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Exit Strategy. Hold forever query


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Hi all,

Hope you are all doing well given the current events in the world.

I am dipping my toes into educating myself in property investment and taking in as much information as i can but I have one question that my brain needs a definitive answer to. 
 

When purchasing property through a limited company with an interest only mortgage can you essentially re-mortgage over and over again at the end of every 25 year period?
So as you grow older and your mortgage term comes around, you just re-mortgage then pass the company onto your heirs. They the become the director with say X amount on the new interest only mortgage on the same properties, and in theory the cycle goes on and on to great grandchildren etc. 
 

Hopefully that makes sense as I like  to look at the endgame as well as having an established goal at the start.

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Interested in this as well. It put my kids as 24% share holders each with me retaining 52% as I though this would be a easy way to transfer the company with minimum CGT. Turns out mortgage companies do not like this!! There are only a few that will lend with kids as shareholders. 
from what I understand if the kids become Directors at 18 they would take on the new remortgage. 
 

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Good question, in theory I don't see why you couldn't but why not consider switching to a repayment mortgage partway through the 25 years? When would depend on how quickly you are purchasing other properties for the portfolio. When you have the magic number of properties the rent coming in should be able to cover interest and capital which would decrease your tax liability for the Ltd. Then when you come to pass the company on you have fewer if any liabilities and they can worry about paying more tax!

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Hi Craig,

I'd be very interested to see what people think about this. My understanding is that the majority of lenders want directors of the company to demonstrate a certain level of income outside of property and to act as guarantors for the loans.

I believe there are limits on ages for personal mortgages. Not sure if the same applies to company mortgages.

The other thing to mention is that, if we're looking 25 years down the line, the mortgage landscape is likely to be completely different.

Someone who knows more than me, I'm sure, will be able to comment on how it would work if you were currently in that scenario.

Andrew

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I'm not a mortgage broker so excuse me if I have this wrong. 

1) Why a limited company? If you want to pay yourself a wage you are going to pay Corporation tax at 11% and then income tax at your higher rate. If you buy the property in your own name you avoid the corporation tax. Of course a company does offer some tax benefits as well. If you are looking to take little income out and pass on most of the wealth, a company might be best for you. You probably need a tax advisor to make this decision. For me it works best to own the properties personally at the moment. I might change this before I die!

2) I understand that the lenders will look at BTL as funding itself. So long as the "business" is able to pay the load they will agree to it. Of course, your children can be gradually introduced to the company with shares being passed on and them gradually taking on more knowledge and responsibility to give them the experience required by lenders.

 

In short I think your strategy is sound. 

 

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I have set up a limited company and intend to do exactly this. I've got a couple of properties in it already and every few years will remortgage them keeping them at approximately 75% LTV. I have no intention to ever pay them off. In my opinion, if you pay them off, then the value of the property is simply dead money that you can't invest.

Whether I'll be able to continue remortgaging them remains to be seen of course as laws and policies change.

I would point out that mortgage companies do like your limited company to be set up specifically for property though - don't try and use an existing company in a different market segment.

At the end of the day though, it's your choice and what the mortgage companies will accept in 25 years we don't know. Do what you feel comfortable with - what is your appetite for risk?

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On 6/12/2020 at 8:20 AM, alex wright said:

Good question, in theory I don't see why you couldn't but why not consider switching to a repayment mortgage partway through the 25 years? When would depend on how quickly you are purchasing other properties for the portfolio. When you have the magic number of properties the rent coming in should be able to cover interest and capital which would decrease your tax liability for the Ltd. Then when you come to pass the company on you have fewer if any liabilities and they can worry about paying more tax!

This is something I had not thought about. Would just have to be carful around cash flow issues.

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On 6/12/2020 at 11:03 AM, rick_a said:

I have set up a limited company and intend to do exactly this. I've got a couple of properties in it already and every few years will remortgage them keeping them at approximately 75% LTV. I have no intention to ever pay them off. In my opinion, if you pay them off, then the value of the property is simply dead money that you can't invest.

Whether I'll be able to continue remortgaging them remains to be seen of course as laws and policies change.

I would point out that mortgage companies do like your limited company to be set up specifically for property though - don't try and use an existing company in a different market segment.

At the end of the day though, it's your choice and what the mortgage companies will accept in 25 years we don't know. Do what you feel comfortable with - what is your appetite for risk?

Yes we can’t predict the future and things can change. 

I am please to see you are perusing a similar strategy but maybe the risk that this may not be viable in 25 years is to much for me. 

I am setting up a LTD company for the sole purpose of purchasing property and aim to purchase one every two years to begin with. As Andrew pointed out I will provide myself as guarantor to begin with as I cover the threshold for income. I would not be withdrawing anything as I have a solid job that I will be in for at least another 15 years.

It all just hinges on the exit strategy, and as of yet I’m struggling to find someone who has executed the hold forever (pass the company on to heirs) strategy. It has always been in combination of other things e.g sell half portfolio.

 

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