Warning: This article contains the smartest tricks that the Houdinis of real-estate investors use in UK to break their digital currency counters. We are here to provide you only with the basic idea. Execute it at your own risk.
I Want to Grow Old as a Lannister!
We all worry about our future. In fact, we are always striving hard to shape a better and secure future. What better way than to invest in a real-estate property, earn your rents and watch your investments soar?
But how do you do it?
You can invest your cash directly into a property. Considering you are not a Lannister or you have not inherited a large fortune, you won’t have enough of those cash resources to make for the investment.
Ha! The average property price in UK is estimated to be at around £273,000. Your earnings do not equal that of Bill Gates, otherwise you won’t have been reading this. So assuming you get to save £500 monthly (a far stretch in itself), it would take you precisely 46 years to own a property. Obviously the rate of inflation has not been counted in but you can still imagine the wait.
What’s the other way around?
They allow landlords to buy a property with the intention of letting it out or renting it out. You just need to have the deposit money to get the mortgage. Hence many people embark on their journey to real estate investment through buy-to-let mortgages.
And you know what the cool part is?
The application evaluation process is based on your rental income rather than your own existing finances.
Mr.Broker, How Else Does this Help?
Consider this: You somehow arranged the cash and invested in a property worth £273,000. The average charged UK rent amounts to £774 per month. This calculates to a yearly rental income of £9,288. That is an impressive yield of 3.4 percent.
But, it’s time to beat it!
You approached a buy-to-let mortgage provider and agreed a loan at 75 percent to the actual value. You now have to deposit £68,250 to acquire a property of worth £273,000. Add extra charges of let’s say £4000 and this brings us to a sum of £72,250. At a mortgage rate of 2.29%, your annual interest repayments rise to £6,240.
What was your annual rental income? £9,288! Subtracting your interest repayments you are left with £3,048 an year. Calculate the yield on the mortgage and this produces 4.2 percent.
What was your return, when you invested in cash? 3.4 percent.
We finally have the winner!
And with the increase in property valuations, your equity in your new property can rise to figures where you can afford another mortgage.
Not difficult to sit amongst the Lannisters, isn’t it?
Taming the Taxman!
As for suggestions to reduce your taxes which come with buy-to-let mortgages, you can always try some of these:
- Offset your stamp duty against the CGT liability when you sell your property.
- Income tax can be offset against various claims of allowable expenses. These could be arrangement fees for property loan setups, building insurance, council tax and utility bills if your tenant is not supposed to pay them.
- CGTs can be reduced through private residence reliefs and lettings reliefs.
So did you like the idea? Remember, to proceed with caution. For an idea can define or destroy you! …