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Building Property Portfolio through Ltd Co


gavin tonks

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Hi hubbers,

I have had to take a break from investing to concentrate on buying a family home here in Dublin, Ireland. I am originally from Leicester and have 5 BTLS there, all held personally.

Now that I have secured the family home, I am ready to kick on with my own plans.

I'm looking to create a Ltd Company and grow a portfolio over the next 10 years. I have 25k per year to invest (hopefully more) so my aim is to acquire 1 BTL per year. The aim after 10 years would be to draw an annual salary, and then sell my 5 personal properties for a lump sum, like a pension pay off. I'm 39 now and want to retire at 50.

Keeping things super simple, using the below example as a 1st property (purely for maths).
Would I need to pay Corporate Gains Tax on the 3,210 ? Even if it's being rolled up to help buy other properties?

Purchase Price Equity Loan Interest @ 4% Annual Rent Management Fee Annual Profit
100,000 25,000 75,000 3000 6900 690 3210

 

If my aim was to acquire 10 properties, each with an annual profit of 3k then that would give me an annual salary of 30k. I know these figures are modest. What would be a reasonable annual target ? I'm looking for both capital growth and good rental. For example, I do not want to acquire super low value flats with no re-sale value. 

Also - If I am correct, if I sell my 5 personally held BTL's and release 250k equity. I could lend this money to my Ltd Co and use it to purchase further properties, and then repay myself the 250k monthly (Therefore, creating another income stream).

If anyone has experience on building a portfolio within a Ltd Co I would love to hear from you. 

 

Thanks all

 

Gavin 

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50 minutes ago, gavin tonks said:

Would I need to pay Corporate Gains Tax on the 3,210 ? Even if it's being rolled up to help buy other properties?

Yes although there would probably be some allowable expenses that would reduce your profit further. If you are conducting refurbishments of the properties you buy then you may find you run a loss for the first few years which can be carried forward to offset against future rental profits. It could even be a few years before you pay any corporation tax at all.

 

53 minutes ago, gavin tonks said:

If my aim was to acquire 10 properties, each with an annual profit of 3k then that would give me an annual salary of 30k. I know these figures are modest. What would be a reasonable annual target ?

1 property per year seems like a reasonable target to aim for. I am also looking to buy one per year in my limited company. Sometimes I get slightly less and this year it is looking like I will get 2 in. You will find that your portfolio starts to snowball after a few years due to increasing rental profit and the ability to refinance properties and release further capital to buy more (assuming you want to do this). This will be helped further by the low corporation tax environment and ability to deduct mortgage interest as an allowable expense. This will help to compound your returns quicker.

55 minutes ago, gavin tonks said:

Also - If I am correct, if I sell my 5 personally held BTL's and release 250k equity. I could lend this money to my Ltd Co and use it to purchase further properties, and then repay myself the 250k monthly (Therefore, creating another income stream).

Why sell? Can you not look to access some equity by refinancing? That way you can still benefit from further capital appreciation and rental profits in perpetuity. If you are looking to retire at 50 then these properties would come in handy to support that and with your income being reduced due to retirement you would pay less tax on them. 

 

David M Slater ACMA 

Accufy Accounting  - Proactive accounting for property investors 

0208 242 4926    info@accufy.uk

 

 

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Thanks for your reply David - Much appreciated.

In relation to selling the personally held properties, I guess I would consider keeping them but I'm not sure  about re-financing them. I have done this a couple of times in the past and as I am an Ex-pat the rates and charges are quite painful, I think it's only worthwhile if you re-finance once per property and for a substantial amount. I have rates between 4.25 - 4.75% with Shawbrook. I just couldn't get anything better as I'm not UK based. I have been informed by my broker that I could get rates of circa 4% if using a Ltd Co. 

I have also looked at how it might work if I were to build a BTL Portfolio in a Self Administered Pension Fund. Did you consider this route?

I'm keen to make a decision on my best vehicle by year end so I can set myself targets from Jan 2021 and go from there. 

Thanks again,

Gavin 

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Gavin

Regarding refinance I like to do it once after the first 5 year fix comes to an end. This is to release my initial capital. I am content then to leave the asset alone and allow inflation to play its part on my debt in relation to the increasing value of the property. 

You can only buy commercial property through a SIPP so residential would not work. You can also use a Small Self Administered Scheme (SSAS) for commercial properties but can also lend money to a linked limited company to purchase property (I think this would include for residential property). This might be an option if you have built up a decent private pension or have a suitable work pension that you could transfer into a SSAS. This is a highly specialist area though so you would need to take advice from a financial adviser suitably qualified and experienced in SSAS'. There are a couple of books about it on Amazon. I read this one which was useful for an overview. This is an area I might look at in the future but not for the time being.

If you need any help with regard to setting up a limited company and property accounting you can reach me on david@accufy.uk.

Best of luck with everything.

David M Slater ACMA 

Accufy Accounting  - Proactive accounting for property investors 

0208 242 4926    info@accufy.uk

 

 

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