UK Landlord Forum / Life

We've accidentally fallen into being landlords because of having a second home which has not appreciated in value since purchase and which has no mortgage on it. The house is in the name of a higher rate tax payer (my other half) and I already have small company for my day job, so don't have any unused tax allowance. We have a good tenant in place who is about to enter their second year in the property, paying £475pcm - no agency fees.

Our accountant thinks we should take advantage of these rare circumstances and move the house into a limited company. No CGT, below stamp duty threshold, lower rate of tax on profits. All makes sense.

He also thinks we're missing a trick by not then taking out a 60% mortgage on the property (around £70k) and using it to make a second investment. This would either buy a 'nearly 3-bed' house near the first one (an area where prices are stagnant at best), or a 1 bed flat nearer to where we now live (where property is generally still appreciating). Or we could buy to sell instead and try to find a sound fixer upper - we have trusted contacts and know fairly well what to look out for. We could put another £10-15k towards it if we needed to but otherwise are not wealthy so don't want excessive risk.

Realistically for our £70k property we'd get £400-500pcm in rent, on a repayment mortgage of about £300pcm - with prices not going up, we'd be dead set on paying down the loan ASAP. This sounds like far too fine a margin for my liking, once insurance and agency fees are paid. But lumped in with the other house it's more like £900pcm gross, which potentially gets the mortgage used to buy the second house paid off in decent time and we end up looking better for it in ten years' time.

Is this madness? Is the benefit so small compared to the hassle that we should we stick with the one rental, or start now on a long term plan to make the money we already have tied up bring us a return? Is it an insane economic time to even be thinking about buying property to let out? I hear this is the place for brutal advice, so go ahead and let me have it.

This Government has had it in for Landlords. If Jeremy Corbyn does even better next time 'round, could be this year, envisage a time where it's Landlords jumping off bridges. Your Accountant is recommending things like this as it's easy, it's not their money... it's not their hassle. If you're not in the Landlord game full on, why would you get more property? You have jobs... you didn't want to be here in the first place.

Thanks. I think there's two very good points there which I'll give some thought to - do we want to do this and will the incorporated approach be cheaper in the long run?

To the first one, sort of. I've sort of always wanted to but never had the capital. If I had it, though, I probably wouldn't pick the town we're looking at.

To the second, well - the Osborne-era tax changes are all about targeting businesses using credit to 'clog up' the housing market aren't they? At the moment owning one property with no debt against it looks reasonably safe. If they suddenly double corporation tax specifically for companies that own property, we still wouldn't make a loss and could sell when the tenancy's up. But if we bought a second place by releasing equity from the first, and they go after companies with mortgages like they have sole traders and partnerships with mortgages, I guess that would potentially stop us in our tracks.

Partly I'm asking if I sound like I've understood the general issues right here. These are all big concepts way before I get to such questions as how on earth I transfer my tenant with the property as we transfer it into a new company.

Quote from: webnik on June 12, 2017, 08:10:00 PMTo the second, well - the Osborne-era tax changes are all about targeting businesses using credit to 'clog up' the housing market aren't they? At the moment owning one property with no debt against it looks reasonably safe.

The changes are aimed squarely at Landlords who may not be part of a 'business' per se... just someone buying properties and letting them out (one hopes in a professional and business-like manner). But the removal of mortgage interest relief and the introduction of the 3% SDLT kicker will certainly affect anyone purchasing property and anyone with finance.

Of course having 1 property with no debt against it is reasonably safe. Having 10 properties, or 100, with no debt against them is reasonably safe. 

It is not your typical Landlord who has properties with no debt against, but at least you're looking at repayment mortgages, which is - again - not that typical (but what I do).

Yeah, well we're quite debt-averse. To me the only reason to get an interest-only loan would be if it didn't have the early repayment charges that a fixed period repayment one would. We know it's not that easy to extract money efficiently from a company now that dividends are taxed so much higher so a steady, long term approach seems a good fit. Good luck to everyone mortgaged to their eyeballs and expanding fast but that's not the life for me.

After doing some more detailed research, we reckon there's more than a few houses being sold by landlords who are getting out that are all set up for HMO that could easily get £450 in rent and maybe £600 if done pppw for a purchase price of £50k. To me these sound like quite workable numbers...

Lot of hassle involved in HMO, with more transitory types of people. I stay away from HMO and I stay away from the low-end... but it's fair to say this is where the money will be. If you scale-up a business made-up of low-end or HMO properties then the money will roll-in. I know this as a fact in my brain, but my heart won't let me play in that kind of space.

And, even if you're on a repayment mortgage, there's still interest (obviously) so you will lose-out on the interest relief that used to be there for everyone and soon will not be there for the smaller outfits... or, it'll be there, but at 20%... which, if that's the tax bracket you're in anyway, doesn't matter one jot. A lot of Landlords seem to think it's make-or-break for them.

Quote from: Hippogriff on June 14, 2017, 06:57:36 AM
Lot of hassle involved in HMO, with more transitory types of people. I stay away from HMO and I stay away from the low-end... but it's fair to say this is where the money will be. If you scale-up a business made-up of low-end or HMO properties then the money will roll-in. I know this as a fact in my brain, but my heart won't let me play in that kind of space.

Yeah HMO doesn't appeal, it's just the houses that are being sold in a hurry at the moment seem to be near the town's little university and so are basically all up to spec for that (though you can bet corners have been cut on the decorating!). We'd be happier with families and fortunately this particular little area is popular with them too.

To do this where we live would need a property of 100-150k and the rent wouldn't scale accordingly. If we could afford it, we'd do it, but our options are one of these cheap houses or patience/satisfaction. Both are valid options it seems!

Quote from: Hippogriff on June 14, 2017, 06:59:20 AM
And, even if you're on a repayment mortgage, there's still interest (obviously) so you will lose-out on the interest relief that used to be there for everyone and soon will not be there for the smaller outfits... or, it'll be there, but at 20%... which, if that's the tax bracket you're in anyway, doesn't matter one jot. A lot of Landlords seem to think it's make-or-break for them.

I keep reading case studies of BTL landlords earning 1000 in rent and paying 800 in interest, who will now pay 40% tax on the 1000 and not be able to pay the mortgage. I don't know if those stories are true but that looks like a massive gamble on house prices always going up, because you would never have made much money on £200pm before all your other running costs. For us, we'd only take a mortgage out under the limited company structure, and have enough margin in it that we could still manage if they made similar tax law changes to companies.

(I'd also imagine that you're dealing with a different profile of tenant, hopefully of the sort you feel are more often reliable and long-term, away from this part of the market?)

There are swings-and-roundabouts.

For example, going low-end (not HMO) could mean someone in receipt of LHA. My limited experience here is that these people stay for much longer, possibly for ever. They are less mobile than your professional bunch. Your professional bunch are higher maintenance types too. They are always looking for the next thing... and will, undoubtedly, be looking to get onto the housing ladder themselves. That means the turnover I've experienced has been annual to 18 months (which is actually the average tenancy length in the UK). So... professional Tenants (not the ones who take you to the cleaners, professionally) are not longer-term in the sense you would want. But I would not take on another LHA Tenant with my eyes open.

Being satisfied is a nice position to be in. I have that at work... my boss sometimes seems bemused that I don't want my next band, or the pay-rise or more responsibility... no, because I'm satisfied with what I have any my focus is completely elsewhere. It's more on me, now, not this corporation. I still get paid, I do limited real work... I'll not push myself; I'm satisfied.