mimi lopez

Why does my BTL project not seem to work?

Recommended Posts

Hi All,


I am very eager in getting into property investment however the more research I do, the more disheartening the venture gets!


I have created an initial spreadsheet to reflect the costs of the investment and the income to help me have an accurate picture of what to expect and to help me decide on one property or another.


I am quite resourceful and I should be able to do things myself which will be able to help me cut costs yet still, the numbers don't add up! What am I doing wrong!?


I have a cash capital of £73,000 and in order to avoid broker, surveys (my partner has got building background and will be able to assess the property for me) and mortgage application fees, I am considering a property that I could buy with the help of a personal loan which I could get for a period of 3 years and a total of £25,000 at a 3.4% APR. I will also borrow £15,000 from my mum. 


With my £113,000 budget, I am looking at a property in Edinburgh that is in the market for £98,000 and which with £10,000 I would be able to convert from 1 bedroom to 2 bedrooms and bring it to quite a good modern standard (I would be doing the works myself). Providing that I would be able to buy the property for £98,000, and that I would be managing the property myself, I have done some calculations below. 


One more thing to say is the property is a council type building unlikely to gain value overtime. Having looked at the CGT, and taking into account that properties in more desirable areas and subject to gaining in value are above my "cash" budget, I have for now ruled out this strategy.


I am currently in employment on a 1040L. I am unsure if my employment earnings are affecting the income I calculated below.


All in all, the figures I am looking at are the following:


With a £113,000 cash budget, I'm looking at £4,508.88 annual earnings. Taking into account the investment, the financial strain with my repayments and the amount of work I will put in taking into account that as well as doing the refurb I would manage the property myself, this seem an incredibly poor reward. Am I missing something? What am I doing wrong?


Many thanks for you help and advice,



Purchase price Solicitor Broker Surveys Refurb LBTT Price after expenses Interest Mortgage/Loan Landlord registration HMO License Rental Income Rental expenses Rental Income tax Net rental profit
98000 1000     10000 2940 111940 36.43 1.83   900 209 277 375.74

Share this post

Link to post
Share on other sites

Hi Mimi


I think your returns are being compromised in a couple of ways potentially:


1. If you are assuming no / low capital growth, then whilst the gross yield is quite high at c9.6% based on your total cash investment, your tax rate is taking quite a big bite out of the resulting rental profit. Higher-rate taxpayers might be inclined to look for a combination of capital growth and rental income, therefore. An alternative could be to consider a company structure to limit the income tax deduction BUT this is not always the case, especially if you need to extract the net profit for living expenses as it would then attract a personal tax charge. If you invested through a company then at least the first £5k pa (under current rules) deducted as a dividend would be tax-free, though. Tax treatment and legal structures can be a tricky business however and so it is best to set things up based on long-term goals and plans, see this podcast episode for more insight on that: http://www.thepropertyvoice.net/property-financing-raising-saving-money-tax-efficient-business-structures-s3e15/


2. You are not using all of the potential 'leverage' available to you here. I guess this is because you are effectively borrowing money to top up your cash funds. However, you could probably buy two of these same properties using a BTL mortgage, with no additional borrowing i.e. no (loan or money from Mum), with a far higher net yield after tax. I estimate c£5kpa on £70k cash funding or 7% ROI versus c£3.6k on £73k (3.2% ROI) personal funding but here you also with a high repayments loan and debt to Mum to settle off at some stage. Technically, the personal loan and money from Mum would be available to fund a third project similar to this in fact, but I am not sure a lender would allow you to fund a deposit through a personal loan (money from Mum could be a gift).


I have lots of resources and also good value training that walks you through this kind of analysis on my website, see here https://www.realworldpropertytraining.com/ and in signature below: if you would care to take a look...in particular iKickstart springs to mind as we share all the analysis tools I used to do this analysis above in that.

In conclusion, look at a more tax-efficient way to invest in property and look into how best to use leverage to your advantage...there is good debt and bad debt after all ;)


Hope that helps,




Share this post

Link to post
Share on other sites

Hi Richard,


Many thanks for your response. Very eye opening. I'll go through the podcast and your website over the weekend.


Thank you again for your valuable advice.


Share this post

Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now