Updating post from Reddit.
Hi all,
Looking to get my 2nd property soon with my partner, mortgage on my house is up in Jan so want to remortgage, take out as much as we can financially and maybe get a 2nd property with some £ leftover for some renos on my house. (Finances and affordability are all in line with what I can afford)
Main goal of this is pension / retirement fund (I’m self employed and we’re both 28 years old so want to get a head start where possible)
Is it worth it? Looking at houses for £250k with a 25% LTV and doing interest only, BTL mortgage would be roughly £948 a month and the rental income is roughly £1250-£1300 per month on a few properties that we’ve looked at. Currently my mortgage advisor is estimating that we’d probably break even or make £100 profit per month, because of the rates and once we offset the higher residential mortgage increase, however if they continue to go down, then eventually it could be a good money.
The plan would be to buy the property through a LTD company as myself and my partner are both on the higher rate.
Worth it? Is it a shocking idea? This is mainly for long term investment. Any advice on the market or recent / previous experience would be greatly appreciated!
So you’re looking to pull 62500 out of the equity of your own house to do BTL?
What’s the rate on a savings account these days? 5%?
That would net you £3000 PA in interest. Would that not be better?
And you won’t have to worry about renovating, maintenance etc. absolutely passive. Traditional BTL model unfortunately just does not stack up anymore.
Alternatively, the property you buy, make sure you add value to it (forcefully!!)
Or tenants not paying. Or the tax bill and the bill from the account for sorting the tax bill
There’s a reason for the collapse in the number of landlords
Never had an investment phone me up at 6am with a broken boiler, or have mould problems, or upset the neighbours either 8)
BTL is a business not an investment and it's increasingly (and IMHO rightfully) seen as a highly regulated safety critical one.
We'd still be paying more on our mortgage though? Roughly £400pm more, so that doesn't really make much sense. Plus if the rates on savings accounts drop?
So what you mean is you expect to clear about 500-600 profit a month? Then deduct 400 for your mortgage on your primary residence?
Yes! I'm looking at an overall basis across both mortgages, once we take into consideration our own mortgage going up, thats when profit is very minimal, if any, until rates drop. If you look at it on just the BTL, then we expect to clear about £450-£500ish per month profit.
Did you take the tax into account in these numbers? because remember that the interest isn’t tax deductible
It would be if in Ltd Co, but if it’s only £100 a month profit the accountancy and other costs will wipe that out.
For a single property it’s certainly not worth the hassle to setup a limited co
not disagreeing.
Certainly easier and personal mortgage is post tax so paying that off is a tax free return the numbers don’t make a lot of sense to me, even in a Ltd co bear in mind that even in a Ltd you still pay corp tax and eventually have to get the profits out and Ltd btl mortgages using TMW as an example are typically 80/90bps dearer.
Can you afford it if the tenants don't pay?
BTL is currently just not worth it any more , yes 24 years ago would be a good idea , but things have changed, good luck OP
We have done this for 3 properties we own over 13 years.
Our strategy is to not withdraw income from the LTD, pay no corporation tax and leverage properties to substantially reduce our personal mortgage.
We do this via the following:
We expense mortgage interest, Director Pension payments for me and my wife, and expense everything we can. Before going down the expenses route speak to an accountant so you don’t get this wrong. If you don’t have a specialist BTL accountant I can recommend one if you DM me.
Our property portfolio is worth around £1.2M, we are in the process of selling our old home to the Ltd which will make our overall LTV of 54%. This gives us some coverage for unexpected large expenses, void periods or tenants not paying.
I transferred properties to the LTD to pay off the personal mortgage interest 2017, now I am doing it again.
Another benefit of having the properties in an LTD is no IHT. Our strategy is now evolving so that we can both employ our children when they are 16 so that we can pull small amounts of money out for them (sub £5k) and add the add them as directors so they can have director pensions
Doesn’t it cost quite a bit to put it into a Ltd company if in personal name? I was looking at losing most of my equity
I think it’s just stamp duty from what I’ve seen. Could be wrong
Stamp duty and capital gains Although the latter can be deferred. I have both and tbh overall Ltd only works if you draw only directors loan and leave the profits in or as previous said pay into a pension. Legals, accountancy fees and higher borrowing costs take a good chunk so it only makes sense if you are dealing with bigger numbers imho I have a couple of London flats in Ltd but have left the others outside as the numbers weren’t good enough to be worth it and I wanted to keep the option to get gains on sale in my hand at 24%.
Accountants fees and the like add a chunk too. It's one of those things where you've got a bunch of fixed costs so if you are going all in then it can make a lot more sense than a single property.
‘just’ stamp duty. Have you worked it out? Plus CGT.
‘Could be wrong’?
My point is that you may find the stamp duty is rather more than you think, given the changes in the recent budget.
https://www.savills.co.uk/resources-and-tools/buy-to-let-stamp-duty-calculator.aspx
Far as I'm aware it's just stamp duty. Some lenders have higher product fee's which are added to the loan, but it's around £1500 currently.
I thought there was CGT to pay on the market value against what you paid though?
Your BTL should not be short-term and I assume you will keep it for at least 10 years.
Over 10 years the cost of selling to the BTL easily breakeven from the costs of keeping the BTL as a private rental.
When I did it in 2017 I forecast it would take 5 years to break even but once I got the LTD going and levaged the BTL mortgage to reduce personal mortgage debit it paid for itself faster.
I'm planning again now in 2024 and not going to lie, it is more expensive but I will break even under 5 years.
edit: cost of selling
SDLT at the additional rate, that hurts as it recently went up
CGT for any time the property is rented, if you do this quickly after getting your new home this should be null.
Conveyancing, look around and find a solicitor who will represent you and the LTD, as this will save you money.
BTL mortgages do cost more, and the arrangement fees are higher, but 100% of mortgage interest is a claimable expense; if that changed, we would sell up.
You will have to give a personal guarantee for the mortgage company, that will probably be between £300 and £500. Shop around to get the best price.
I’m just wondering what the benefit is when I’d lose all the equity built up, it’s on repayments. I could just continue pulling equity now instead of a directors loan later, surely ?
Use that to either pay down residential mortgage or stooze it in a higher interest account or ETF
You don't lose the equity build up though, you move it to an LTD where you are a Director.
In practical terms the value of the property will be split into a Directors Loan and/or a BTL Mortgage after the transfer depending on what you choose to do.
I have and plan to take 60% LTV mortgages on my BTL properties that I move into the LTD, the other 40% is then recorded as directors loan, this can be withdrawn from the company without income tax or, something I am experimenting with, you can charge the LTD interest for the loan and generate some income on it.
I should say, I do believe S&S are better value, I started as an accidental landlord and as we got over the pain we have decided to keep with it due to IHT, emergency plans and future planning.
If I were starting again I would sell up.
Interesting, thanks for the info. Something for me to think about. Same position, 2.2% rate ending soon, so may consider selling the same, or a company. We are 45% tax rate payers so this is just going to be hammering us at some point.
Thanks so much for the info! Sorry for not understanding, but could you elaborate slightly more on leveraging the BTL mortgage to reduce your personal mortgage?
My 10 year plan would be so have 2-3 properties excluding my personal mortgage, creating a portfolio similar to yours and then using that in 20 years time to sell up and retire early (hopefully!)
Sounds a bit tight to me, one bad tenant some new carpets and a failed boiler and you are under water Betting on some capital appreciation which when transaction costs are taken into account might take many years. I’d be looking to have a bigger chunk of equity these days or be looking for ways to get a higher yield.
>BTL mortgage would be roughly £948 a month and the rental income is roughly £1250-£1300 per month on a few properties that we’ve looked at. Currently my mortgage advisor is estimating that we’d probably break even or make £100 profit per month
Are you counting the additional interest you have to pay in your personal mortgage?
Yes hence the £100 or so profit per month, once we take into consideration the higher personal mortgage.
What about epc ratings, gas certificates, maintenance, letting fees, etc...?
It could be profitable if the property gains in value with the time. Still it's risky.
All properties were viewing have C or above, a few are D / E. Gas certificates are super cheap and easy for me (best mate is a gas safe engineer)
Planning to do it privately as letting fees would take any profit we might have.
Maintenance is the main concern I guess.
what about putting the money into a private pension .. this is tax efficient. And ISAs
It’s not just the low return and all the costs (need to replace the washing machine, remove pests,) .. it is the risk and future regulations . Can you afford a tenant not paying and a long process to regain possession
Don't forget capital gains tax when it comes to selling. Also, some councils are doubling the council tax on empty homes.