Deciding the way forward for my exit?

Deciding the way forward for my exit?

9:33 AM, 20th January 2021, About 3 years ago 34

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Hi, Having been a landlord for nearly 30 years I have a dilemma in deciding my best exit plan. I have a portfolio of 10 properties (2 houses and 8 flats). They are all interest-only mortgages but on good terms. The portfolio is straightforward enough to run and I self-manage and work hard to have a good relationship with my tenants. So all is calm and working as it should.

However, at 54 years of age I need to start to plan my exit plan and how I will convert this portfolio of ten into a reduced amount of hopefully three mortgage-free units that will, in turn, provide an income for my retirement. I would ideally like to retire at 60. I currently work running my own modest facilities management business, so I am financially self-sufficient whilst I remain working. I have no formal pension, so the rentals need to provide an income on retirement.

Four of the flats in the portfolio, which are good renters and attract top rates are on low leases (45 years). The mortgage has only 7 years to run at which point I will need to pay them off or sell to a cash buyer (they will not be suitable for a new mortgage due to the low lease).

I have just struggled through a lease extension on one of them at a cost of £44k including costs. I now need to sell this flat to get the lease outlay back and then serve notice on the next flat in that block to extend the lease and so on until all four flats have been extended and sold. It’s a shame because they are good flats.

After the lease extension costs and mortgages are settled I won’t have more than about £15k left after each sale. The benefit of these flats has been their location and the high rents they attract in relation to their value.

So would the more savvy investors on here have any ideas forward?

1/I am wondering whether there are lenders who will refinance a whole portfolio at a sensible rate and what the hassle and cost of doing that might be?
2/To carry on with the current plan to sell property a year until I have enough funds to pay off the last 3 mortgages in my portfolio and keep those three properties as my retirement income.

These are strange times to make big decisions but decide on a plan I must.

Any suggestions gratefully received.

David


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Comments

David Dorset

12:15 PM, 21st January 2021, About 3 years ago

Reply to the comment left by Paul Shears at 21/01/2021 - 06:37
Hi Paul,
My remark was a bit tongue in cheek. I mean that with my financial planning I don't need to consider leaving money to children etc as I don't have any. So I need to make my money and assets work for 'me' while I am alive as afterwards they will service no useful purpose to myself or my family. I will of course adjust my will to leave money to friends and that will be nice surprise for them I hope but I have worked incredibly hard used brute force rather than brains to get what I have so it is just natural instinct to not to want to see a chunck of that go to people who haven't worked for it. I think you have sound like you have reached a good place and fair play to you. Hopefully you get to enjoy it for a long time and yes if the worst happens
you could say oh well so what? I understand that point.

David Dorset

12:32 PM, 21st January 2021, About 3 years ago

I have really created this post to get other experienced landlords views on my exit plan. Had some good information to suggest waiting on further lease extensions would be wise if I can afford the wait. I am definitely going to explore this one.
Others have agreed with the sell one a year and end up with three or four properties (plus my own home) mortgage free, so a free home with no rent or mortgage and an income.
I don't think I can incorporate and keep all of the properties as I looked at this and the capitol gains etc looked like it could be very involved. Plus commercial financing has much less protection than private residential mortgages do. Had a landlord friend have his entire loan called in a short notice for no reason, He couldn't pay it all at once so they reprocessed his portfolio and charged him a massive amount of fees for doing so.
Any landlord, not posted on here, said for my partner to see up their own lettings, management and n book keeping business and charge full market rates for that. That looks promising as it would lower my income (due to the increased tax I pay due deduction of interest relief on mortgages). As a result I am now a high rate payer) and this plan seem be fairly straight forward and as far as I can see legal as well . It would reduce my income and thus high rate tax and the costs would go into my partners limited company. We keep our money separate but it would be beneficial nevertheless.
Any other options would be good - particularly the type of rate and rules and experiences of landlords have one mortgage loan for all their property.

The Secret Landlord

7:36 AM, 23rd January 2021, About 3 years ago

David,

It's difficult with a relatively short time frame of your mortgage expiry and being with a lender who is not a lender plus the short leases. I can understand your anxiety and fear of waiting.

The leaseholder reforms, I fear, may not be as great as what people have claimed. I believe there will still be a way for Freeholders to claim their cash (i.e. marriage value etc), but I think it may be worded differently. Perhaps I'm overly cynical, but having dealt with a few Freeholders over the years, I do not expect any of them to sit back and not challenge this.

Hence, these reforms could be years away and watered down.

But this is my view.

I really feel you should speak with your accountant about how to structure the business (having a separate co for lettings etc), because there are costs involved in this and you should be sure the set up and running costs of this will make sense for the tax savings.

Your accountant should also assist with regards timing any disposals.

It's good you have started to think now about this issue, because you are right, it is an issue and it is best to forward plan.

I don't know if you've had the flats valued recently or looked into the saleability of them with their short leases. They will likely be very attractive to cash buyers who are chasing yields - this is not something to be overlooked in the current environment, and thus, I'd find out more as today's market of low bank interest etc, may mean your flats are of more interest in today's market.

Andrew Miller

10:37 AM, 23rd January 2021, About 3 years ago

David, it's so important to plan your exit in any commercial enterprise. Despite this it's surprisingly uncommon for people to do so when they start it.

If you are going to enjoy working this through on a transaction by transaction basis then that will most likely leave you with the best financial outcome.

However, if you can fix your financial goals now and reconcile that in your head then you could avoid the stress of "maxing out" every last penny from your portfolio. This can be a much less stressful way to go and provides certainty which you can tie up in a legal agreement and get on with your life.

You would need to build a relationship with an investor who wants what you have and to agree a transparent and scheduled transfer of the assets to satisfy both parties.

Not necessarily the highest end value for you, but what price is certainty and your valuable time back?

Good luck, Andy

Amjed

13:59 PM, 23rd January 2021, About 3 years ago

Reply to the comment left by at 20/01/2021 - 11:30
Rent to buy is excellent suggestion but you would still need to extend the lease

David Dorset

22:59 PM, 23rd January 2021, About 3 years ago

Reply to the comment left by Amjed at 23/01/2021 - 13:59
Hi Amjed,
Yes I agree but I am not sure my area is the best for rent to buy as we have a very transient renting population. We are a population of many different nationalities here and it is common for people to move here from another country and stay for a few years and then move on. In addition we are a large international language school catchment area and university town as well as a tourist destination. Our town has a great atmosphere because of this and I love the different cultural influences we have, the only downside is always people arriving to live here and always people moving on.

David Dorset

23:10 PM, 23rd January 2021, About 3 years ago

Reply to the comment left by Andrew Miller at 23/01/2021 - 10:37
Thanks Andrew,
Yes I am glad I have started to think about this now whilst time is still on my side. I do have a couple of contacts that have larger portfolios and are well known to me. I have considered what options could be possible for me to transfer over to them and even continue to manage the properties for them. They have their portfolio as a kind of family trust so they are in it for the longterm and will hand down from generation to generation. What value is my portfolio to them would be an interesting thought.

JOGL

17:31 PM, 24th January 2021, About 3 years ago

This issue of forward and succession planning has been at the back of my mind for a while now. While I am 61 now, I keep fit and my wife and I do most of the maintenance on the properties ourselves. That includes fitting new kitchens, bathrooms, plumbing, heating etc. There are over 50 houses and flats in West Sussex, Surrey, Berkshire (Maidenhead) and Hampshire (Southampton). It's got to the stage now that we are re-fittimg kitchens and bathrooms last done 15 to 20yrs ago and wondering whether we'll be doing them again when we'll be 80 odd....no reason why not. It's been our primary source of income since 2001.
I do have electricians / plumbers/ gas safe but I enjoy the involvement. Our daughter is 18 and she will get the lot ultimately.
So, while we set up an SPV in 2015, the majority are owned by me, my wife and jointly. The only succession plan We've come up with is death!....whichever one of us dies first, the other gets the balance and that is revalued on death to market price...then sell and gift the proceeds to our daughter and hope the survivor lives 7 years lol. Not very scientific, I know.
The main threat has always been state intervention (regulation, taxation)...not the market. Nothing much we can do about that as any sector that is perceived to have done too well is in the gunsight. You know what the view is in this country by the difference in attitude to success. If an American sees you with a Rolls Royce, he aspires to own one too. In the UK they hope you go up in a ball of flame inside it.
We have half a dozen or so short leases which we deliberately left. It's an archaic system crying out for reform, so we're optimistic something will happen. Not sure about timeframe though as it could be 1 to 3 yrs.
So we'll just bugger on, pay our inflated taxes and maybe buy a few more this year (through a new SPV with our daughter as director) after the stamp duty excitement dies down and prices abate.

JOGL

17:46 PM, 24th January 2021, About 3 years ago

As an aside to my previous comment, with the specific short leasehold flats that you have, I'd hold on until the lease hold reform is hopefully completed, in the next 1 to 3 yrs. Then once the marriage value is abolished (am I being too optimistic?), remortgage them and extend the lease simultaneously .
I know nothing of the financials here, but would 75% LTV work for you...if you have enough existing equity to incorporate a lesser lease extension cost inc. of the lease fee? Is that not a possibility?...perhaps someone else can comment?
I may be rambling a bit here, but I'd try to keep as many as possible, not just 3. Dilute the risk and increase the revenue.
As for retirement....everyone is different and I respect that. But I'm 61 and that is not my thinking... I'd rather die with my working boots on!

David Dorset

18:10 PM, 24th January 2021, About 3 years ago

Reply to the comment left by JOGL at 24/01/2021 - 17:46
Thanks for the message JOGL. I would have 75% loan to value and do intend to do as you suggest and wait it out on the basis of a better outcome after the new legislation comes in. I too will likely die with my working boots as you put it, but by 60 I want to know that if the boots aren't working for any reason then I don't have to worry.
I mean the best job in the world is the one you do because you like not because you have to right?
Keep on renting!

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