Author Topic: I need some assurance i am not a nutter and on the right track!  (Read 3089 times)

lalman

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I have tried to give as much detail as possible but happy to clarify anything you require.... please don't be too harsh!

Life Situation: I am from the UK, we live in the North of England. I am 32 and my wife is 31. We have a slightly weird situation were my father is disabled and after trialling it for nearly 2 years we decided to continue to live with my folks in order to help out my parents as they got older. We are an Asian family (I am 3rd generation born in UK) were I am expected and will be looking after my parents in old age, more out of love than tradition though.

The balance is not always easy but try my best to keep everyone happy and we moved to a bigger home to give all of us more space and eventually for my wife and I to have a family of our own.
Just to put this oddity into context, my wife’s parents also did the same thing and currently live with her grandad who’s is in his 90’s!

I did live with my grandparents when I was a child too, and it was one of the best times in my life… its felt like having two sets of parents, and when my folks were at work I still had people who loved me to look after me…. I could see similarities when reading posts from Mustasians which eventually gave me enough courage to post.

I haven’t posted in 4-6 years not because I didn’t know or follow the ‘cult’ but more that I don’t think people always understand other cultures or perspectives. I firmly believe that everyone has the right to live the way they want to live…. I am not one to judge and I would hope the same the other way around.

This however is the internet and my ego isn’t that big to deal with the trolling I sometimes see.

Gross Salary/Wages:
My salary is £42,000 and my wife’s salary is £29,165 with inflationary rises only likely in the foreseeable future.

Individual amounts of each Pre-tax deductions Not sure if it’s the same in the US of A. We have defined contribution schemes – so what we put when we are 55 we get to take 25% of it tax free and the rest is treated as our personal pot. We also should get a state pension of £155 + inflation per week at the age of 68…. Hopefully I will be on Mars by then with Elon drinking in a Mars Bar. We both contribute 5% of our gross salary and our employers match this. I currently have £30,000 in my pot and my wife has £22,000. Both our pension pots are invested in stocks via a managed fund ran by NEST (a government approved pension fund with low fees (half of one percent).

Other Ordinary Income: I do not receive a bonus nor does my wife.

Qualified Dividends & Long Term Capital Gains: We do not own stocks beyond what is invested in our pension schemes.

Rental Income, Actual Expenses, and Depreciation: This is where it gets a bit weird. This has always been a big dream of mine and I started at the age of 21 saving 60% of my very low salary (£17,000 (£13,000 after tax)) to fulfil this dream.
I have 2 rental properties of my own. They both bring in the same rent of £6,900 each per year. We have also rented my parents old home (where I used to reside) for £9,900. In order to purchase our current home we released £100k from my parents home and we changed it to a BTL too.
The mortgage interest only payments are £160, £160 and £200 (per month) and I am responsible for all three and activity paying the principal for all of them too. Total payments equals £6,240 per year.
We see BTL properties as the cornerstone to our quest to FI.
Rental income = £23,700pa
Rental mortgage interest charge = £6240pa
Net income before insurance and tax: £17,460pa


Adjusted Gross Income: Our Gross income is £42,000 + £29,160 + £17,460 = £88,620.

Taxes: I perform a self assessment on behalf of my parents and I normally have enough deductables to reduce my property income to zero or an immaterial amount… when I leave my job I don’t think I will have these so will have to pay 20% income tax and 11% national insurance tax (I believe) after receiving my tax free amount of £10,850. My wife and I will each receive the tax free amount so we are tax planning for future properties (putting some in her name for example). I am a higher rate tax payer in the UK and pay approx. £12,000 in income tax and national insurance and my wife pays approx. £8,000. Happy to get exact numbers if required.
Our net salaries are:
Mine: £2,502
Wife: 1,780
Rentals (Income as is until self-assessment tax return) £1,975
Net income: £6,257

Current expenses:
This could be my biggest mistake. Its the most contentious element of everything in my entire life.
I need to put this into context before I even say anything else.
We are a close Asian family. I would do anything for them and they would do the same for me. ‘Ownership’ in western society is words which don’t have the same meaning in my family… for example if my dad said ‘Son can I have £10,000 for X’ and it was sensible I would give it in an instant. We are private people but I need to say it out loud that…
My sister lent £170,000 to my mother and I to purchase this home. There I said it out loud.
Let me clarify it before anyone gets really angry with me or thinks I am stupid beyond measurement:
1.   She offered the money herself so that my parents could live in comfort in their old age
2.   She wanted to offer my wife and I the opportunity to live in a home that we would otherwise not be able to afford at that time.
3.   She was not expecting it to repaid but is my intention to repay it in full.
4.   She is a millionaire and the lack of money does not affect her life at all.
5.   She loves her work and the amount represents 12- 18 months income for her.

So saying all that the above is a zero cost to me currently but over a long period of time I will repay it. I will do this before I get to financial independence but she continues to tell me she doesn’t want/ need it etc.
This is a long long term loan and my initial thought process was I had enough passive cashflow to have reached FI without my income I would continue to work for the 4-5 years to repay this loan in full.


Current Current expenses:
Mortgage payment is £991.
BTL mortgage payments: £520.
Mobile phone costs (sim only): £32
Petrol costs for 2 vehicles £346 per month. £120 for my wife for work. £226 for mine which includes £60 for visiting my wives parents once a month.
Car insurance: I pay annually but works out to be £130 per month as I pay my parents cars too.
Eating out: £221.14 – we tend to eat out with friends or get takeaways with some bottles of wine. Not sure if this is really crazy….
£214.45 per month on discretionary spending…. This might be cloths/ makeup etc which my wife tends to buy or a lamp…
I also pay approx. £350 on repairs and maintenance for the four properties currently.
Insurances are approximately £910 per annum too. (76 per month)
Holidays: £8216 per year. We have spent an a lot last few years on these! (£685 per month)

Monthly Spend: £3565.59
Net savings is roughly = £2,691.41

Assets:

Home: £650,000
Old home which is rented: £220,000
Flat one £125,000
Flat two £135,000
Cash: (Amount my wife and I have) £72,214
Car 1: My car I have had it for 9.5 years worth £2,000
Car 2: My wifes car which is 4 years old worth £6,000
Assets: £1,210,214

Liabilities:
Mortgage on Home: £334,000.  £991 per month over 35 years at 1.14% (this is principal and interest)
Mortgage of Parents home: £94,000. £200 per month (but I overpay by £467 a month I have classed this above as savings) £1.69% Total payment is £667pm
Mortgage on flat one: £71,500. £160 a month interest only 2.49%
Mortgage on flat two : £73,500. £160 a month but I over pay by max of £630 so total payment is £790pm. (I have classed overpayment as savings).
We do not owe anything on our cars, loans or credit card debit.
Total liabilities: £573,000.
If I include loan from sister its £743,000.
Net assets: £467,214.


Specific Question(s):


I haven’t really given you context on what I want to achieve. We want financial independence to give us the confidence to do what we want and be able to provide a secure future for not just me or my wife but for my family. I want to be able to repay my sister and have the additional time to be there for her and my folks too. I want to be able to see my kids (if and when I have them) grow up and help shape them into the people they become….
Saying all that I want to make sure I haven’t gone too far into debt, that I can still make financial independence before I get too old and that I am not a loon for aspiring to what I want.
I always thought 8 fully paid off rental properties would be enough but with an income of £575 per month each between my wife and I to continue to travel and ensure financial security etc.
To buy a flat in the UK you need 25% deposit to get rates at around 2.49% with yields approx. 6% for properties in good areas which require tend to have good quality tenants. Properties tend to be £100-125k).

I am really hoping people don’t judge me in a negative way because of the current situation I am in and look forward to reading the responses.

marty998

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Re: I need some assurance i am not a nutter and on the right track!
« Reply #1 on: August 15, 2018, 06:51:25 AM »
You've provided a lot of context but in saying that, the cost of living and tax rules between the US (where the majority of readers are) and the North of England is very different. Consequently you are going to be limited in the number of responses that have appropriate applicability.

I like that you are acquiring assets with cheap debt. However you have 72,000 cash on hand? That seems rather large but I assume you will be using that as a deposit for more properties?

lalman

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Re: I need some assurance i am not a nutter and on the right track!
« Reply #2 on: August 15, 2018, 07:12:15 AM »
Thanks for the reply. 

Yeah I thought I would be limited in applicability.... to be honest if i get a general guidance given the level of expertise it would be great. i.e. the good, the bad and the ugly.

I have a good credit rating and wouldn't borrow at high interest rates, I was thinking of moving as much debt onto my home mortgage to gain on the difference between my home mortgage 1.14% and BTL mortgages 2.49%.

I was thinking of purchasing a further 2 properties over the next 2 months with a down payment of £30k each whilst maintaining an emergency fund of £30k.... by the time i get to it. Happy to hear thoughts on this...


UKstache

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Re: I need some assurance i am not a nutter and on the right track!
« Reply #3 on: August 15, 2018, 08:58:04 AM »
Thought I'd say hi since I'm in the North of England as well, and like you I have rental property, also salaries are similar.

Not sure exactly what you're asking? You have way more leverage than me, but if you're happy with that risk for increased returns then go for it!

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Laura33

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Re: I need some assurance i am not a nutter and on the right track!
« Reply #4 on: August 15, 2018, 09:10:46 AM »
I don't know anything about UK taxes or RE, so take my advice with a giant spoonful of salt.  But I know that many, many people reach FI through RE ownership, so I don't see anything fundamentally wrong with your plan at all.  I would suggest hanging out on the RE investment board here -- there have to be a number of UK landlords there.

My biggest piece of advice is to watch the leverage.  Right now, your plan looks very solid; interest rates are low, so you are able to clear a lot from the rentals.  But I recall reading here that the UK doesn't have the same 30-year fixed-rate mortgages that we do in the US, and that you can only lock in a rate for 2-3 years.  So what happens to your plan if interest rates increase 5-6% over the next 5-10 years, and rents don't increase very much?  You have a good savings rate, so you can cover the payments, but it would set your plan back (the rentals themselves are probably fine, but you have a honking huge home mortgage that would cost you a lot more).  Make sure you are ok with that downside risk before you dive in further.

In addition:

- Make sure your rental plan includes a healthy budget for home maintenance and repairs, and that you account for vacancy in your future plans. 
- What happens when you have kids?  I assume one of you will take leave for some period, and that that will affect your savings.  I am guessing the grandparents will provide child care?  But what happens if your DW wants to go part-time, or if the grandparents aren't physically able to play a big role?
- I would max out any tax-sheltered retirement plans first.  Again, I don't know what the UK rules are, but I am a big fan of not putting all my eggs in one basket.  If you have a nice cushion in investments, that can help carry you through poor rental markets, and vice-versa.

Overall, you guys have a great income and a decent savings rate.  The giant black hole of money is the house.  And yes, I know you need a bigger house for the grandparents, but a 650K house is a lot -- and come on, don't kid yourself that you needed to spend that much in the N of England to find a place that had 4-5 bedrooms.  And that size house also comes with much larger utility and maintenance bills.  But all that said, you have made it clear that that is non-negotiable, and I completely agree that people should live according to their own priorities.*  So if a big honking house is your priority, and you are willing to accept the additional years to FI that it costs you, more power to you.  As I said, you have a decent savings rate even with that big expense -- and far more than the average citizen -- so as long as you keep the lifestyle costs low, you are putting yourself in position to be in good shape in the future.

*Ask me about my StupidCar.

Tuskalusa

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Re: I need some assurance i am not a nutter and on the right track!
« Reply #5 on: August 15, 2018, 09:14:30 AM »
Hi There!  I’m from the US too, so I’m not familiar with the tax laws. In general, I think you have a solid high-level plan. Your expenses appear to be under control, which is great.

As for the debt, I think that if you intend to pay your sister back, you should include that as part of the plan. Right now, it’s kind of a side note. I would recommend calculating a monthly payment amount, based on your target payback period. If you would prefer to pay your sister a lump sum, open up a savings account and deposit a monthly amount in there. This will give you a more accurate picture of your total debt and monthly carrying costs.

It looks like you have a solid plan to pay down your debt. I think the key to FI for you would be to focus on paying down debt so that you could eventually let go of your jobs and live off the rental income.

On another note I think it’s awesome that you have a tight-knit family that supports each other and wants to be together.  What a blessing!  Enjoy!  :)

lalman

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Re: I need some assurance i am not a nutter and on the right track!
« Reply #6 on: August 16, 2018, 02:37:35 AM »
So many positive comments thank you. I have replied to afew of the points - appreciate everyone is busy so not expecting a reply!!!

UKStache - awesome, glad there are fellow 'north of England'ers' here.

Laura33 - So this is a concern of mine too (leverage) Currently and until I am FI I won't be taking any income from the properties, and instead using any income to pay down the borrowings. I am looking to add more to the portfolio but until I find suitable properties I will be adding to my stash and continuing to pay down the borrowing on my BTL's primarily (as they are the highest rate of interest).

Yes the UK we can only lock in for 2 or 5 years. My mortgage products are coming up to remortgage in April 2019 (3 out of 4) so I will be locking into 5 year deals as it looks like we are going through a tightening cycle and I want to reduce uncertainity.

Your additional points:

1. Agreed - I am keeping £30k a side for any emergencies and costs
2. Kids - very good point. I don't know how much kids cost and my wife does eventually want to go part time (which is why she is motivated by FI too).  I probably need to think about this a little more....
3. We both max out in terms of what our respective companies match but we don't max max out contributions. I don't know what the rules for this are in the UK so will take a look thanks!
4. Our house.... yes I am kidding myself for sure.... but I did it with open eyes. We were willing to delay FI for our dream home and the debt which it is built on is my biggest worry and biggest delay to FI for sure. What are your thoughts on releasing 20-30k and moving that to reduce the BTL debt to make the marginal gain on the interest rate?


Tuskalusa

Paying back my sister - definitely. I was thinking of opening a account in joint name with her and depositing money regularly. Starting low and building up as my income increased from passive income.

cerat0n1a

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Re: I need some assurance i am not a nutter and on the right track!
« Reply #7 on: August 16, 2018, 03:27:02 AM »
Hi,

You might also want to post a link on the "UK Tax board" which is where the British posters mostly hang out (and we don't talk about tax that much..)

https://forum.mrmoneymustache.com/uk-tax-discussion/

Sounds like you have a very good grasp on things and well on track to do well. One possible area to look at further might be pensions. Once you get to income of £45 000 (higher rate tax), pensions are a particularly good deal. If you contribute £60, your pension ends up getting £100 because the 40% tax you would have paid is credited back (slightly more complicated than that in actuality - your pension gets the basic rate tax automatically and the higher rate tax you get through tax reclaim).

While Nest is pretty reasonable, you can potentially do better with a self-invested pension (SIPP) and a low cost index tracking fund.

£8k a year on holidays? Ouch. How is that possible? We're a family of four adults who take a lot of long holidays (month in South America last year) and would still struggle to spend that much.

Linea_Norway

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Re: I need some assurance i am not a nutter and on the right track!
« Reply #8 on: August 16, 2018, 05:22:43 AM »
Hi.

There are 2 things in your story that I noticed in particular.

Your sister paid for the big house that you and your parents live in and you want to pay her back. You and your wife are going to be the caretakers of your parents in their old years. Don't you think that the amount of work of being a caretakers of old people represents a lot of value? The alternative would be to put them in an old peoples home. I think your sister appreciates a lot that your are willing to do this yourselves and maybe this money compensates for this effort. As she also don't need it back at all and doesn't want it back, I think you could just accept it with good conscience. You will make up for it in the future.

You holiday costs are insane (facepunch). Find some cheaper way of spending your holidays. Maybe not fly to the other side of the world. Find last minute targets somewhere in Europe. Go camping. The Lake District is beautiful, go hiking there and camping. Whatever, but reduce this cost.

Chrissy

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Re: I need some assurance i am not a nutter and on the right track!
« Reply #9 on: August 19, 2018, 08:53:03 PM »
Have you truly listed all of your expenses? 

Groceries? 
Electric, gas, water, trash...? 
Entertainment:  internet, music subscriptions, television programming, movie rentals...? 
Hobbies, like gaming or collecting?
No one has a gym membership?

Do your parents contribute financially to the household?  Presumably, since you're 3rd gen, they worked and qualify for employer & government pensions, and have money coming in... though I do understand if it's used to support their own parents or aunts/uncles. 

lalman

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Re: I need some assurance i am not a nutter and on the right track!
« Reply #10 on: August 20, 2018, 03:44:19 AM »
Really appreciate the continued constructive replies. AI know you are lovely people!!!

Linda:

Yes lol - definitely facepunch for holidays... I need to rain it in. Here is my excuse.. my wife is born during the school term and we have gone on holiday to celebrate it last few years.... definitely a stupid idea. We are trying to reform by not going package deals and going to start looking at holiday hacking.

I think you make a very valid point about my sister. Thanks for the thoughtful comments.


Chrissy:

Very good points.

Groceries and bills my folks cover and I cover insurances and mortgages. My dad covers internet but we don't have music subscriptions (we steam via our phones from Youtube), don't rent movies - sorry I forgot to include the £7 for Netflix.

Tbh Chrissy I am quite boring! I don't have gym membership or part of clubs/ gaming etc... I don't own a game console but do read quite abit online and like going for long walks... I am old before my time!

My mum still works as an Administrator and my father is retired through ill health. She has a salary of 24k before tax and my Father has approx. 14k and they have their own savings too (approx. 40k). They want to cover the bills.... strange as that sounds but as we build up the portfolio I will try to take some of the burden from them, although they don't see it as that.

Ihamo - that is awesome and it must be easy for you to integrate when you have been through that yourself too....

1. Definitely something I need to tackle as the time comes along. I don't have kids yet but I have had this discussion with my wife. Her biggest concern is she wants to bring up our kids differently and obviously my parents will have to abide by those rules too...

2. My sister would help, but you are right once again. I potentially would need some sort of help or hopefully be financially independent at that point to be able to provide it myself.
Our home is flexible enough now to be able to have a shower downstairs and potentially a bedroom if required so if my dad can't get up and down the stairs we should be okay.

I may need to build a larger emergency fund as time goes on though for this...