Hello and welcome back to Mortgage Advisor on FIRE. This week’s blog is not what I intended, and the change of plan is simply down to exhaustion. I had planned to show how I generate my spreadsheets, and highlight some of the calculators I’ve put together to help analyse property deals. So, this week’s blog has no Quote of the Week, for which I apologise. Basically, this isn’t my best work. I’m really selling it this week, aren’t I?
I’ve been so busy this week I’ve barely had a chance to pause for breath. Between my day job, dealing with the BTL issues we have at the moment, answering the surge in social media messages I’ve had following the article in The Telegraph, and my girlfriend’s birthday, the week has flashed by.
A few weeks ago I mentioned that I’d had some tests that involved me swallowing a radioactive pill, which was investigating the IBS-type symptoms I experience. The test came back negative, which means they don’t have a clue what’s causing my symptoms. It’s probably just because I’m overweight and stressed. I’m going to make an effort to get back to the gym in the coming week, so wish me luck.
Now that I’m over Covid it has been nice being able to get out and about. I met my Dad on Thursday for a coffee. We had a good catch up and he’s coming over on Sunday for lunch, and then we are going to see the new Spider-Man film with my girlfriend. In preparation for the movie, my girlfriend and I have watched the two Andrew Garfield films. I’ve seen the first one before, but it wasn’t as bad as I remembered it. I also enjoyed the second one for what it was; just a fun action film.
On Saturday we went for a meal with my Mom and her husband. This was both a belated christmas meal, and also to celebrate my girlfriend’s birthday. My steak was decent but not as good as normal. The main thing was the company, and having a good laugh over food.
On Thursday we collected Bobby’s ashes. He is now resting next to Sweep’s ashes. We’ve been fortunate to have two amazing cats who have brought love and happiness into our lives. It’s heartbreaking losing them, but we have lots of great memories. We have decided to give another older cat a home, and have provisionally adopted a sweet lady from a local animal charity. We are just waiting for her to have some final checks at the vet and we should be bringing her home before the end of the month.
A Brief Interlude
I’ll never hide this blog behind a paywall, but it does cost money to run the site. I spend a minimum of six hours each week writing the blog, and maintaining the other parts of davidscothern.com. It is a labour of love. However, many of you have asked how you can show your appreciation. I set up a Buy Me A Coffee page but the main feedback was that you couldn’t pay by card. Well, now you can! My page now supports card payments and Apple Pay. So, if you want to show your support and appreciation for the content I create, please buy me a coffee.
2022 Goals – to be achieved by 31/12/2022
1 – Reduce weight to 90kg. (Current weight 126.1kg).
2 – Complete 10 “classic” books.
- Crime and Punishment by Fyodor Dostoevsky (1866)
- Moby-Dick by Herman Melville (1851)
- Dracula by Bram Stoker (1897)
- Catch-22 by Joseph Heller (1961)
- The Iliad by Homer (8th century BC)
- The Count of Monte Cristo by Alexandre Dumas (1844)
- War and Peace by Leo Tolstoy (1867)
- A Tale of Two Cities by Charles Dickens (1859)
- Les Miserables by Victor Hugo (1862)
- Don Quixote by Miguel de Cervantes (1605)
3 – Read 10 authors I’ve not read before.
What Am I Doing?
What I’m reading: Firefall by Peter Watts
What I’m listening to: Prime: Chess Team Books 3.6 and 3.7 by Jeremy Robinson
What I’m watching: I’ve just finished The Expanse.
I’m not far enough into Firefall to pass much comment as yet, but the blurb has me intrigued. I’ll say more once I get further into it, but it’s a massive tome and could take me a while. I’m still enjoying the Chess Team series. It’s great fun and I’m intrigued as to where Jeremy Robinson will take the story.
I was gutted to see The Expanse series finish. The show has followed the books until the end of Babylon’s Ashes; the sixth novel. However, it’s not looking likely that books 7-9; Persepolis Rising, Tiamat’s Wrath, and Leviathan Falls, will be adapted for the screen. What we have is still an excellent show though. The story of The Expanse is almost like a trilogy of trilogies, with books 1-3, 4-6, and 7-9 being the beginning, middle, and end of a larger story. Ending the show at the point book six ends is a fairly satisfying ending, but I can understand why those who haven’t read the books are confused by what was happening on Laconia.
Premium Bonds: £20,700.00 (no change from last update).
Stocks and Shares ISA: £47,285.88 (up £1,078.01 from last update).
Fuck It Fund: £2,000.00 (no change from last update).
Crypto: £618.57 (down £24.58 from last update).
Pensions: £52,421.01 (down £97.85 from last update).
Residential Property Value: £213,900.00 (up £3,842.00 from last update).
Buy-to-Let Property Value: £138,030.00 (up £2,480.00 from last update).
Total Assets: £474,955.46 (up £7,277.58 from last update).
Credit Card: £339.13 (up £236.12 from last update).
Residential Mortgage: £165,657.38 (no change from last update).
Buy-to-Let Mortgage: £92,958.17 (no change from last update).
Total Debts: £258,954.68 (up £236.12 from last update).
Total Wealth: £216,000.78 (up £7,041.46 from last update).
Investment Income in 2022: £25.00 (target £6,000).
The quarterly update to the index value of our properties was released this week. Both our properties increased in value. We had hoped to complete a further advance on the BTL but as we are between tenants it’s not possible. Once we secure a new tenant, we will be able to release some funds to put towards our next property.
My ISA continues to grow whilst my pension seems to be stagnating a little at the moment. My credit card balance is higher than last week but this is simply due to my payment not clearing in time for this blog. It should be down to zero, or almost at zero, by next week.
There are four pillars on which my FIRE plan is based. There is passive income from property, as well as income from stocks and funds. There is also the possibility of freelance work in the future. Last, but not least, is my pension. FIRE, for me, isn’t about giving up all work and just sitting around doing nothing. The main reason I want FIRE is so that I can say “no” to any work I don’t want. I desire the ability to work when I want, how I want.
The income from property is seen as a way to generate large amounts of passive income relatively quickly. In the meantime I will continue to invest into my ISA, as well as reinvesting all dividend income. So, as my property income is taking care of the present, I am also building up a solid amount in my ISA for the long term which will supplement my pension.
Investing in an ISA and/or pension for the long term is viewed by most in the FIRE community as the safest and most conventional way to achieve FIRE. Investing in property is typically viewed as too much hassle, or too expensive for little reward. Some people object to owning property on moral and ethical grounds, but I find this confusing because those same people think nothing of using smartphones or other modern tech which is heavily built upon the exploitation of those in developing countries. Many critics will also have cars which contribute to global pollution, but I digress.
Property comes with risks, such as the changing tax landscape, and the possibility that tenants will not pay, being two major concerns. However, all investing has risk. Not investing at all also comes with risk. Risk is inevitable. The only thing we can do is mitigate the risks we are willing to take.
Long-time readers of this blog will recall times when I’ve discussed the BRRR model of property investing. Depending on who you ask, this method can be termed BRR, BRRR or even BRRRR. I’m talking about a type of property investing that follows the process of; Buy a property below market value, Refurb the property, Rent the property and then Refinance; BRRR.
In an ideal world you would secure a property at a great price, allowing you to complete some modest work to increase the value of the property. I’ve blogged before about how I find the practice of Direct-to-Vendor marketing to be morally and ethically wrong. I would never take advantage of someone financially or try to “get one over” on an unsuspecting vendor. There are, however, times when a vendor may be happy to sell quickly for a reduced price, such as when a couple are divorcing, or where they can no longer afford the mortgage and need to repay the mortgage, or the property forms part of an estate and the beneficiaries cannot afford ongoing council tax, utilities, insurance and general maintenance. Although buying BMV is ideal in this situation, the BRRR model can work when buying at, or around, market value.
Example (note that I’m not including things like SDLT or insurance. I acknowledge these things exist and include them in my real world calculations, but for the sake of the example I want to make this as simple as possible):
Property for sale at £150,000.
It needs work to bring it to a rentable condition. The estimated cost is £20,000. However, after the works are complete the estimated property value would increase to £200,000.
You secure a mortgage at 75% LTV.
Deposit and cost of work: £57,500.
Mortgage balance: £112,500
Now that the property is worth £200,000 you approach your lender to complete additional borrowing, or you switch lenders, depending on which is most appropriate. Note: you normally have to wait six months from the date the property was acquired to complete extra borrowing or a remortgage.
£200,000 x 75% = £150,000.
£150,000 – £112,500 = £37,500 released from the property.
You then use the funds released from the first property to put down as a deposit on the second property. The best scenario is where you can release all your original investment, but this is quite unusual. Normally, you can release a decent proportion of your original funds though.
Using this process, you can acquire multiple properties without needing to save a full new deposit each time. As you let each property out, you can also use surplus rental income to help build your funds for each subsequent property.
For anyone who has surplus funds to invest, this model is open to anyone. It’s not just something a mortgage advisor can do. There’s no hidden set of rules here. Money is a game, and the rules are available for anyone to view. You just need the motivation, and the funds. Yes, it sucks that some people are struggling financially. However, there’s no dignity or honour in me not investing the money I do have, just because other people are in a worse position.
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You can still see Sweep’s Instagram @sweep_the_kelham_island_cat.
Finally, have a look at Darren Scothern’s fantastic blog at darrenscothern.com.