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Hi folks, help on going forward


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Hi everyone, I'm Tristan from Beds, looking to take the plunge and invest in a BTL finally. Up until now I've admittedly been a bit of lurker, absorbing as much content as I can from the Hub, a big thanks to the Rob's for the podcasts, they've been a great help!

I was hoping if someone might be able to provide a bit of advice on the best way forward for me, I am a first time buyer, currently employed. My father has already established a steady portfolio, including several flats recently bought within a limited company which I am also a director of, his portfolio also consist of several properties in his own name, some unencumbered. 

 

I'm looking to invest in the East M and target properties circa 100k, ideally refurb and eventually refinance. I'm looking at a range of finance options to hopefully recycle some of my deposit and refurb costs when it comes to refinancing, What I'm stumbling on is whether I'd be better of buying within the ltd co. or personally, taking into account the SDLT rules and the finance that's available. My father has said he can be a guarantor buying in my own name where I would be exempt from SDLT, would any experienced investors be able to advice on the best way forward here?

 

Many thanks.

 

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Hi Tristan

 

You are referring to the second property SDLT premium of 3% and being exempt from this with your first purchase if made personally. So, notionally it would save you c£3k to do this. That's the first point.

 

The second is that often finance is more expensive when buying through a company than personally, although I am not clear on whether you could use the existing company you are a director of or a new one. If the former, you may well find that affords you better finance terms. So, check into the relative costs and do some sort of 'total cost of ownership' comparison between the two finance routes. TCO means looking at the full term of ownership assuming different purchase methods...you find that an extra 0.5% on the mortgage rate adds up to quite a bit over the long-term.

 

Next, the after-tax position. This can get VERY complicated and is very personal but I assume you are aware of the new mortgage interest offset rules being brought in from this April that will affect a large number of investors using their own name. I attach an article, where I shared the essence of these changes and what I call the 'Danger List' to give some insights here. For example, if you are a higher-rate taxpayer, then you will effectively have to pay more tax on your rental profit (or even if not making a profit!) going forward.

 

Finally, what is your end-game and exit strategy? If you foresee yourself following in your father's footsteps and having a reasonable-sized portfolio, then you should consider how you hold your properties. However, this is not always a straightforward exercise as this podcast episode illustrates: http://www.thepropertyvoice.net/property-financing-raising-saving-money-tax-efficient-business-structures-s3e15/

 

My advice is this - don't let a short-term gain of around £3k cloud your longer-term judgement. If you only plan to have one property and will remain a basic rate taxpayer, then buy in your personal name. But, if you plan to grow, or if one day you plan to buy yourself a large home to live in (and then have the SDLT premium to pay), then make your decision on your long-term objectives and ignore the £3k short-term temptation.

 

Best

Richard

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Richard W J Brown a.k.a. The Property Voice

Property Investment Strategist

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Hi Richard

 

Thanks for your detailed reply, that has helped a lot with my planning. I am looking to start building a steady portfolio for myself like my father and would be using the existing company to make purchases if I went down the limited route. I will start speaking with mortgage brokers to see what finance is available, if anyone has any they can recommend for limited companies that would be much appreciated!

 

Thanks

Tristan

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