Do I get in now?

by Readers Question

15:02 PM, 14th September 2016
About 2 years ago

Do I get in now?

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Do I get in now?

Hello all – I am looking for some non-legally binding advice! Just your opinions and thoughts on the current market and how you would act in my situation.get in

By way of background I am 27 years old, own my own property which I live in and I am thinking of pursuing BTLs. Given the recent changes in tax allowances, I am strongly considering setting up a company to own the property as I fall into the 40% tax bracket. Would you recommend this for a first time buy to let investment or would this be considered too complex and therefore looked down on by major lenders? I am guessing I would also have to pledge a personal guarantee in favour of the company.

As I already own one property, I would be eligible to pay the increased stamp duty on any second purchase (3%). I have thought and done some initial reading on purchasing properties in trust for my niece whereby I (think) I would not have to pay the increased stamp duty on the purchase. Does anyone have an experience of this and in my situation should it be something I consider?

Finally, if there is no way to minimise my tax burdens would you recommend BTL to someone in my position at all given the headwinds the market is facing from legislation? Overall my gut tells me to get in now considering the fundamentals of property ownership are still looking grim for many in the UK.

All responses really appreciated!

Matt

 



Comments

Neil Patterson

15:05 PM, 14th September 2016
About 2 years ago

Hi Matt,

On the Ltd company question that is the way the vast majority of new BTLs are now purchased so with a good accountant do not let that on it's own put you off as there are plenty of lenders that will consider company BTLs. You just won't get the mega deals or LTVs, but that is way better than paying the extra tax especially as you are already a high rate payer.

Please see >> https://www.property118.com/finance/

https://www.property118.com/tax/

Ian Hamilton

9:36 AM, 15th September 2016
About 2 years ago

Hi Matt,

Have a look at the housecrowd .com. All the returns of property investment without the hassle. Build a secure portfolio secured against real bricks and mortar! I do and highly recommend them. Crowdfunded property investment its the future!

Cheers

Ian

Charlotte Walker

9:38 AM, 15th September 2016
About 2 years ago

As you have correctly identified, getting into property investment is now more of a challenge than in years previously. If you are determined you will succeed, if you are looking for easy money, well, that comes later after you have mastered the process. Get good advice, read some books (start with Amazons top 10 property books or audio books) stay legal and steer a steady course. In my opinion, don't be persuaded to part with large sums initially for training or mentor ship (it works for some, but is it just abdicating responsibility?) until you have a sound understanding of what it offers or entails. It is easy to get excited about the shiny penny, but first identify the type of property business that would suit you, the skills you have or are prepared to learn and the life you wish to build.

Mike W

13:44 PM, 15th September 2016
About 2 years ago

Matt it is exactly the same as investing in anything - eg shares. If you understand it its easy.But relative to past years property is more difficult.It is clear that the conservative government have become anti landlord. Do you think they will change? or will it get worse? Are they anti investment? Look at the increased ISA allowances for shares.
My own view is that landlord life will become more of a hassle and a risk. Would I do the same again - yes if the returns were the same but if they were not the same - no. So what caused house prices to escalate way beyond average wages? External demand? Post brexit where will that external demand come from? Will house building really take off? Or will someone start asking questions about why is it possible to borrow money to invest in property but not to invest in shares? And if its not possible to borrow to invest in shares why is it possible to borrow to invest in property? Yeah I'm making an issue but we all know that is exactly what the government is doing!
Make sure you understand your investment. As they say in the stock market past performance is no guide to future performance.

John Frith

14:34 PM, 15th September 2016
About 2 years ago

Reply to the comment left by "Mike W" at "15/09/2016 - 13:44":

It IS possible to borrow to invest in property OR shares. I suspect you meant to say it is not possible to offset the cost of borrowed money against profits when investing in shares?

Sam Addison

14:57 PM, 15th September 2016
About 2 years ago

I would avoid buying in trust for someone else to avoid 3% duty. It is too likely to cause you problems later. You can buy a run down property (therefore cheaper - less stamp duty) and do it up (if you are up for this). This will save you money at a cost of hassle and trickier mortgage terms.

I assume you are looking at this because you have current and future savings which you want to invest. If not property then where else is any better? If you buy shares, whether in a property co or something else, you have no control over what happens. Would you have thought your money safe in shares in Enron?

New Investor

18:34 PM, 15th September 2016
About 2 years ago

Thanks for all the great comments. I understand this isn't a decision to take lightly and the general comments here back that up.

When we talk about returns in property investment, do people consider the increase in capital value in their decision making process? I haven't included it in any of my calculations as i'm seeing it as pure upside if it occurs, i'm just looking at yield of c.5%.

Neil Patterson

19:42 PM, 15th September 2016
About 2 years ago

You might find our Landlords calculator useful >> https://www.property118.com/calculating-rental-yields-and-returns/
🙂

Sam Addison

20:49 PM, 15th September 2016
About 2 years ago

Reply to the comment left by "New Investor" at "15/09/2016 - 18:34":

In the relative short term capital increase is a matter of luck and timing.
Personally I own cheap properties (ÂŁ60 - 70k) which are not going up noticeably but before deductions my return is about 8% (6% net using letting agent). I just manage to keep below 40% tax. I expect that over the decades the property values, and the rental income, will on average keep up with inflation. This suits me since I am in my 60s and will be using the rent as my pension in a few years time.
Your situation is different and, if it was calculable, you might be better off with lower rental and higher capital gain. Recently this has been the case in London where rental yield on value of less than 5% has not been unusual.
Just remember the usual warning - past performance is no guarantee of future performance. (particularly where politicians are involved!)

Steven Burman

14:10 PM, 20th September 2016
About 2 years ago

Reply to the comment left by "Ian Hamilton" at "15/09/2016 - 09:36":

Ian

It is reassuring to hear your comments about Housecrowd. I have a small investment with them that is due to pay out at the end of this month. I resisted the temptation to invest heavily until I had 'tried them out' first.

Once I am 100% happy with them I will be investing considerably more.

I assume that you have greater experience of them than I? Are you 100% happy with the investments you have made?

Matt - I agree with Ian that you should look into crowdfunding as an alternative.

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