Is there money to be made in 2nd/3rd properties?
Discussion
blueg33 said:
Because I will not be paying CGT on the sale as discussed previously
The correct answer is -There IS Capital Gains Tax on the sale of holiday lets - but the rules governing the calculation of Capital Gains Tax on such disposals is not the same as those that apply to the sale of residential properties (second homes, buy to lets etc).
The CGT rules for the disposal of holiday lets mean that the tax liability arising on a similar sized gain for a "normal" property will result in an overall lower tax bill. It may even be zero - depending on circumstances and reliefs claimable/claimed.
I bought mine back in 2011 so yields are good. The only issue I have these days is the potential CGT liability, which is making me reluctant to sell and buy something else. But I have a plan for my London flat. We will be moving back to the flat when the tenant moves out, for a period of at least a year, while our house is being renovated. Once the house renovation is completed, the flat will be straight on the market and sold.
Well I don't know about anyone else, but I've been hugely fortunate to benefit from the rising property market during my working life, and, as soons as my binlids are out of education, I intend to sell up and downsize, and use most of the capital to buy a portfolio of rental properties for cash like the one Groat linked to, and run them in a limited company, living off dividends, before my pension income kicks in, enabling me to give up work a bit early. This limited company will be bequethed to my children in the event of my death. I can't think of a better way to earn a living off my good fortune and preserve of much of it as possible as an inheritance. The binlids will of course pay some taxes on it eventually, but I'm fine with that and I think everyone should be too - inheritance tax is a tax on unearned income and is therefore the fairest tax there is. In my case it'll be a tax on unearned property price inflation. So be it. The incomes from my pathetic pension pots will be pitiful, so this is the best way I can think of to live comfortably in retirement.
Thanks guys for all your thoughts and opinions. I havent added much since asking the original question as Im finding it interesting what you guys think / suggest.
I'm starting to feel that my expectations are perhaps what are at fault here. The days of buying a house for £400K doing it up and selling for £600K are either over or seller / estate agents / developers have this so well sewed up now that ordinary joe public dont have a look in. Many of you see what's provided via the current interest rate levels in ISAs, or other financial vehicles, that the 3/4% return yields from rentals make you more money, plus your capital investment is growing. Perhaps all these property programmes have given me a false expectation.
I liked the idea from the guy who provided an example of a Glasgow house for £60K. He would buy that sight unseen and just rent in via a local agent ? Then give it a year and sell on. That seems via hassle free.
However CGT still plays a part on any option you choose, unless FHL ( I didnt know what that meant either :-)). Is CGT still the case with limited company setups i.e. what the guy above me was planning to do ? This is an idea I was considering for my kids, set up a limited company, buy a few houses and pass it over to them to run / manage. I also saw this as another way of potential stopping at future ex partners trying to get half their homes in the event of splitting. Possible ?
Just a quick nod to Eric. Eric has helped me before on the CGT advice and his point about watering down jargon to this level of audience is spot on. He's got me sussed so any explanations need to be in `I have 2 apples, you have 3, how many apples are there ? ` level :-)
Again, many thanks for all your help.
I'm starting to feel that my expectations are perhaps what are at fault here. The days of buying a house for £400K doing it up and selling for £600K are either over or seller / estate agents / developers have this so well sewed up now that ordinary joe public dont have a look in. Many of you see what's provided via the current interest rate levels in ISAs, or other financial vehicles, that the 3/4% return yields from rentals make you more money, plus your capital investment is growing. Perhaps all these property programmes have given me a false expectation.
I liked the idea from the guy who provided an example of a Glasgow house for £60K. He would buy that sight unseen and just rent in via a local agent ? Then give it a year and sell on. That seems via hassle free.
However CGT still plays a part on any option you choose, unless FHL ( I didnt know what that meant either :-)). Is CGT still the case with limited company setups i.e. what the guy above me was planning to do ? This is an idea I was considering for my kids, set up a limited company, buy a few houses and pass it over to them to run / manage. I also saw this as another way of potential stopping at future ex partners trying to get half their homes in the event of splitting. Possible ?
Just a quick nod to Eric. Eric has helped me before on the CGT advice and his point about watering down jargon to this level of audience is spot on. He's got me sussed so any explanations need to be in `I have 2 apples, you have 3, how many apples are there ? ` level :-)
Again, many thanks for all your help.
Edited by sbk1972 on Wednesday 3rd March 15:20
Eric Mc said:
blueg33 said:
Because I will not be paying CGT on the sale as discussed previously
The correct answer is -There IS Capital Gains Tax on the sale of holiday lets - but the rules governing the calculation of Capital Gains Tax on such disposals is not the same as those that apply to the sale of residential properties (second homes, buy to lets etc).
The CGT rules for the disposal of holiday lets mean that the tax liability arising on a similar sized gain for a "normal" property will result in an overall lower tax bill. It may even be zero - depending on circumstances and reliefs claimable/claimed.
sbk1972 said:
Good point, why would I. Do you just let the selling agent deal with renting it out i.e. you buy it, then give permission for the agent to rent it out etc, same with any maintenance ? I suppose why I'm asking is that you never envisage yourself ever going to that property at all ?
Yes you could do that because that particular estate agency chain also do lettings. But I wouldn't. I'd give it to the management company that deal with my other properties. A far better cheaper and more effective agency for letting and managing. Once purchased I'd get them to pick the keys up at the estate agency and just let them get on with the rest. Many people own and let property they've never set foot in to tenants they've never met via managers they've never met either. Other than just for interest what would it benefit anyone from the owner physically being there?
Edited by Groat on Wednesday 3rd March 17:02
sbk1972 said:
Good point, why would I. Do you just let the selling agent deal with renting it out i.e. you buy it, then give permission for the agent to rent it out etc, same with any maintenance ? I suppose why I'm asking is that you never envisage yourself ever going to that property at all ?
you could use the selling agent to then rent it out but would suggest you use a dedicated letting agent to let it. Two very different skills, procedure and knowledge needed.Groat said:
But not all letting agents are property or tenancy managers, and not all letting agents can handle all types of properties and tenancies.
sure - use a residential letting agency for residential property and a commercial for a commercial property. perhaps obvious but doesn't hurt in saying it aloud.A bit more than that. Many agents aren't comfortable with DSS or asylum seekers or HMO or students or ......many things. Some can't handle lower end properties and just as many can't handle high end stuff as well.
Others (like OpenRent?) are 'online letting agents' and don't really do much of anything at all apart from advertising properties to let.
Others outsource everything to third parties (most commonly lawyers) when anything goes wrong.
Many expect owners to do much of the admin from BI to registration to safety checking to CT....
So there really aren't many who do anything/everything, which makes it important to select an agent with a clear provable history of successfully managing the type of property you're buying and also which manages to the level you require.
Others (like OpenRent?) are 'online letting agents' and don't really do much of anything at all apart from advertising properties to let.
Others outsource everything to third parties (most commonly lawyers) when anything goes wrong.
Many expect owners to do much of the admin from BI to registration to safety checking to CT....
So there really aren't many who do anything/everything, which makes it important to select an agent with a clear provable history of successfully managing the type of property you're buying and also which manages to the level you require.
My “fag packet maths” business model for BTL
Apartment in N/W £100k
£25 deposit plus costs/stamp etc (£2k decorating £700 estate agent to find tenants - then self manage), around £32k you need to invest.
Mortgage rest (75%) interest only. This is key.
Monthly rental £650 income
Mortgage £160
Service Charge £80
Balance £410pm
Therefore income of £410pm so long as continually rented and no issues. That’s upon spending an initial £32k.
Groat will make much more profit and credit to him. The above is just want I’m happy with. Mortgage always stays at £75k but the rent will rise and the house value. Of course pay capital gains tax but that’s like anything else really.
All this tax on income, can’t shave off interest on the mortgage payments is irrelevant to me. I see it an an income same as any other. Plus the bonus is if it goes up in value.
I’m sure there are better investments you can make but this suits me
Apartment in N/W £100k
£25 deposit plus costs/stamp etc (£2k decorating £700 estate agent to find tenants - then self manage), around £32k you need to invest.
Mortgage rest (75%) interest only. This is key.
Monthly rental £650 income
Mortgage £160
Service Charge £80
Balance £410pm
Therefore income of £410pm so long as continually rented and no issues. That’s upon spending an initial £32k.
Groat will make much more profit and credit to him. The above is just want I’m happy with. Mortgage always stays at £75k but the rent will rise and the house value. Of course pay capital gains tax but that’s like anything else really.
All this tax on income, can’t shave off interest on the mortgage payments is irrelevant to me. I see it an an income same as any other. Plus the bonus is if it goes up in value.
I’m sure there are better investments you can make but this suits me
Holiday let’s get entrepreneurs relief for CGT
I bought 16 over 20 years starting in 1993
I’ve been selling them off for a while and have 6 left
I’ve done ok
I think it’s hard to make a fast buck but time in the market means you do ok
None of mine made any money in the first few years but rents go up and profit comes
I’ve made an average of about 75 k on each one
I bought 16 over 20 years starting in 1993
I’ve been selling them off for a while and have 6 left
I’ve done ok
I think it’s hard to make a fast buck but time in the market means you do ok
None of mine made any money in the first few years but rents go up and profit comes
I’ve made an average of about 75 k on each one
NickCQ said:
Given that you could invest in other things in an S&S ISA or pension without that tax burden... it's quite relevant!
The amount of tax you pay on your income depends on the income you make.How much tax do you pay on the income you get from your pension investment?
None.
Why?
Because that's the income it provides.
Groat said:
Many people own and let property they've never set foot in to tenants they've never met via managers they've never met either. Other than just for interest what would it benefit anyone from the owner physically being there?
I have an apartment in Adelaide that I have never seen. Long story, but it generates money that goes into my Aus bank account. I have never even been to Adelaide, it’s mansged by an agent Edited by Groat on Wednesday 3rd March 17:02
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