Would it be a mistake to buy this BTL personally?

[Mahogany]

Hi all,

I'm planning on buying a BTL (1 bed house) with my wife, with no intention of ever selling it.

Accepted offer: 210k
Mortgage: 120k @ 1.33% (2 year fixed with the Post Office)
Mortgage repayment: ~400
Deposit: 90k
Stamp duty: 8k
Fees: 1-3k
Current rental: 800 per month

Being both in the 40% tax bracket, the rent just about covers the mortgage repayment and we're making a loss if any maintenance needs to be done or if the tenant leaves (and definitely making a loss for a while if you factor in stamp duty).

Considering the fact that we don't want a return on the investment yet (seeing this as more of a pension for 25-30 years from now), should we be trying to purchase the property through a new Ltd company so that any maintenance costs etc come straight from the rental income before 40% of it is lost? I've heard about the Ltd company mortgages having much worse rates but maybe that's still worth it in the long run?

Thanks

[996c2]

If you are not making money from the rental income with a mortgage rate of 1.33% then you really need to look at another property! Mortgage rate is much more likely to go up than down in the coming years. Don't forget you will also have periods when the property is not earning rent (e.g. empty between tenants, during refurb, when tenants can't/won't pay).

A company BTL mortgage is currently more expensive than a personal BTL mortgage and this effectively negates the improved tax relief available on company's mortgage interest. However, the low corporation tax in company BTL does mean you can reinvest more profit back into the business and expand more quickly.

Property maintenance, management cost e.t.c are all tax deductible whether you are doing a BTL personally or via a company.

[anonymous-user]

I don't think it would be a mistake. For any benefit now, things change and future govs may not like Ltd co s owning property.

I looked into it before and the charges for the mortgages made it semi irrelevant.

Go for you buying to keep forever though, it's a nice peace of mind having a property like that paid off in your retirement.

Edited by anonymous-user on Saturday 11th November 16:47

[BoRED S2upid]

How much more expensive is a 5 yr fix? If this is a long term thing.

[Jon39]

Mahogany said:

...buy a BTL ... with no intention of ever selling it.

You have worked out then, how to solve the usual Capital Gains Tax problem.

[TheLordJohn]

I'd go for a 5 year fixed, or even a 10 if it's a good enough product.

[anonymous-user]

It's a crazy plan for many, many reasons.

Consider getting proper Independent Financial Advice about how to invest for retirement.

[AllyM]

Put it all in your pension instead.

[drainbrain]

The bit I don't get is why people buy a property to rent that definitely isn't going to make them any income?

That's even stupider than funding a pension you MIGHT get income from for a while at least one far off day....

Edited by drainbrain on Saturday 11th November 19:52

[TheLordJohn]

drainbrain said:

The bit I don't get is why people buy a property to rent that definitely isn't going to make them any income?

That's even stupider than funding a pension you MIGHT get income from for a while at least one far off day....

Edited by drainbrain on Saturday 11th November 19:52

I don't make any profit on either of mine.
If I had a full (25 years) mortgage on one, I'd make a little every month, but i'm paying it off over 14 years.
The second one was bought with no mortgage, just savings and a loan (ssshhhh!).
So the loan will be paid off in 4 years and I'll have the house fully paid for (and can borrow against it in the future) by then.

We are earning decent money now so don't mind taking a bit of a hit over the short/medium term to hopefully put us in an even better position over the long term.

PS - the majority of BTL'ers are on interest-nly products and look for monthly income rather than long term.

Edited by TheLordJohn on Saturday 11th November 20:06

[Big_Dog]

You would currently still get 20% allowance on the mortgage repayment. With rent at £800 PCM and Mortgage payments at £400 if you think you can manage 10 months let per year with decent tenants I think that works. If BTL rates rise you could move to an interest only mortgage and be patient. The fees and stamp duty are spread thinly over a number of years, so not such a consideration if you are making a long term purchase.
All this on the assumption its not a wreck/money pit.

[BoRED S2upid]

drainbrain said:

The bit I don't get is why people buy a property to rent that definitely isn't going to make them any income?

That's even stupider than funding a pension you MIGHT get income from for a while at least one far off day....

Edited by drainbrain on Saturday 11th November 19:52

It doesn’t make you any income while the mortgage is outstanding then it makes you £800 every month income or a lot more in 20 years.

It’s really not that had to understand and many people use this option as an addition to a pension that can perform very badly depending on who is gambling with your contributions.

[TheLordJohn]

BoRED S2upid said:

Addition to a pension that can perform very badly depending on who is gambling with your contributions.

And how much you're paying them for the privilege of doing so...

[TFP]

TheLordJohn said:

And how much you're paying them for the privilege of doing so...

If you’re fortunate enough to have a defined benefit pension, your risks are minute.

If you have a defined contribution pension through your employer, it’s subject to a charges cap which isn’t set an an unreasonable level.

If you have a pension that you bought under your own steam, and the the charges are uncompetitive, more fool you. It’s entirely under your control.

Similarly, it’s highly uncommon that you can’t control where your pension is invested in options two and three, so again, more fool you if it’s performance is not satisfactory and you don’t take appropriate action.

[drainbrain]

The word "fool" seems to crop up uncomfortably often when pensions are being discussed.

[drainbrain]

BoRED S2upid said:

It doesn’t make you any income while the mortgage is outstanding then it makes you £800 every month income or a lot more in 20 years.

It’s really not that had to understand and many people use this option as an addition to a pension that can perform very badly depending on who is gambling with your contributions.

Have to say that if he's paying off a £120k mortgage over 20 years with £400 a month he's got a great mortgage deal (240 payments? Do the math)

Why doesn't he buy a property with the £90k he's got and get some return for his investment till he either dies or gets bored with it?

Edited by drainbrain on Saturday 11th November 20:45

[Slagathore]

It can still be worth it, but not at those numbers.

That yield is weak, and with the new tax changes coming and a gradual rise in interest rates, it really wouldn't be worth it.

Buying it through a ltd company might help, but you'll probably want proper financial advice on that front.

[covmutley]

That is a very poor yield of 4.5% not even taking the fees and mortgage interest into account.

Really doesn't seem worth it, unless property prices keep going up I suppose

[BoRED S2upid]

drainbrain said:

Have to say that if he's paying off a £120k mortgage over 20 years with £400 a month he's got a great mortgage deal (240 payments? Do the math)

Why doesn't he buy a property with the £90k he's got and get some return for his investment till he either dies or gets bored with it?

Edited by drainbrain on Saturday 11th November 20:45

I presume there is a reason he’s buying such an expensive property. It doesn’t make sense to me he could easily buy a property outright in half the country and be in profit mortgage free from the start. Who knows he hasn’t said much.

[Saleen836]

I don't know what area you are looking to buy the property but around me 1 bed houses are not very sought after, would a 2 bed not make more sense?