tjh290633 wrote:I thought that those who really made money from Buy-to-let used their free cash to buy more properties. That is, of course, again using an interest-only mortgage on each new property. Mortgage interest is (or was) tax deductible.
TJH
I think he has been sold a financial product,one of the reasons I stopped investing in property in the 1980 s and moved to shares.The scam artists here moved to the UK after saturating the market here.
The interest only maximises returns for the lender and product seller .Using Australian rules on a house I bought in mid 1980 ish.Interest is a deduction here.Capital growth is not really good in real terms,say 4 years wages to buy it back then,worth 5 years wages now,very disappointing.
Now the interest only bit,the mortgages were sold with numbers that were reasonably accurate.Future predictions etc.
Now the catch,borrow $80K interest only 30 years ago.Average interest rates across the period @ 10% or whatever number you are happy with.
30 years at $8K means you have paid $$240K,and you still owe the bank$80K.Sold on the basis of " tax deduction" you will pay less tax.Pay the loan off on a basic PandI mortgage and it costs less than $240 K and you own the house.
Today round numbers and not accurate,$ 20K in rent ,call it $6K in holding costs,$$4K in interest costs on the house ( $80K x 5%) then pay tax on the $ 10 K left ,terrible return.$7 K net on a house worth $400 K.
The product is sold on the basis of buy another house 5 years later using the equity in the first house.Same again 5 years later.After 20 years you "own" 5 houses.They are worth $2 million.The debt is probably $700K.Adjust it accordingly if you like.
Gross income $100K.Interest payable $35K. Leaves $ 65K to meet all other costs.
I would be doing what I did all those years ago,look for something else to invest in.