First time Landlord - Advice Needed
Discussion
Hi Chaps,
Me and my wife are about to buy our first buy to let property so are a little wet behind the ears.
We have had an offer accepted on a house and are paying £115,000 for it.
The question is are we better off setting up a SPV LTD company?
We are putting down a 20% deposit and will be paying back £533 a month over 20 years.
The property will rent for £700-£725 a month.
We have done some sums (based mainly on guess work) and have come to the conclusion that we will be down £150 a month cash flow when you take into account costs and tax (we are both 40% tax payers)
When we do the sums for a SPV LTD company (again, using a lot of guess work) we think we will profit after tax £248, when we deduct the capital mortgage payment we end up with -£18 a month cash flow.
We've assumed that allowable expenses under a company would be interest on mortgage payments, accountants charges and insurance.
Mortgage capital payments are not a deductible expense but let me know if this is wrong.
Any advice you guys can offer would be hugely appreciated.
The above might all be completely wrong so happy to be corrected.
TIA
Me and my wife are about to buy our first buy to let property so are a little wet behind the ears.
We have had an offer accepted on a house and are paying £115,000 for it.
The question is are we better off setting up a SPV LTD company?
We are putting down a 20% deposit and will be paying back £533 a month over 20 years.
The property will rent for £700-£725 a month.
We have done some sums (based mainly on guess work) and have come to the conclusion that we will be down £150 a month cash flow when you take into account costs and tax (we are both 40% tax payers)
When we do the sums for a SPV LTD company (again, using a lot of guess work) we think we will profit after tax £248, when we deduct the capital mortgage payment we end up with -£18 a month cash flow.
We've assumed that allowable expenses under a company would be interest on mortgage payments, accountants charges and insurance.
Mortgage capital payments are not a deductible expense but let me know if this is wrong.
Any advice you guys can offer would be hugely appreciated.
The above might all be completely wrong so happy to be corrected.
TIA
Edited by DarylB90 on Saturday 9th November 14:36
I don't hold my BTL's in a Ltd Co/SPV so can't advise re tax treatment, no doubt others here will although I doubt it will affect the overall picture.
My thoughts on your scenario is that after costs there will be zero income unless of course your rents increase. However, as a 20yr play with tenants repaying your debt you may well turn your equity of £25k into £150-£200k depending on house price inflation.
Edited to add that I'd missed your analysis that you'll make a monthly loss, can you increase your deposit slightly to secure a better mortgage rate and at least break even?
My thoughts on your scenario is that after costs there will be zero income unless of course your rents increase. However, as a 20yr play with tenants repaying your debt you may well turn your equity of £25k into £150-£200k depending on house price inflation.
Edited to add that I'd missed your analysis that you'll make a monthly loss, can you increase your deposit slightly to secure a better mortgage rate and at least break even?
Edited by Tresco on Saturday 9th November 17:24
DarylB90 said:
Hi Chaps,
Me and my wife are about to buy our first buy to let property so are a little wet behind the ears.
We have had an offer accepted on a house and are paying £115,000 for it.
The question is are we better off setting up a SPV LTD company?
We are putting down a 20% deposit and will be paying back £533 a month over 20 years.
The property will rent for £700-£725 a month.
We have done some sums (based mainly on guess work) and have come to the conclusion that we will be down £150 a month cash flow when you take into account costs and tax (we are both 40% tax payers)
When we do the sums for a SPV LTD company (again, using a lot of guess work) we think we will profit after tax £248, when we deduct the capital mortgage payment we end up with -£18 a month cash flow.
We've assumed that allowable expenses under a company would be interest on mortgage payments, accountants charges and insurance.
Mortgage capital payments are not a deductible expense but let me know if this is wrong.
Any advice you guys can offer would be hugely appreciated.
The above might all be completely wrong so happy to be corrected.
TIA
Doesn't sound right to me. I would have thought you could only deduct the interest as an expense and not the capital mortgage repayment. Also the interest rate for a company mortgage may be higher.Me and my wife are about to buy our first buy to let property so are a little wet behind the ears.
We have had an offer accepted on a house and are paying £115,000 for it.
The question is are we better off setting up a SPV LTD company?
We are putting down a 20% deposit and will be paying back £533 a month over 20 years.
The property will rent for £700-£725 a month.
We have done some sums (based mainly on guess work) and have come to the conclusion that we will be down £150 a month cash flow when you take into account costs and tax (we are both 40% tax payers)
When we do the sums for a SPV LTD company (again, using a lot of guess work) we think we will profit after tax £248, when we deduct the capital mortgage payment we end up with -£18 a month cash flow.
We've assumed that allowable expenses under a company would be interest on mortgage payments, accountants charges and insurance.
Mortgage capital payments are not a deductible expense but let me know if this is wrong.
Any advice you guys can offer would be hugely appreciated.
The above might all be completely wrong so happy to be corrected.
TIA
Edited by DarylB90 on Saturday 9th November 14:36
Three additional things to bear in mind:
No CGT allowance when you sell the property
Dividend tax when you wind up the company upon selling the property or on rental income
Additional maintenance costs for the SPV (accountants, registration etc)
For a single lower-value property it may not make sense. For a larger or growing portfolio you might consider it.
As others have said upthread an SPV moves you into the 'specialist' BTL market (i.e. not the High Street), so you will pay a higher interest rate.
No CGT allowance when you sell the property
Dividend tax when you wind up the company upon selling the property or on rental income
Additional maintenance costs for the SPV (accountants, registration etc)
For a single lower-value property it may not make sense. For a larger or growing portfolio you might consider it.
As others have said upthread an SPV moves you into the 'specialist' BTL market (i.e. not the High Street), so you will pay a higher interest rate.
CSLM3CSL said:
Doesn't sound right to me. I would have thought you could only deduct the interest as an expense and not the capital mortgage repayment. Also the interest rate for a company mortgage may be higher.
April 2020 interest tax relief stops, so looke like the OP will be paying 40% tax on £700 rent, guessing the OP has factored in the additional stamp duty in the workings out?red_slr said:
Your numbers don't look great. Honestly, I think you are exposing yourself to a lot of risk over along period with those numbers.
Yes agreed.Slightly surprising given the starting point of 7.3% gross yield (£700 pcm on £115k), maybe OP is being overly conservative on management costs, voids etc?
Saleen836 said:
April 2020 interest tax relief stops, so looke like the OP will be paying 40% tax on £700 rent, guessing the OP has factored in the additional stamp duty in the workings out?
I’m guessing that’s why a ltd co is of interest paying 40% tax on BTL income will hurt any calculations! Op if you do go down this route it would’ve interesting to post the difference between lending rates as I’m sure other landlords would be interested to know the difference.
OP can draw his own conclusions,
98elise said:
I currently have about 50% of my investments in property (bricks and mortar) and 50% in funds. I'm actually pulling out of private rentals in the UK as politics have made it a waste of time, and the threat of a socialist government doesn't bear thinking about.
mike74 said:
NorthDevon66 said:
700 a month seems a good rent for a 115k property. Just out of interest do you mind if I ask what type of property it is - and where?
It's a completely pie in the sky figure... nowhere in the UK can you pick ip a £115k property and rent it out for £700 pcm.mike74 said:
NorthDevon66 said:
700 a month seems a good rent for a 115k property. Just out of interest do you mind if I ask what type of property it is - and where?
It's a completely pie in the sky figure... nowhere in the UK can you pick ip a £115k property and rent it out for £700 pcm.Round here most 90-100k 2up2 downs are 650-750 a month.
30 seconds on right move found these two
https://www.rightmove.co.uk/property-for-sale/prop...
https://www.rightmove.co.uk/property-to-rent/prope...
Unexpected Item In The Bagging Area said:
That’s an eye opener for me. My parents’ BTL is a very nice and well sized 2 bedder in a pleasant Cheshire town which is worth around £240k and rents out at £850/month. £700 for a £90k terrace in Salford seems crazy.
This one of mine's just been let:https://www.rightmove.co.uk/property-to-rent/prope...
Identical to the one with sitting tenant I bought next door about a month ago for £32k (and that was me being generous).
By the way, these are super liquid. They aren't even appearing on the market anymore. My agent is hosting a guy up from London today with cash to buy a dozen at least. And he's in a queue. He'll probably be going back empty handed because the stock just ain't available. There's cheap stuff, but it's all got issues. The good cheap stuff (sub £40k) is just impossible to find nowadays. Back to the sourcers (groan). Wish the government clowns would do more stupid stuff and get more desperadoes selling up!! A bit of brakes on rising prices wouldn't hurt either.
OF COURSE these are the kind of properties the OP should be trying for his first time foray into btl. His OP plan is not totally without merit, but almost is.
Condi said:
Not sure how subsidising the property by £1800/yr is good business sense, but anyway.
Well here's the "plan". You buy the property for £115k in 2019
You put £23k towards it.
The £92k is paid off MOSTLY with tenants' rent....
.....apart from the £36k you add at £1.8kpa over 20 years
Therefore, including your original 'hurt money' you have paid £59k by 2039 towards the now burden free property.
So what might the £115k property be worth in 20 years? Nobody knows, but maybe £250k.
What might the rent be in 20 years? Nobody knows, but maybe £1500 a month.
And now it's 2039 there's no more mortgage to pay so there's plenty of income.
Using voodoo maths, you have made a £135k capital gain and a £1500 a month income.
Of course there are 14 definite and a further 47 potential pitfalls to this plan, and that's just the ones I can think of off the top of my head.
But that's modern btl planning for you.
"It's profitable property business, Jim, but not as we know it "
To my mind the utter b
ds in the matter are the commission hungry advisers and lenders - the facilitators who encourage such plans to become painful reality. Suffice it to say, only the most stoic donkeys make it successfully to the finishing line.Groat said:
This one of mine's just been let:
https://www.rightmove.co.uk/property-to-rent/prope...
Identical to the one with sitting tenant I bought next door about a month ago for £32k (and that was me being generous).
By the way, these are super liquid. They aren't even appearing on the market anymore. My agent is hosting a guy up from London today with cash to buy a dozen at least. And he's in a queue. He'll probably be going back empty handed because the stock just ain't available. There's cheap stuff, but it's all got issues. The good cheap stuff (sub £40k) is just impossible to find nowadays. Back to the sourcers (groan). Wish the government clowns would do more stupid stuff and get more desperadoes selling up!! A bit of brakes on rising prices wouldn't hurt either.
OF COURSE these are the kind of properties the OP should be trying for his first time foray into btl. His OP plan is not totally without merit, but almost is.
That’s very interesting, although I can’t help wondering why these properties aren’t more expensive if there’s a queue of buyers with handfuls of cash? Basic economics would suggest that their values should rise to meet demand. https://www.rightmove.co.uk/property-to-rent/prope...
Identical to the one with sitting tenant I bought next door about a month ago for £32k (and that was me being generous).
By the way, these are super liquid. They aren't even appearing on the market anymore. My agent is hosting a guy up from London today with cash to buy a dozen at least. And he's in a queue. He'll probably be going back empty handed because the stock just ain't available. There's cheap stuff, but it's all got issues. The good cheap stuff (sub £40k) is just impossible to find nowadays. Back to the sourcers (groan). Wish the government clowns would do more stupid stuff and get more desperadoes selling up!! A bit of brakes on rising prices wouldn't hurt either.
OF COURSE these are the kind of properties the OP should be trying for his first time foray into btl. His OP plan is not totally without merit, but almost is.
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