Is BTL now only viable as a retirement plan?

by Readers Question

9:03 AM, 13th July 2017
About A year ago

Is BTL now only viable as a retirement plan?

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Is BTL now only viable as a retirement plan?

I have gone round and round on whether to continue with BTL and I keep walking into the 2 same issues:

1 – If I incorporate, tax rates are such that I could only take a small proportion of income (i.e via dividends) as long as I work
2 – If i don’t incorporate, I take an immediate hit to earning through section 24 and this is dramatically exacerbated by the inevitable interest rate rises

Am I wrong? I was planning on quitting work at some point to focus on BTL, but until I do I feel like I’d be investing in a non-investment, which has the risk (if house prices drop) of giving me real problems.

Appreciate people’s views? Have I missed something on incorporation?

Richard



Comments

Neil Patterson

9:48 AM, 13th July 2017
About A year ago

Hi Richard,

When I was a mortgage advisor over many years I spoke to thousands of Landlords and future landlords and easily the most common reason for starting was as a retirement plan so nothing in itself wrong with that.

On the Limited company front yes there is 20% corporation tax (lower than high rate income tax) and you can take directors loans back out tax free, but then you need to consider dividend tax although the first 5K is tax free.

Graham Bowcock

10:44 AM, 13th July 2017
About A year ago

Dear Richard

I am looking any my own portfolio, which is partly in partnership and partly in company ownerships, to see if we can produce more cash. Unfortunately the answer is no and, even after more than twenty years of building it, it remains a retirement vehicle with the best way to raise cash by selling off property.

I am always amused by those on this forum, and in the financial pages of the papers, who set our bold plans for retirement aged 40 when they're about 25! Having been pretty serious about property investment myself, 40 has come and long gone (as has 50). However, what we do have is a well funded, balanced portfolio which is straightforward to manage (mainly residential on the same estate with some offices elsewhere). Our equity is good as we have bought for capital growth in an area of high value properties.

We could have bought for income in lower value areas but that's not our interest and, as we know you don't get anything for free, this would be much harder work to manage (more voids, poorer tenants, arrears, etc.).

As a valuer with a specialism in portfolios I have seen everything when it comes to BTLs and HMOs. I have seen some very well managed low value (high yield) properties where the owners 100% understand the market and their tenants (and the tenants understand the landlords) and I know I could not do what they do as well.

If you want cash you need yield, which is usually lower value properties. Commercial properties usually yield more than residential, but as a rule capital growth will be slower. With a bit of time you could look for properties to make a quick turn on (i.e. refurb or redevelop) but that's a slight move away from investment.

I have been taking some expert advice on my own position and everyone I meet says most property owners are asset rich and cash poor, so back to the beginning - it's really a retirement plan.

Graham

ilc72

20:39 PM, 13th July 2017
About A year ago

I have only just started out on my BTL journey and have invested an unexpected windfall in acquiring a few apartments.

Luckily all were bought before the SDLT hike and S.24 but with sensible tax advice from this forum I have mitigated as much as I can the impact.

I invest locally in the South East in apartments that are close to both (a) Corporate Headquarters and (b) fast rail links to central London.

I know my target market, mostly Company Let Agreements, and maintain high quality properties.

To be able to ride the up's and down's of the business cycle you need to keep leverage at a sensible level and also stick to areas of the country where capital isn't as much at risk.

In some areas property prices still haven't recovered to their pre financial crisis levels, whereas in other areas prices never fell more than 10%.

I will never have a 1000 properties but I know I can sleep at night.

As for interest rates, due to structural and demographic factors, it's unlikely they will hit 2.5% but we're far closer to the next downturn than upturn.

Realistically we're looking at more Quantitative Easing to stop deflation than higher interest rates.

I very much see this as a retirement plan, alongside a pension which won't be worth much!

Hang on in there, no such thing as a get rich scheme in property, unless of course you go for the subletting onto Air BnB scheme that seem to be doing the rounds.

Richard U

12:26 PM, 14th July 2017
About A year ago

Sounds like a may need to reconsider my approach as think my retirement plans are sorted. I want salary replacement now. You may have been joking Ian, but FHL is definitely on my radar, also considering commercial but I have 0 knowledge in this space and feels like different skillset (valuing tenant businesses)

H B

19:40 PM, 14th July 2017
About A year ago

Reply to the comment left by "Ian Clifford" at "13/07/2017 - 20:39":

You seem to have things sussed out pretty well. Good luck with you new venture.

I was wondering what part of London you bought in and whether you went for new build it not? There's a lot going up in Croydon and I was wondering what their prospects were.

ilc72

22:20 PM, 14th July 2017
About A year ago

Reply to the comment left by "H B" at "14/07/2017 - 19:40":

Avoid London at all costs if you can, I personally suggest Farnborough, Basingstoke, Woking, or Guildford.

In order of cost the cheapest is Basingstoke, Farnborough, Woking, and then Guildford.

Farnborough is a 35 minute journey into Waterloo and has BMW, Fluor, and many other multinationals with large offices so is my preferred investment choice.

Rents range from £1,200 to £1,500 a month for properties under £300,000.

Also good road access to M3.

Nick Thompson

16:33 PM, 21st July 2017
About A year ago

Reply to the comment left by "Neil Patterson" at "13/07/2017 - 09:48":

Thank you for this information.

ilc72

16:42 PM, 21st July 2017
About A year ago

Reply to the comment left by "Nick Thompson" at "21/07/2017 - 16:33":

Hi Nick

If you're interested in learning more always willing to talk to fellow landlords, it's always good as you learn a lot.

Regards Ian

Jim Taliadoros

10:44 AM, 22nd July 2017
About A year ago

Reply to the comment left by "Ian Clifford" at "14/07/2017 - 22:20":

I get that in catford for under 300k. And it's close to central London....zone 3.


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