60 year old Use lump sum to pay down BTL Debt?

R

Red Rum

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Self Age 60
Retired public servant pension 36K potential to earn 20k - 30K in part time work but that results in a higher tax band which is then applied to tax on rental income

Spouse 55 private employment salary 26K

Savings including recent gratuity lumpsum 190K

Children aged 32 ,31 ,27 ,25, 21, 18 ,18 ,15 ,14, 12.
6 children living at home college school

Net monthly income 4200K excluding rental income

Ppr no mortgage worth 700K
BTL 1 valued at 330K mortgage 8k annual rental income 17136 less expenses tracker mortgage
BTL2 valued at 300K mortgage 160K annual rental income less expenses 17400
BTL3 valued at 90K no mortgage annual income 8640 less expenses
BTL 4 valued at 120K mortgage 28K nil rental income family member living there
Overseas property 75 k mortgage 20k used by family and extended family for holidays
Credit cards NIL
Car used car no loans
Wondering whether I should use my lumpsum to pay down some debt or whether to buy one more property and add to current portfolio and use the resulting income to supplement my pension.
 
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You have a family home with no mortgage and the following investments:

1670489772322.png

Question no. 1 - should you pay off the mortgages or buy another investment property?

This seems very clear to me. You should pay off the mortgages. All of your assets apart from your income are invested in property. This is too lacking in diversification. You should definitely not be increasing the risk by buying more property.

Sure you can cope with a fall in property prices or a fall in rental income, but why take the risk?

You are well off so your objective should be to preserve your wealth rather than to maximise it.

Question no. 2 - should you sell a property or two and diversify?

No one knows whether the return from property over the next 20 years will be higher or lower than the return from equities. History would suggest that a balanced portfolio of equities will outperform property, but history might not repeat itself.

But the advantage of diversifying your portfolio is that you reduce the risk. It is very likely that the demonisation of property investors will get worse over the next few years. You may be prevented from selling your property. The values may be reduced by a tenant who pays no rent and then you can't evict them to sell the property.

On the other hand, the government might cop on and reduce the restrictions on property investment and prices may continue to climb.

You just should not have all your eggs in that one vulnerable basket. I would sell half the portfolio and invest directly in a portfolio of shares. If property restrictions ease and property prices rise, you will do well anyway from the half invested in property and from an increase in value of your home. If property crashes, equities will probably fall as well, but not by as much.


Even if you don't believe in diversification and are committed to property ...

The other advantage of equities is that they are liquid. If you need cash at any time, you can sell some of your shares. You can't sell part of a property and it might take some time to sell a full one.

I think you should sell one of the properties and convert it into equities.
Or alternatively, put your savings, after paying off your mortgages, into equities.

Brendan
 
Red Rum said:
Self Age 60
Retired public servant pension 36K potential to earn 20k - 30K in part time work but that results in a higher tax band which is then applied to tax on rental income

Spouse 55 private employment salary 26K
Click to expand...

Red Rum said:
BTL 1 valued at 330K mortgage 8k annual rental income 17136 less expenses tracker mortgage
BTL2 valued at 300K mortgage 160K annual rental income less expenses 17400
BTL3 valued at 90K no mortgage annual income 8640 less expenses
BTL 4 valued at 120K mortgage 28K nil rental income family member living there
Click to expand...

How does someone not pay the higher rate of tax with this income?
 
Will you need to use some of the 190k savings to finance children’s education/college costs over future years? You have six in that category currently and will for some years to come.

Your total taxable income is, it seems, within the 20% limit, but, in overall terms, you are quite reliant on rental income.

When is your spouse likely to retire and how would that impact household income?

I suggest doing some budget forecasting for coming years and decide if you will need to use any of the savings or hold a good portion of them.

Your property portfolio has been lucrative for you and you are probably somebody that prefers houses to stocks and shares. You are unlikely however to find many urging you to further expand your stock of property.
 
What rate is the mortgage on BTL 2 ? The rest are small, it matters little whether you pay them off or run them out.

You have 3 young children, some will be financially dependent for at least a decade, so you will need income.

You are obviously experienced in operating residential investments, so you have your own opinion on that.

Is there opportunity to make investments in your spouse's pension.
 
Brendan Burgess said:
You have a family home with no mortgage and the following investments:

View attachment 6910

Question no. 1 - should you pay off the mortgages or buy another investment property?

This seems very clear to me. You should pay off the mortgages. All of your assets apart from your income are invested in property. This is too lacking in diversification. You should definitely not be increasing the risk by buying more property.

Sure you can cope with a fall in property prices or a fall in rental income, but why take the risk?

You are well off so your objective should be to preserve your wealth rather than to maximise it.

Question no. 2 - should you sell a property or two and diversify?

No one knows whether the return from property over the next 20 years will be higher or lower than the return from equities. History would suggest that a balanced portfolio of equities will outperform property, but history might not repeat itself.

But the advantage of diversifying your portfolio is that you reduce the risk. It is very likely that the demonisation of property investors will get worse over the next few years. You may be prevented from selling your property. The values may be reduced by a tenant who pays no rent and then you can't evict them to sell the property.

On the other hand, the government might cop on and reduce the restrictions on property investment and prices may continue to climb.

You just should not have all your eggs in that one vulnerable basket. I would sell half the portfolio and invest directly in a portfolio of shares. If property restrictions ease and property prices rise, you will do well anyway from the half invested in property and from an increase in value of your home. If property crashes, equities will probably fall as well, but not by as much.


Even if you don't believe in diversification and are committed to property ...

The other advantage of equities is that they are liquid. If you need cash at any time, you can sell some of your shares. You can't sell part of a property and it might take some time to sell a full one.

I think you should sell one of the properties and convert it into equities.
Or alternatively, put your savings, after paying off your mortgages, into equities.

Brendan
Click to expand...
Thanks Brendan. I may be a new member but I am a long time lurker as they say. you are very astute and offer sound advice on which i can reflet research and perhaps act upon
 
moneymakeover said:
Why not pay off the 8k, 28k and 20k mortgages
Will increase your cash flow
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Agreed at least on the 8K would free up some cash.
Tuscany said:
Will you need to use some of the 190k savings to finance children’s education/college costs over future years? You have six in that category currently and will for some years to come.

Your total taxable income is, it seems, within the 20% limit, but, in overall terms, you are quite reliant on rental income.

When is your spouse likely to retire and how would that impact household income?

I suggest doing some budget forecasting for coming years and decide if you will need to use any of the savings or hold a good portion of them.

Your property portfolio has been lucrative for you and you are probably somebody that prefers houses to stocks and shares. You are unlikely however to find many urging you to further expand your stock of property.
Click to expand...
Fortunately the children can live at home and attend college while also availing of part time jobs, Spouses retirement coud be at 65/66. No pension until 66 and then its the state contributary. No impact to be honest.
cremeegg said:
What rate is the mortgage on BTL 2 ? The rest are small, it matters little whether you pay them off or run them out.

You have 3 young children, some will be financially dependent for at least a decade, so you will need income.

You are obviously experienced in operating residential investments, so you have your own opinion on that.

Is there opportunity to make investments in your spouse's pension.
Click to expand...

Yes property has been a good investemnt so far. A strategy of luck with tenants and moderate rent has worked for me.That couod all change however. The ability to terminate a rental lease to provide housing for member offers some degree of comfort. Though that could well change.
 
This is more life advice than financial advice, but you may feel the need and/or come under pressure to house some of your ten children in your properties in coming years.

This might be exactly what you want of course but it does create potential for dispute down the line. Financial assets are much more easily shared than bricks and mortar.
 
NoRegretsCoyote said:
This is more life advice than financial advice, but you may feel the need and/or come under pressure to house some of your ten children in your properties in coming years.

This might be exactly what you want of course but it does create potential for dispute down the line. Financial assets are much more easily shared than bricks and mortar.
Click to expand...
I agree with you and this is a likely scenario that some may end up living in the properties as has already occurred with one and which was with my consent. One way of avoiding the high tax on rental income while preserving the capital investment. But of course there is potential for dispute. Thanks for everyones input . i appreciate the advice.
 
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