Hare brained scheme

[MrsWhisker]

My brother has come into some cash. Circa £250k.

He was telling me today how he plans to invest this money.

He wants to buy several btls that need doing up.

He'll buy them on an interest only mortgage.

He and his builder friend will do them up cheaply but well, IYSWIM. Saving money because they're doing this investment together, using the builder's expertise.

Then he says he will remortgage on the new value of now done up house. Again, interest only btl mortgage.

Rent it out and live off the monies generated but never paying off the capital.

So what happens when he gets to the end of the mortgage term?

He didn't seem to know.

Aibu to think paying off the capital is a really good idea? He didn't seem to think it was a problem.

Perhaps it's me being over cautious.

Yes I think he's being optimistic.

I think btl has become much harder. No mortgage interest relief so you pay full tax on the rental income

The usual plan is that in 25 years inflation has massively reduced the the mortgage so he can sell 1 or 2 of several properties and pay off all the mortgages. Historically that was possible. So if he'd bought 5 properties in 1996 at average price of £60k with a 60% mortgage he'd owe £180k. The average house is now priced at £200k so he'd only have to sell 1 of the houses to pay off the mortgage on them all.

But that's been in a time of crazy house price inflation. It was also when landlords got relief on many costs including mortgage.

It's not a terrible plan but the big risk is prices go up a lot more slowly. Then as you say at the end of the 25 years he is left with a big bill to pay off & may need to sell so many houses he hasn't got enough to live off the rental income anymore.

He's about 20 years too late with this particular wheeze. As a previous poster has mentioned changes to the tax treatment of btl plus the fact that prices are not increasing like they were makes this a much harder way to make money than it was.

There was an article in the guardian this weekend explain why BTL is pretty much done now. One month of a property being empty risks writing off any profit. Then repairs, and legal costs if people decide not to leave or wreck the joint are all an issue. Your bro needs to do some serious reading up on the risks and rewards. I remember something about limited companies being the way forward but no clue how that works.

Yes he's talking about doing it as a company.

properties, plural, with £250k? Recognising that he will be buying fixer-uppers, the sums will be interesting on these as they can't be in high rent areas.

with section 21 about to go and new electrical regs coming in (so hold fire on ANY electrical work until we know what they are, the legislation may have been badly cocked up) he could get really burnt.