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Do my property numbers make sense?


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HI all,

I have recently been thinking about investing in BTL but I just can't seem to make the numbers stack up when it comes to returns in other avenues and I notice this was picked up by someone else earlier in this forum. 

I have created a model outlining an acquisition of a fairly cheap property but it appears that the returns are very skinny on a personal basis and loss-making held in a corporate structure (my numbers suggest to me that a corporate structure requires a large enough portfolio such that the tax benefit offsets the significant increase in costs).

Is anyone able to take a look through my assumptions please and let me know if my numbers make sense in terms of a property and tax basis? If anyone has any test-cases, perhaps from a deal they've done in the past, I would also really appreciate putting the parameters into the model to see if my number is throwing out the correct results?

Is it just the case now that BTL is a very low-returning investment, relative to the hands-on management and risk, as a result of government policies?

Corporate Structure BTL Model Microsoft One Drive

Personal Structure BTL Model Microsoft One Drive

Thanks

 

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I've not looked at your figures but I have some experience in property and this might help explain the apparent lack of profitability.

1. I never made any money on a property in the first year of owning it.

2. I made no money from my portfolio for the first 10yrs as all profits were ploughed back in to buying the next property.

3. 20 years on I am making good money from a portfolio of about 10 houses jointly owned with my husband (thus keeping below the higher rate of tax).

 

The reasons it works eventually:

1. You only use a little of your own money & a lot of the banks.

2. Over time your rents increase but your mortgage doesn't so you make more

3. A lot of your costs are in the early days - buying, refurbishing, setting up your rental. Many of these expenses eg new bathroom, won't come around again for many years

4. Over time the value of your  property goes up - so you make capital on your original investment & also the mortgaged money.

For all the above reasons property is a long game not a get rich quick scheme. There were times I wondered why I did it but I am reaping rewards now. On the other hand, I'm not sure I would get into property now - so much extra regulation with associated costs!

Hope this is helpful & good luck :)

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Thanks, I guess my concern is that under a personal acquisition structure I estimate that my annual return would be just 3.5% over ten years which is quite some way below what you could earn putting it into some sort of tracker fund through a S&S ISA. This is assuming of course that my model is modelled accurately and correctly - in terms of assumptions and taxation

 

I am a higher tax rate payer and there is potential to be in the additional rate in say the next 10 years or so, hopefully earlier, so the tax is important. 

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The tax on any profit from housing will be decimated if you own this as an individual - 40% tax really stops it being worthwhile so I think the only way it works for you is in a limited company & I have no experience of this - others may be able to advise.

I have run stocks and shares ISAs alongside my property and the beauty of that is the tax efficient structure. I have been able to make money out of property because I didn't have any other income, so I stayed a 20% tax payer and because I shared my income with my husband - who is now retired -  so our tax bill is relatively low.  It seems to me that if this is a 'sideline' alongside a decently paying job you maybe better with other investments. Of course, if you do venture into property you may benefit in the future - people are often looking to build up a business to replace their income from work but if you plan to run it alongside another career it may not be viable.

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11 minutes ago, julia urquhart said:

The tax on any profit from housing will be decimated if you own this as an individual - 40% tax really stops it being worthwhile so I think the only way it works for you is in a limited company & I have no experience of this - others may be able to advise.

You are right, however if an SPV costs 1.5k per annum to run, the tax benefit from owning it in a company must out weigh this to make it viable. With one cheap property it appears that it makes no sense to hold within a corporate structure, and the risk is that I might not have sufficient capital and/or time to continue investing. 

As it stands it seems like I would be better putting 20k per annum into an index tracker and some into an active fund and ride the market and hope nothing crashes too bad in the next 20 or so years! 

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