me with the loan), great for teaching responsibility, I’ve never had an issue with any loan subsequently and was building up good credit history at 18.

What followed was me increasing my earnings rapidly, having no or few outgoings (living with the ‘rents, which is a great way of describing parents and lack of rent payment), and changing cars every two years (quicker than the loan was paid off). The cars got more and more expensive, and I loved it. I still do love it. I am not cured.

Anyway, a few years ago (10 actually!) I read all about car leasing and the mad crazy lady Ling, who has the best website to rent (lease) a car from this side of Beijing.   This introduced me to not having to “pay” for cars, just lease them. Great, what a wheeze, small deposit, 2 year contract, then get another one….excellent. Addiction duly fed!

Now if you do car leasing right, I truly believe (don’t we all say that about stuff that might be bad for us, but we want, so we do it anyway?) it is cheaper than the equivalent purchase price over a period of years. If you are going to buy new, then leasing new is the way to go, but you have to do it right.

I shop for my cars in reverse. I never look through a car magazine and say, that’ll be the one for me, then pop down the dealer (stealer in car forum slang!), and organise it with them, ticking the list of high priced options and drinking “free” coffee. I look through the car leasing websites,  look for great deals (I am talking hundreds per month off dealer pricing, and usually cheaper than it should be even compared to other leasing websites), and go that way. I also never ever do anything other than 3+23, that’s the equivalent of 3 payments down, then 23 follow up payments. No maintenance etc, its only a 2 year old car. Do it right and you only pay for one service, no tax and then you hand it back.

Hassle? yes a little. Have I been without a car for a few days during swap overs? yes sometimes. Have I saved thousands over and above what I would have paid at the dealer? yes. Most importantly for the car addict, have I driven some amazing vehicles, way out of my sensible price range when bought new, sometimes for Ford Focus money? yes I have.

So there we go, my expensive car habit laid bare, the only benefit of this is that I have been savvy with it to make it slightly less expensive. Can I give it up for FIRE (at this point I might make up my own TLA of The Usual Retirement Date, with a dose of a Slightly Higher Income Target, but I probably shouldn’t).

Anyway, can I give up my flashy car syndrome, with the kids wanting a faster flashier car for Daddy (which begs the question of what I am teaching them with my actions, let alone my words), the customers of my business wondering what is going on with my  finances when I turn up in a banger (or a much cheaper car than normal). I don’t know, its a trade off, I love cars, I spend quite a while in my car, it projects an image (which rightly or wrongly I give a stuff about), I “only” spend about 10% of income on my “bad habit”……….

I know what that money would do for me and my financial wealth if it was used elsewhere, I do know that, but is that knowledge strong enough to get me to give cars up? Is there another way of driving something that ticks all my boxes but doesn’t cost as much? Yes, buy nearly new, it ticks most boxes, and is that good enough reason to persuade me? I was once told by a financial adviser, who wasn’t advising me just chatting, that why have your money in a depreciating asset (a car), when it could be elsewhere, and I rather took it to heart!

Oh the hassles of making a decision, the embarrassment of being so tied to the marketing/sales tactics/consumerism of the car industry, and the peer pressure…..

I don’t appear to be very good at making decisions do I?? I have to make a decision in the next few months as my current flashy motor gets handed back next year……hmmmphhhh

Damnation, I forgot!

So I totally forgot, after careful thought and planning whilst setting up the blog, to actually reference and explain the title of the blog.

Believe me, I have been cogitating for a while on a blog, and the name of the blog, so to forget to make reference to it is a bit of a first class error….

To the point!! It would appear, having read many blogs, some of which I really should reference at some point officially, that I have missed the boat slightly in terms of compound interest and its help with my chances of FI.

On someones blog somewhere, on multiple I would guess, it is pointed out that the best time to start saving and investing was years ago, and the next best time is now (sorry for the paraphrasing, I am sure its an official quote from someone massively clever and respected!). I have taken this almost literally and have now begun the process of saving and investing in an organised manner and I have started having conversations with important people, to see if I can start to win some hearts and minds.

So what have I missed out on? Am I too late to start……?

Of course the magic of starting years ago is compound interest.

In simple terms, lets say I invested £20000 in a reasonable manner (low ish risk share type investment, with 4.5% returns) when I was 20 years old, and didn’t add to it for 45 years. This might not have been realistic at the time, but having avoided university costs, I was definitely raking in far more money then I was spending at this point. Anyway, this would have grown into about £150000.

If I do the same now, and only get 25 years, its worth about £60000, not a bad number, but obviously way short of the above figure.

This is the reality of the situation though, nothing I can do about it but make the best of a mistake already made! Maybe at this point I should just consider a “not too hard up normal retirement at a normal age” as the goal.

As you will have noticed if you have read any of the other blog posts, I haven’t completely f’ed up, because I have some BTL properties that having been sheltering some wealth (from me and my “spendy” habits) and growing according to the housing market over the last few years. So, is it too late to start for me? No, its a great time to start, I just should have made my life easier (retirement earlier?) by starting sooner. Full Stop. That’s the blog sorted. Thanks, bye!

Just kidding…..I have more inane posts up my sleeve.

Thanks for reading

Serus.

 

 

 

The Mortgage question??

I feel I may have been holding back for too long on writing blog posts. I am sorry for my brain dumps in these small and insignificant pages, but I am just going to have to keep doing them. Possibly I will have something better to do soon, so I won’t bother quite so often!

Now, I said I was going to blog on the mortgage inbalance in my Net Worth, and so here it is.

I was talking with someone recently, discussing as you do with certain trusted individuals our respective positions in the housing market (too British to discuss finances with just anyone!!). Like me, my friend has more than just a house to live in, he has a house he rents out as well. He was apparently keen to sell this house because it actually had some worth over and above the mortgage redemption costs, something which it didn’t when he moved out of it. His wife was keen to hang on to it because of his lack of a viable pension.

The rights and wrongs of someone else’s pension, property wealth, marital differences of opinion and general finances are really not my speciality, but it did raise an interesting question for me.

I looked at my spreadsheets (always have to have a nice spreadsheet and in my case I am only currently tracking properties as I have very little other “wealth”), and discovered that my BTL equity value (baring the harsh realities of CGT, selling costs, varying markets etc), almost exactly matches my outstanding residential mortgage costs…….

…..hmmmm that’s like one of the first steps toward financial independence isn’t it? Clear your personal finance debts, credit cards, loans, etc etc, then chip away at the mortgage, and at some point you effectively own the place that you live in outright. Almost nothing can happen that will force you to move out, your monthly costs drastically reduce (in my case our mortgage is roughly a quarter of our monthly income, which I always calculate without including BTL rental income) and you can pile that into a pension or an ETF or other investment, in my case for the next 25-30 years, before normal retirement age.

Well I never….who’d have thought it, and should I do it?

As usual my own take on this is complete befuddlement, but I made a bit of an effort to work out the raw numbers. The caveat being future values are at best guesstimated on past performance and other woolly numbers!

If I sell all my BTL assets and pay off all of my residential mortgage and then redirect that payment to an S&S investment, with average growth, then roughly it will be worth about half a million quid in 25 years. So says a financial firms calculator on the internet somewhere.

If I keep the BTL assets for the next 25 years, then one website is telling me that my property equity alone (not including built up savings from the rental income) could be in the region of 3 million quid. Even with circa half a million pounds worth of CGT bill, and adjusting for inflation, its still a lot of money.

Update: A slightly more realistic figure (I say that only because it is less, why does less automatically make it realistic?), based on average house price growth in the UK for the last 20 years puts the value of the properties as around 1 million. But really I guess the point is it is impossible to predict future value with any accuracy, and I don’t have any good answers about what to do!!

Those are the (made up!) monetary figures, but of course my health and well being could be a lot different between the two, it could be the same as well of course, but I can just imagine the warm comfortable feeling of owning your own home, without a mortgage, and the possibilities it might open up for working less and living more.

What am I meant to do now!?!?

Thanks

Serus

Thoughts on property, net worth and FIRE (plus added rambling)

My net worth is heavily biased towards property (my “pensions”, ISA`s and savings are worth about a 10th, at most, of my property wealth). Now this happens to a lot of people, and there are a lot of websites, articles, Financial Advisers etc that will tell you this is a bad idea. There are also a significant amount of people that will praise anyone with a lot of property wealth, “haven’t they done well for themselves” etc etc.

One of the main areas of negativity regarding having property wealth is that for a lot of people, it is all tied up in the house they live in. My situation is slightly different because of the scourge of all asset classes (maybe apart from owning an MLM company??), BTL properties. My estimate for my own property wealth is that this split is roughly 60/40 in favour of BTL, which is a good thing I guess. This means that, baring Capital Gains, sellers fees, an illiquid market (which may or may not be happening now) I can actually get at a great deal of money without changing my own personal housing status.

However, it does also mean that my net worth is extremely sensitive to the housing market, and that it is rather more illiquid than an ETF or share certificate. I was sailing along quite happily in this respect (my wealth being tied up in bricks and mortar), rather believing the old adage of it being a good thing, until it slowly dawned on me as I discovered financial websites and read around the subject, that I was rather over exposed. This seems rather obvious now, but trust me, I really didn’t give much thought to it only a year or so back.

What am I going to do with my properties and inbalance? Well….that I haven’t quite fully worked out, yet, but what I am doing is trying to rebalance my wealth the FIRE way.

First (baby) step, I have S&S ISA`s setup with a DD going into them every month, and I will (eventually) choose an ETF to start putting money into.

I am planning on budgeting to get some sort of decent savings rate going. As many have said, if its monitored, its managed, or some version of that depending on your country of origin, and industry. I am not a great lover of manually monitoring anything (I am also a realist that knows how lazy I am with mundane tasks), but I am trying to put some systems (not necessarily technical) in place so that I can monitor expenditure.

I also need to talk to Mrs Serus about all of this. I have had a tentative couple of chats and they haven’t thus far been received well. 40 years of “training” haven’t really set me up to present ideas of spending and saving, which are a complete about face from that which most people have, and have had for their entire lives. Anyone got any tips?

Anyway, thanks for reading. I am going to expand on my ideas for the “property inbalance” in my next post….

Thanks

Serus

State of the Union

Apologies for the title, its totally because I am a big fan of West Wing, not current American politics (or British for that matter!).

I wanted to start the blog off with a quick summary of where I am currently. I think “where I want to be”, and “what I want to do” is for another post (mostly because I haven’t quite worked it out yet).

I am late 30s (ok 40, shall I drop that joke now?), married, two children, two cars, one house, self employed in a technology job and living in Middle England (not Middle Earth, not enough Orcs on the school run).

Pensions and employment

My wife and I both work, she is employed, almost full time, in a professional role with a lovely state backed pension due in many many years. I have been employed, it was a good few years ago, and do have a very very small DB pension on its way to me in a lot of years. I am now self employed, and have been for over a decade, with nary a glance in the direction of pension savings for all of that time.

My self employment currently is not as good as “having a job” in monetary terms, but it certainly has been good in the past, and I am hoping/planning for it to go back to that situation soon. I won’t be going back to employment if I can help it, and most employers will be glad of that fact as I have been called “unmanageable” by more than one manager (which is I admit partly true, and with age has hardly got better I would imagine).

Assets & Liabilities

I have a wife!! No seriously, great asset, although various laws and cultural norms mean I can’t cash her in. Nor would I want to (cough) 😉 She probably would happily cash me in, but the disappointment when she imagines what she will get for me stops her!!

Back to the actual assets, I like lots of people my age, have a house, it has a mortgage, it is timed to be paid off around my “normal” retirement date. Like some people, I am a keen negotiator of a good mortgage deal, so I am locked in for 5 years at a lovely rate with Santander.

The other big liabilities are our cars. Thanks to my fathers influence, I love a new car. One of the cardinal sins of being frugal, a lease car, and whats worse, mine is an expensive lease car. Probably a post all by itself, me and cars, but hasten to say, its probably what we spend the third most money on per month after the mortgage and house costs. This is an issue….

Through some luck and forward planning (80/20 rule applies here) I have been very fortunate to acquire two properties to rent out. Detail in another post perhaps, but these are self managed nice houses in a nice area that I don’t have trouble renting (I do have trouble with them on occasion, land lording isn’t straightforward). These are mortgaged on IO deals locked for 2 and 5 years and they more than cover their bills, which leads me to ….

As we self manage our properties, I do keep all of the rent money separate for both houses, and from our personal accounts. This enables me to easily gather information for tax and other purposes and generally keep things straight. We have more than enough to cover a boiler and a roof repair on each house should we need it.

…Personal Savings. These are the current bug bear of my life. We don’t have enough in my opinion, the other opinion in my life (again this is another post at some point) is happy enough, I would guess we have about 3 months living expenses in total of savings. Our rental properties are better protected than our own house and lives!!

Other things of note, no credit card debt, no personal loans, small drip fed investment accounts for the kids in S&S Junior ISA`s, and some just started S&S ISA`s for the adults.

That’s it, the state of the union, for good or bad its my starting point.

Thank you.

Serus