Reader Case Study: Advice on 10 year plan UK based (pubescent stash)

[Qwerty]

Income (annual): £3700pm
His £51,500 (after tax, NIC, pension, child vouchers, season ticket) £32,592 take home
Hers c£18,500 (after tax, NIC, pension, vouchers, bike loan) £10,800 - 3 days per week
Plus £1,600 child benefit

Current expenses (monthly):

Before take home
Season ticket loan A   76
Season ticket loan B   131.33
Childcare vouchers 486 (deducted before tax)
Bike   loan 35
His Pension payments 326 (defined benefit, civil service)
Her Pension payments c.100 (defined benefit scheme)

Fixed:
Boys swimming 53
Boys Violin lessons 19
Her gym   19.99
Broadband   20.38
Mortgage   1068 (18 year repayment term currently on 2 yr fix at 2.49%)
His life insurance 11.82
Her life insurance 20.35
Electric+Gas   80
Boiler insurance   21.2
Council tax   168
Private health 99 (his and boys - hers via work)
His mob   37.2
Her mob    17
Home insur8   22.66
Water 8   39.78
Car insurance   65
Cat insurance   6


Variable:

Giving: 35
Emergency fund: c.700-1000
Fresh Groceries   100
Her Expenses   130
His Expenses   115
boys misc Expenses   50
Online Groceries   225
Cat   25
Petrol   35
Childcare   additional cost 210- 310pm
Monthly sinking fund 100 (covers doctor, dentist, car and house repairs)

Expected ER expenses: As above less the £1k in childcare, £1k in mortgage payments and £1k in monthly savings

Assets:
House - value c.£400,000, mortgage £185,000;
Emergency fund savings: £1,000
Boys college funds:
Car value: £2000 (paid for Suzuki)
NPV of four pension funds £53,000 - all tied up until retirement age

Liabilities:
Debt £0 (paid off £40,000 in last 30 months)

Specific Question(s):

Here's the deal. Our boys are 3 and 5. Wanting to move somewhere a bit greener, away from London, where there is a strong community. In love with Lewes in East Sussex because of folk traditions, good schools, proximity to green hills and coast.

My game plan to get financially independent in 10 years or so is:

1. build up a £15k emergency fund in cash.
2. sell house and buy somewhere c. £270k needing work
3. invest £120k freed up from equity into 2 modest but high yield flats with £60k mortgages each. Let the rental income pay off the respective mortgages and manage the properties ourselves.
4. pay off new mortgage (about same level) within 10-11 years
5. build up an ISA stock/shares account c. £250k in 10-11 years
6. in year 10 we both downshift to c.£25k p.a. household income and hope for £7k p.a. from 2 paid for rental flats and £10k p.a. from ISA investments. I'll be 46. We'll cruise like that until full retirement age when our normal pensions kick in.

My questions/concerns as follows:
- obviously, how do the figures stack up? other strategies?
- how can we ensure quality of life during the prime of our kids' childhoods?
- has anyone else here in the UK done this successfully?


many thanks mustachians!

[daverobev]

Ok so a bit over 40k income, say 3.5k a month?

Expenses of.. well I think you need to break that up more - presumably the pension stuff comes out before take home? Not sure about childcare vouchers either.

Boiler insurance, really? 240 quid a year, new boiler is ~1500? Or is that including servicing and everything? I'd (personally) cancel that.

Life ins - you just need to check it's needed, and that you don't have enough assets elsewhere to cover your children's education and care until they reach 18 or so - otherwise it's money wasted.

ISA - as you know, if you don't use it you lose it. Not sure how good your DB pensions are but if they are good - maybe not worth the hassle of investment properties? Self managing can be done but is hassle. MUCH more hassle than shares, tax free in an ISA... Yes, leveraging, I know. But returns in the UK.. well.

Actually - you're saying 2 flats for 240k total? And 7k *profit*? Hmm. That's pretty bad. You'd be better putting the money into an ISA there too - assuming 4% SWR, 240k would get you almost 10k. I have house that rents somewhat better (percentage wise) than that, so you may be able to do better, but honestly it isn't worth it - if I knew then what I know now I'd have shoved all the money into stocks.

Alternate plan:

Sell 400k, less mortgage leaves you 220k

Buy new house for 270k - 100k mortgage leaves you 50k to invest in your ISAs now (well - 20k - rest goes taxable).

Pay off mortgage in 10 years but this will leave you much better, cashflow wise in the mean time - INVEST THAT MONEY. So you have your 50k immediately plus the 250k you'd already planned to invest, plus all the free cashflow and compounding. Guess half a mil? Then you have a passive income of (0.04 * 500k) = 20k

Season ticket and bike loans? That is > 5% of your take-home...

Her gym - go for a run, bike ride, etc!

[Qwerty]

Thanks!

I updated the info above which I hope clarifies things
I've wondered about boiler insurance which covers all call out servicing of our old boiler. It's on its last legs so I'm hoping it will cop out and they will cover us a new one

Life insurance is needed , no other assets to cover us

The properties are figuring on a 6% yield which is ok for uk. £7k each per annul but after tax and mortgage interest it is 3500 left as profit

There is no £240k to invest now, the two flats were premised on 50% mortgages

Season tickets are a necessity for our current set up. London trains a killer. Bike loan is the tax free cyclescheme which is equivalent to 50% off so expensive but good value

Hope this clarifies things , affect your suggestions?

Appreciate your help!

[daverobev]

Ohh it's a tube ticket, gotcha! I was thinking football or something!!

Boiler - hmm. Well, that's tricky. Fingers crossed for a catastrophic failure then, and a new boiler at which point cancel the cover. Check they will replace with new, though!

The 250k was your point 5 - that you were planning on saving up already.

Not sure what mortgage rates you are figuring in for the flats - bear in mind BTL mortgages are much more expensive than homeowners. As in, 7-8% (last I looked).

Again, from experience I'd probably avoid UK real estate, but it's your call. Perhaps if you can get a bigger mortgage on your new house you can just buy one flat outright (I know you don't get tax deduction on the mortgage that way, but... hmm are you higher rate tax payers? Tricky - you'd need to run the numbers - but if the BTL is going to cost you 8%, you should probably avoid it entirely if you can...)