By UK Property Investment Expert Andy Shaw...

Why You May Need To Cashflow The Occasional Buy-To Let

There are more articles coming out at the moment warning buy-to-let investors that their investment properties may no longer be self-funding. Therefore once again trying to scare people off, off investing in property.

One such article I read the other day commented that 'Amateur Landlords who buy houses to let are no longer guaranteed a profitable return on their investment.' As we all know there are never any guarantees on property, which is why if done properly, property investing can be such a large return on your investment, if it was a guaranteed return then everyone would be doing it, and we don't want that do we.

Another comment he made was 'Other pitfalls include a tax on your profits.' Well that shocked me as in just eight words he managed to make a profit look like a bad thing.

The main point of the article was very true though, that people should understand that at times you may have to fund you're investment and if you are not prepared for that then you could get into financial trouble. It is very important to allow enough cash spare to ride out a storm.

Lets look at another investment we are all expected to take out and fund with no guarantee of return, a pension.

I am sure it cannot have escaped your attention that in order to fund peoples pensions the government are looking at increasing the age of retirement, they use the line 'We are all living longer now' as a way of selling this turkey to us. What is actually going on is the country is living beyond its means and one of the ways to get round it is to stop paying people their pension as early as they do as well as keep them working longer and therefore paying income tax for another 5 years, nice! Well its something to look forward to isn't it!

I personally think that in order to avoid this decision the government are going to make pension contributions mandatory for everyone. What that means is its probably going to come straight out of your wages, they used to call it 'Income Tax' but it'll have some new name to fool us, something like SSPC or 'State Secured Pension Contributions'. Which is a fancy name for Your State Pension, in other words they are going to take money off of you today wrap it up in a nice shiny package and give it back to you as your state pension in the future.

Anyway I drifted off for a minute there, that's enough of me banging on about something that might not happen as you never know the money trees that they planted last week might star bearing fruit one day.

Back to the point, in a pension you give money now in order that you will get more of it back in the future, sounds pretty simple. I like the 'get more money back in the future' bit, but I don't like the 'give money now' bit, or the fact that you have to rely on someone else to do 'you don't know what!' in order that they give you more money in the future. But nevertheless you are expected to just give up your hard earned for the promise of more money in the future.

If given the choice I would rather fund 1 of my investment properties by £150/mth than put £150 into a pension even bearing in mind that the government give you very large tax advantages to do so.

Lets say you own a property that's worth £120,000 with a mortgage on it of £100,000 and after all rent, management fees, maintenance of the property and voids you loose £1,800/year. Well according to the Centre of Economic and Business research you are going to make an average of 5.5% year on capital growth until 2020.

So that's 15years of £1800 loss = £27,000 (that I think you have put into a pension). That is against 15 years of 5.5% gain=£253,931 less £120,000 less £27,000= £106,931.

So if you fund your investment for 15 years, you never put the rent up to cover your loss, then you, without government backing will make £106,931 against their conservative figures for house price increases. The average in the last 35 years throughout the country has been approx 8% and that would mean £205,463.

Now I am by no means a pension expert but does anyone know any pension scheme that by putting £27,000 into would give you a pot of £205,463 in 15 years.

If you do, let me know.

Now I don't know about you but I would rather fund just one property by £150/mth than put £150 into a pension. Because I know what's going on with it and I can do something about it if a problem arises. What can I do if something goes wrong with my pension, write a letter of complaint maybe!

Lets say that after 5 years you took out £27,000 to fund the loss for the last 5 years and the next 10, what would that do to your return, nothing much, except reduce your pot at the end, so what do you think, would you be better off paying the £1,800/ year. Of course you would, if you can afford it, however, if you can't just refinance it and cashflow it in the meantime.

If you're investment is in property then, when you get to the point of drawing your investment out you don't have to buy an Anuity at 'whatever the rate is' at the time. You can choose what to do, sell, re-finance or do nothing, its up to you.

Buying Property gives you choice!

So the whole point is, loosing a little bit of money now doesn't matter as long as you can cashflow it. Also you manage to solve the journalists other point because as you have made a loss you haven't got the 'pitfall' of profits!

If you would like me to answer any more questions like this please continue sending in e-mail questions.

So are we clear you may have to fund the occasional buy to let, is that such a bad thing?

Hope this has helped! Good luck investing.

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