How to use the calculate retirement information page

This page describes what the 'Calculate retirement information' button does, and what the various numbers and options mean. All financial figures shown are in GBP.

Results

The system is designed to show at what point in the future a given portfolio of investments will be debt-free and able to provide a certain level of income. It does this by calculating when there will be enough equity in your accelerators, after capital gains tax, to sell them and pay off the remaining mortgages on your generators. This leaves your generators wholly-owned, debt-free and providing a guaranteed source of rental income.

Income

The level of income quoted by the system is shown in both real terms, which will grow at the rate set by your rental growth assumptions, and nominally in today's money - that is the level of rental income which the generators will provide today. Using today's money makes it easier to understand and compare to other investments.

There may be an additional cash lump sum returned, which is the excess equity from the accelerators over and above the mortgage level of the generators.

Years and months

The years and months show at what point you are technically able to sell your accelerators to pay off all remaining mortgages, and receive a tax-free cash lump sum if selected in a pension portfolio. This figure is the same whether you choose to sell the acclerators at this point or not.

Investment required

The paragraph on investment required will show you the initial, peak and final investment required to purchase all the properties which you do not already own. It will also show you how much it cost to buy the properties which you do own.

  • Initial investment required - this is the sum of all the costs (finder's fees, mortgage deposits etc) needed to buy properties today.
  • Peak investment required - this is the maximum level of investment you will have to make to purchase all the properties in the portfolio. The system will also tell you at what point you will have to meet this figure.
  • Final net investment required - this is the sum of all costs to purchase property minus any capital you have raised by releasing equity through refinancing properties. A negative number means that you have withdrawn money from the portfolio and not reinvested it in another property.

Retirement age

This paragraph translates the years and months result into your actual age at that point. Pension portfolios will always show at least the minimum legal retirement age, currently 55, as you cannot withdraw money from a pension before that.

Internal Rate of Return ( IRR )

The Internal Rate of Return is a commonly-used means of comparing different investment opportunities. It is the discount rate which makes the present value of an investment's future income stream total to zero. Generally, the higher the IRR the better the investment. An excellent tutorial is available from the University of South Carolina.

Charts

Accelerator equity / Outstanding generator mortgages

This chart plots the current level of available equity in your accelerators against the mortgage level on your generators, including any properties you may have designated as homes. The point at which the graphs cross shows the possible retirement date - i.e. the point at which you could sell all the accelerators and have enough money to pay off all remaining mortgages on generators, leaving you with a debt-free portfolio. The equity shown in the acclerators is the figure after capital gains tax, or corporation tax for company portfolios, has been deducted if appropriate. Pension portfolios are exempt from capital gains tax.

You should expect to see the mortgage level curve downwards in portfolios where you are repaying the mortgages through some means. In portfolios where all properties are on interest-only mortgages, then the line will be flat. You should expect to see the level of equity in your accelerators trend upwards if you are assuming positive capital growth.

Net rental profit before tax

This chart shows the annual and cumulative rental profit from the portfolio. The figures shown are taken after any costs associated with the portfolio (service charges, management charges etc), mortgage interest and, optionally, capital repayments have been paid, and they are shown before tax has been deducted. Tax is, however, calculated at your assumed personal marginal tax rate, or at corporation tax rate for company portfolios, on any capital repayments made.

For company portfolios, the rental income shown has had employers National Insurance contributions deducted where appropriate, but has not had either employee NI contributions nor personal tax deducted.

Cash flow of planned purchases and refinancing

This chart shows the flow of cash which you need to invest in the portfolio to buy properties and any equity you have released from properties through refinancing. These numbers equate to the initial, peak and final investments required, described above.

Options

This section describes the various options available for changing the behaviour of the system.

Sell accelerators to pay off generators?

Ticking this option means that, as soon as the equity in the accelerators is enough to pay off the mortgages on the generators, the acclerators will be sold and the mortgages on all properties will be cleared. This may return an additional cash lump sum over the required amount to pay the mortgages.

Unticking this option means that the acclerators will not be sold, so their rental income will be added to that of the generators in the rental income chart. It should be noted that the interest-only mortgages on the accelerators will remain unpaid in this case.

Use excess rent to pay off mortgages?

Ticking this option will pool all available rental income from all properties, after running costs and mortgage interest have been paid, and this will be used to pay off the most expensive mortgages which are set to net balance repayment, subject to any minimum and maximum repayment requirements on each property. Properties whose mortgages are set to interest-only or fixed term repayment are not affected by this setting.

Unticking this option means that each property is responsible for paying off its own mortgage. Properties on net balance repayment mortgages will use as much of their own rental income as possible, given minimum and maximum repayment restraints, to pay off the capital on the mortgage. Rental income from properties on interest-only or fixed term repayment mortgages, and any unused excess from properties on net balance repayments, will be withdrawn from the portfolio and shown in the rental income chart.

You should tick this option if you want the portfolio to be debt-free as soon as possible. You should untick it if you want to earn an income from the portfolio now and are prepared to wait longer for it to be debt-free.

Show rental profit in today's money?

Ticking this option will deflate the figures in the rental income chart by your inflation assumption.

Unticking this option will show the rental income figures as they are projected to be according to your rental growth assumptions.





 
 
 
     
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