Property - Stick or Twist ?
Discussion
Hi all ,
Just wondered if anyone has any thoughts re this situation re finance / property (I will cavate a novice just pondering)
So by luck more than being wise , I have inherited some property, this will bring in a sound income , but could I do more ?
Property is a couple of London flats , and some commercial property in the SW. Total value is around 2 million , all mortgage free. Its all being let / managed by agents and as above providing an income.
I suppose my ponder is should I try and mortgage an element of it, and then use that to buy more? (residential units I guess) the mortgages get paid , ultimately more assets and income.
I appreciate there is much more to it, and with growing the portfolio comes more risk / leveraged borrowing. Any thoughts to ideas? What would your approach be ?
I will no doubt get some financial advice , but just exploring what is possible.
Just wondered if anyone has any thoughts re this situation re finance / property (I will cavate a novice just pondering)
So by luck more than being wise , I have inherited some property, this will bring in a sound income , but could I do more ?
Property is a couple of London flats , and some commercial property in the SW. Total value is around 2 million , all mortgage free. Its all being let / managed by agents and as above providing an income.
I suppose my ponder is should I try and mortgage an element of it, and then use that to buy more? (residential units I guess) the mortgages get paid , ultimately more assets and income.
I appreciate there is much more to it, and with growing the portfolio comes more risk / leveraged borrowing. Any thoughts to ideas? What would your approach be ?
I will no doubt get some financial advice , but just exploring what is possible.
I bet that inheritance tax bill stung a bit.
I think the question is more what you want out of it and how much? So many questions to answer are they owned in a company structure or you personally? Will you be stung for 40% tax on the income? Do you want to be a full time landlord? What commercial unit and will it be impacted by covid rent wise?
Personally if it were me I’d probably sit back and enjoy the mortgage free income split 50/50 with the wife to try and mitigate the tax bill.
I think the question is more what you want out of it and how much? So many questions to answer are they owned in a company structure or you personally? Will you be stung for 40% tax on the income? Do you want to be a full time landlord? What commercial unit and will it be impacted by covid rent wise?
Personally if it were me I’d probably sit back and enjoy the mortgage free income split 50/50 with the wife to try and mitigate the tax bill.
If you're comfy with it (as you seem to be) then why not?
I've been told what a bad idea what you've got in mind is since 1976.
Guess what? It wasn't (and still isn't).
Would I do it all over again? Definitely.
Just watch the borrowings tho. Institutional lenders are
s and if they think it suits them will change the goalposts on what you see as immutable terms without giving a thought to you or your best interests.
I've been told what a bad idea what you've got in mind is since 1976.
Guess what? It wasn't (and still isn't).
Would I do it all over again? Definitely.
Just watch the borrowings tho. Institutional lenders are
s and if they think it suits them will change the goalposts on what you see as immutable terms without giving a thought to you or your best interests.Many thanks, and yes many questions to ask/answer.
In regards to ownership personally owned and thus being taxed on top of day job. The commercials have some covid issue / no rent , but that will ultimately be resolved at some point.
Presently the total income is 60k ish pa .... I can see the benefits of letting this tick along forever , indeed a very good pension salary come the time. Equally I wonder if I can leverage the equity better , build more to ultimately pass on to kids etc.
I'm Mid 40s and employed, living in the SE so have a mortgage on main property etc.
In regards to ownership personally owned and thus being taxed on top of day job. The commercials have some covid issue / no rent , but that will ultimately be resolved at some point.
Presently the total income is 60k ish pa .... I can see the benefits of letting this tick along forever , indeed a very good pension salary come the time. Equally I wonder if I can leverage the equity better , build more to ultimately pass on to kids etc.
I'm Mid 40s and employed, living in the SE so have a mortgage on main property etc.
You need advice on tax IMO as £60k mortgage free on top of the day job is instantly 40% is it not?
Why not resolve the tax issue let the money build up and every few years add to the portfolio mortgage free. Should see you to a nice early retirement and be a great start for the kids.
Why not resolve the tax issue let the money build up and every few years add to the portfolio mortgage free. Should see you to a nice early retirement and be a great start for the kids.
Is that £60k before or after costs? Yields seem pretty low at 3%, but not too far out of line for the region.
You could release about 75% of the equity and reinvest into more property which could get 7-8% yields. It would become a full time job managing it all, but you could earn a nice living out of it. Done right it could be relatively painless though.
If I were you, I'd see how it goes running these properties for the next 9-12 months and if you fell up to it release the equity and purchase more.
You could release about 75% of the equity and reinvest into more property which could get 7-8% yields. It would become a full time job managing it all, but you could earn a nice living out of it. Done right it could be relatively painless though.
If I were you, I'd see how it goes running these properties for the next 9-12 months and if you fell up to it release the equity and purchase more.
Highandhappy123 said:
Presently the total income is 60k ish pa .... I can see the benefits of letting this tick along forever , indeed a very good pension salary come the time. Equally I wonder if I can leverage the equity better , build more to ultimately pass on to kids etc.
If I was you I'd ask the managing agents if they ever come across anything which in their opinion would make a good addition to your portfolio?Without doubt they will, and will dig you up some suitable stuff which they will also benefit from via its consequent management fees.
They can probably also advise you on a good property-experienced accountant.
Highandhappy123 said:
re SIPP / limited company , is this possible ? I thought putting into a company would have tax implications in the first place ? Again more to research !
Yes you have to sell them to the limited company. So there are costs associated with the transfer. But it could make long term sense. and re the yield , income will probably be a bit more that 60k... a couple of the commercials are defaulting etc , and the London rents lower than would be expected , and also probably worth a little less than 2 mill. Again , new to this so numbers a little off.
I will probably sit on it for a year or so and see, but thinking more I should leverage and expand / spread risk. Equally the fact that all the income is not paying off debts is an attractive situation.
But that's the ponder, take on debt to actually make more income / longer term assets
I will probably sit on it for a year or so and see, but thinking more I should leverage and expand / spread risk. Equally the fact that all the income is not paying off debts is an attractive situation.
But that's the ponder, take on debt to actually make more income / longer term assets
BoRED S2upid said:
Yes you have to sell them to the limited company. So there are costs associated with the transfer. But it could make long term sense.
I guess I need to work the numbers , as stamp duty / transactional costs will be large versus the longer term tax benefit. And I don't have lots of liquid cash to pay transactional cost. Maybe best to just bury my head and take the income !
Probably a more aggrwssive approach than many here, but I would be tempted to do one or both of the following:
1) retain direct ownership of physical property and borrow more as you suggest, to buy more perhaps up to a conservative debt coverage ratio such that you're spending no more than 30-40% of net income on interest, and/or
2) use the rental income to invest indirectly by buying REITs tax-efficiently within your SIPP and/or ISA to diversify your property exposure away from 3 properties, reduce the cost of management and tax payable. The yield will usually be higher and somebody else deals with management headaches.
Either way, and notwithstanding the loss of the benefactor, you're in an incredibly fortunate position and can take a long-term view on structuring optimally to achieve whatever you want to.
edited: forget all that - this is Pistonheads - GBP60k pa will finance an amazing garage for a Ferrari and a Caterham, with a Range Rover as a daily!
1) retain direct ownership of physical property and borrow more as you suggest, to buy more perhaps up to a conservative debt coverage ratio such that you're spending no more than 30-40% of net income on interest, and/or
2) use the rental income to invest indirectly by buying REITs tax-efficiently within your SIPP and/or ISA to diversify your property exposure away from 3 properties, reduce the cost of management and tax payable. The yield will usually be higher and somebody else deals with management headaches.
Either way, and notwithstanding the loss of the benefactor, you're in an incredibly fortunate position and can take a long-term view on structuring optimally to achieve whatever you want to.
edited: forget all that - this is Pistonheads - GBP60k pa will finance an amazing garage for a Ferrari and a Caterham, with a Range Rover as a daily!
Edited by sideways sid on Tuesday 23 February 14:48
BoRED S2upid said:
I bet that inheritance tax bill stung a bit.
I think the question is more what you want out of it and how much? So many questions to answer are they owned in a company structure or you personally? Will you be stung for 40% tax on the income? Do you want to be a full time landlord? What commercial unit and will it be impacted by covid rent wise?
Personally if it were me I’d probably sit back and enjoy the mortgage free income split 50/50 with the wife to try and mitigate the tax bill.
Strange attitude, would you turn down a pay rise because it means paying more tax? I think the question is more what you want out of it and how much? So many questions to answer are they owned in a company structure or you personally? Will you be stung for 40% tax on the income? Do you want to be a full time landlord? What commercial unit and will it be impacted by covid rent wise?
Personally if it were me I’d probably sit back and enjoy the mortgage free income split 50/50 with the wife to try and mitigate the tax bill.
OP - just to throw something else into the mix if you don’t need the additional income. You could mortgage the properties out to a sensible LTV and use those funds to diversify into equities.
You could also set up a leverage account against the equities if you wanted to access the capital tax free for buying ferraris or whatever floats your boat.
Or use the additional income from the new properties to fund a whole of life insurance policy placed in trust so your children don’t have to think about inheritance tax and build something generational.
Debt is cheap there is a world of opportunity if you’re comfortable with the risk
The biggest advantage with investment property in the past was leverage. From a personal perspective now that you can't write off mortgage interest against your income for tax purposes, it removes one of the biggest advantages of holding property personally for investment purposes. Completely unleveraged, you have a stable income of approximately 3% that will be largely inflation proof, but make sure you work out what you're getting out of everything completely net of all other costs (management, and after a certain amount of time, maintenance). Transaction costs on moving everything to a limited company are going to be expensive, so make sure you've done all of the sums.
Another way to look at it is, if you had £2m in cash to invest, would you put all of it in property in central London? Would you buy £5m worth of property and get a mortgage for the other £3m? Probably not right, unless you had a lot of experience in property? There's probably a balance to be had somewhere in the middle.
Another way to look at it is, if you had £2m in cash to invest, would you put all of it in property in central London? Would you buy £5m worth of property and get a mortgage for the other £3m? Probably not right, unless you had a lot of experience in property? There's probably a balance to be had somewhere in the middle.
Many thanks for the replies, certainly some options / strategies to explore.
I like the idea of mortgaging to provide cash for some other investments , equities or maxing out isa's etc.
Whilst property has been lucrative in the past ( and yes I have made money on primary residence) maybe its better to try and diversify.
I do fancy a vintage porsche for one
I like the idea of mortgaging to provide cash for some other investments , equities or maxing out isa's etc.
Whilst property has been lucrative in the past ( and yes I have made money on primary residence) maybe its better to try and diversify.
I do fancy a vintage porsche for one
Highandhappy123 said:
Maybe best to just bury my head and take the income !
Don't do that, think it through and make a decision so that when you look back you'll feel that you made a conscious decision about it and gathered as much info as possible so that whether it was right or wrong you won't have any regrets.It is very difficult to say anything without surgically looking at your portfolio. How are the tenants schedules? any rent arrears ? What are the rental reviews and breaks? Who are the tenants and how are their financial situation (especially since covid) ? What is the current cash-flow analysis ? What is the investment value?
You would need to speak to a real estate investment analyst to analyze your portfolio and than make solid decisions.
Congrats and please make sure that you do get legitimate/professional advice.
You would need to speak to a real estate investment analyst to analyze your portfolio and than make solid decisions.
Congrats and please make sure that you do get legitimate/professional advice.
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