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I need some assurance i am not a nutter and on the right track!

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lalman:
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:
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:
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:
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!

Sent from my Moto G (5) using Tapatalk

Laura33:
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.

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