Updating post from Reddit.
Hi all, I’m after some advise on whether to sell and start a LTD company or not.
My situation: I own 2 houses.
Property 1 is a BTL that brings in 550pcm and costs 200 mortgage. This house is worth 80k and I owe 40k. I will be keeping this property. (Transferred) Property 2 is a consent to let (was my main home that’s no longer needed as I get cheap accommodation with work) This property is worth 160k and I owe 60k. However, the rent is 700 PCM and mortgage is 300 as I’m overpaying and have been locked in at 1.8% for the last 5 years.What I think is the best move: transfer property 1 to LTD and sell property 2 to release 100k for further investments more in line with property 1 into the LTD company.
The area I am investing in could see a 25k investment return 550 a month. after mortgage payments this would be £350 profit. This would mean I buy 4 houses with the 100k from selling property 2, bringing in 1200 to £1400 per month profit, this compares to £500 profit I current receive from property 2.
I don’t plan on taking a penny from the business (apart from the initial directors loan to buy more property) until retirement in 15 years or so.
Does this seem like a logical step?
I should add: the next 9 years of accommodation is set in stone and I won’t need to buy a place for myself until then.
Questions- after how many years in Ltd and thus saving the tax would you pay back the legals and stamp of transferring the current BTL to LTD?
What will your tax hit be with the consent to let? How much will you actually release? The premise of selling a not great rental Property to buy a number of good performing properties in the right structure is solid, sure.
The BTL would get a £1000 per year tax break being in a LTD company compared to now. So I would say within 5 years.
I will be keeping the smaller BTL for life and want to keep the land that it sits on for the future.
The current consent to let will release 90 to 100k as it is within the current armed forces covenant scheme meaning I won’t pay CGT on that property (I would on the BTL though).
I wanted to take them both over to a LTD but with the tax break of the consent to let it seems a bad move, hence why I’m thinking of selling and reinvesting.
Thoughts?
You’ll have additional accounting fees with the Ltd but that will get spread out with the new purchases I guess.
The no CGT is a huge win for you there so that’s great!
If you can get into the right properties with your new investments and you want to go fully into this property game, then yeah it works.
Too many people have too much money tied up into properties that don’t really stack well. Often better to sell and invest them in good rentals. Push from there
Thanks for the reply. I’m not interested in making money until I retire. The whole idea of this is to build a business up that I can live off in 10 to 15 years and topping up my pension. For that scenario would you say going LTD is the best move?
Will be hoping to have atleast 10 small good return properties by then. Maybe more.
Also: I am currently 35 and want to be having my own income by 50. All my current money is tied up in these houses.
I’m not an accountant but do write and teach about this stuff for a job. LTD is usually the best route if you’re looking to grow a portfolio and already have a decent income from the day job.
My advice- buy to add value where possibly, scale through forced appreciation and refinancing. That’ll help you get to 10 much quicker than turnkey.
If you have a 10-15 year timeline and invest heavily, don’t take out of the business, make the right buys and the gov doesn’t screw us all- you should have a very solid portfolio by then.
The investments I’ll be doing are for long term stability over trying to top up my day job.
Feel free to PM me any other reading you would suggest. I appreciate the insight.
For sure- probably easiest if you just message any questions and I can answer / send over any resources we have on it. Happy to help where I can
Have your calculations taken into account the stamp duty costs for buying btl, the higher ltd/btl interest rates and likely investment needed to get the epc up to standard.
The benefit of lower cost properties is that you can have more of them, the downside is that repairs or vacancy periods can easily wipe out most of the money that property is making that year, even more so if the tenants completely destroy the property.
Regarding the property with the consent to let, how long do you have on the consent to let? Has your bank confirmed you can go beyond the usual 27 months?
We have two investment properties, the cheap one is worth keeping as mortgage free, the more pricey one we're looking to sell.
I’ve taken into account stamp duty and the return window. The consent to let is up at the end of my mortgage term in may. Another reason to sell that property actually.