Retire early with a Property Portfolio Conveyor belt.

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    Retire early with a Property Portfolio Conveyor belt.

    I have plenty of equity, but don't want to deplete it by selling for example one flat a year to go liquid on that equity & then use that capital as income, as ultimately that capital is req'd as my pension. If I did that by the time I reach normal retirement age I'd have no properties & no equity left.
    Then I had this eureka moment the other day. I thought there is a way round the problem of gradually eating into your portfolio by selling flats to generate income. For anyone with say for the sake of example around 10 properties, one or more of which have been owned for 10 years, you can sell one a year & get the benefit of 40% taper relief on CGT on it & also use your annual capital gains allowance.
    Then to stop one's portfolio shrinking by 10% per annum, simply buy one property per annum almost like you have a ten year conveyor belt of property. As one comes off the end after ten years, another goes onto the start of it. Like a farmer plants crops each year. Only you're watching equity grow then replenishing your stock each year.
    Hence each year one might be able to release a considerable sum of equity acquired in a property over 10 years & at the same time keep one's portfolio up to size. Of course one might wish to sell more than one a year & buy more than one a year. Depends on how it works out best tax wise etc & on the size of your portfolio. Anyway it seems like an early way to retire from a day job to me.
    What I need to find out next is if I quit my day job, whether I can use my £5000 per annum tax allowance on earned income salary allowance on a capital gain instead of a salary from employment.
    As a matter of interest, even at a modest property appreciation rate of 4% pa, using the equation 1.04 to the power of 10, a 100k property is worth £148k ten years later.
    So if you have 10 properties, each worth £100k & you sell one a year & buy one a year you can effectively draw an annual salary via the capital gain of £48k & still not deplete your portfolio.
    If property appreciates at 6% pa then 1.06 to the power of ten gives an increase of in value of £79k after 10 years

    #2
    Why bother selling any, why not just re-finance the portfolio ?

    Comment


      #3
      Originally posted by Colincbayley View Post
      Why bother selling any, why not just re-finance the portfolio ?
      Perhaps it's better for CGT purposes?
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      Comment


        #4
        Originally posted by jeffrey View Post
        Perhaps it's better for CGT purposes?
        Yes definitely. Also the interest on draw downs taken as income rather than towards investment property purchases, is not claimable against rent. One would have an increasing amount of debt on the portfolio not claimable against rent in addition to having wasted the annual CGT allowance, which for my jointly owned properties is 2 x £9200 = £18400 that can be taken tax free each year.

        Comment


          #5
          OK, I understand that, but have you taken into account the buying and selling costs? Would they not take a chunk out of your profits?

          Comment


            #6
            I sell through www.halfapercent.com so costs are low. They are the best agent I've ever dealt with & they are a quarter the cost of most of the useless agents around. Total costs on buying a flat £600 & selling £1000 so around £1600 is peanuts when you think of up side.
            Your suggestion would result ultimately in a huge debt on which interest would not be claimable against tax
            Meaning in effect your gearing in terms of debt on property claimable against tax would be reducing each time. My option involves borrowing 85% LTV on each new flat & all of the interest on that is claimable as an expense against tax.

            Comment


              #7
              OK, I can see the angle you are coming from now. However, what if you just re-financing to purchase further properties, then use the extra income from those properties to sustain a lifestyle.
              No CGT to worry about at all, as nothing being sold.
              Extra finance costs can be offset against income-tax.

              Or have I just completly missed the point?

              Comment


                #8
                If you refinance to buy extra properties I think you'll find they only break even on costs rather than produce income, because the money costs around 6% & the rental yields are around 6%.

                Comment


                  #9
                  Originally posted by Robin View Post
                  If you refinance to buy extra properties I think you'll find they only break even on costs rather than produce income, because the money costs around 6% & the rental yields are around 6%.
                  My portfolio returns better than that, but the point/question I am trying to raise is, how can I put it, Have I got my plan wrong? Is your way a better way? Are there other options?

                  Don't get me wrong, I have been doing this long enough and making very good returns, but I am always open to another view point.

                  I just can't get to grips with how your way would work better.

                  Enlightenment required !

                  Comment


                    #10
                    Originally posted by Colincbayley View Post
                    My portfolio returns better than that, but the point/question I am trying to raise is, how can I put it, Have I got my plan wrong? Is your way a better way? Are there other options?

                    Don't get me wrong, I have been doing this long enough and making very good returns, but I am always open to another view point.

                    I just can't get to grips with how your way would work better.

                    Enlightenment required !
                    It can only produce better returns than mine if your yields are greater than mine.
                    No doubt you are well below 85% LTV on your portfolio so you are getting some income but no increased income on a flat you buy on 100% finance. Unless your ylelds are higher than the BTL interest rate. All I know is right now my rental profit alone can't sustain me without me continuing to work. Even though my portfolio of 11 flats is only around 50% LTV.
                    However my idea of selling one & buying one a year to release & enjoy some of the equity increase, in other words capital gains I have made, seems to be a way round this problem whilst insuring against the value of my portfolio & thus wealth & financial security decreasing. If you can think of a another way I'd be interested to know of it. If you're not careful you just wind up working to a ripe old age & leaving a huge estate to your kids. The problem at present is our properites are worth so much more than even just 5 years ago, but rents are pretty much the same. All this extra wealth but no extra income.

                    Comment


                      #11
                      Originally posted by Robin View Post
                      f you're not careful you just wind up working to a ripe old age & leaving a huge estate to your kids.
                      To be honest, that was my plan.

                      However, I may just take your suggestion on board, perhaps sell one, just now again.

                      Comment


                        #12
                        Originally posted by Colincbayley View Post
                        To be honest, that was my plan.

                        However, I may just take your suggestion on board, perhaps sell one, just now again.
                        Are you saying you have been a landlord for all this time just to make your kids rich when your pushing up the daisys ?

                        Comment


                          #13
                          Originally posted by Robin View Post
                          Are you saying you have been a landlord for all this time just to make your kids rich when your pushing up the daisys ?
                          Of course!!!!

                          I am already doing this as a full time job ( no other income ). The plan being, when the kids are old enough ( they are all very young at present ) they can then take over and run it all for me ( if they so wish ). They will also then benefit when i've gone. If I sell anything, that will only reduce the amount of the portfolio. I am still buying property at a rate of 5-8 a year and was planning on always doing so. Although, if the figures stack, I would look at selling.

                          Comment


                            #14
                            Originally posted by Colincbayley View Post
                            To be honest, that was my plan.

                            However, I may just take your suggestion on board, perhaps sell one, just now again.
                            Originally posted by Colincbayley View Post
                            Of course!!!!

                            I am already doing this as a full time job ( no other income ). The plan being, when the kids are old enough ( they are all very young at present ) they can then take over and run it all for me ( if they so wish ). They will also then benefit when i've gone. If I sell anything, that will only reduce the amount of the portfolio. I am still buying property at a rate of 5-8 a year and was planning on always doing so. Although, if the figures stack, I would look at selling.
                            I agree it has to be better that the benefits from your own efforts will be going to your children rather than a standard pension fund that disappears when you decease. You must have fair number of properties, or a very low LTV on the portfolio if you are making a reasonable living from it. Or high yields. Are you letting to students or 5 Poles to a room perhaps LOL
                            My portfolio consists of on average flats worth around £110k let out for £500 PCM so just under 6% yield.

                            Comment


                              #15
                              No students, No HMO's

                              Just standard 1,2,3 & 4 bed houses in the southeast. LTV's are at 72.14% Avg.

                              I have however, just re-read your original post, I think I will sit down and have a look at that possibility. I'm always open to other view points.

                              Cheers.

                              Comment

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