Looking to get into property

[ghost83]

So, as of mid next year my mortgage will be clear and the house has gone up from 170k when we bought it to 400k

I’m looking to remortgage for around 150-200k to set this up I will be 40yr old as well so plenty of time

You will have to go gentle with me as I don’t know where to start or the tax implications

I want to get into property, some tell me residential some say commercial,

Others tell me that I need to set up a holding company and limited companies, I’ve been told that if we do it as sole traders we will have 40% tax to pay before any mortgage costs are taken out making it unviable if it can’t re pay any mortgage, whereas if a limited company is setup it’s only corporation tax?

The plan was to loan the business the money from remortgaging, buy a property out right for cash do abit to it remortgage and buy another then carry on doing that till we get where we want to be, ideally over 10yrs we either want 100 houses or commercial units, in the early days we aren’t looking for a wage as we have jobs already

Any advice would be appreciated

[Eric Mc]

Talk to an accountant.

And read various threads on both the Business and Finance Forums here which cover much of what you have asked.

[Ari]

Well they do say zag when everyone else is zigging I suppose...

[MustangGT]

Ari said:

Well they do say zag when everyone else is zigging I suppose...

This. Many smaller landlords are selling up because of the legalities, costs and tax implications of renting out property have become much more onerous.

[BoRED S2upid]

Eric Mc said:

Talk to an accountant.

And read various threads on both the Business and Finance Forums here which cover much of what you have asked.

Says the accountant.

But Eric does have a point.

Could probably pick up some very cheap commercial property at the moment if you are brave enough.

You obvs only pay 40% tax if you are a 40% tax payer and could spread the profit between you and the wife if owned jointly.

[clio007]

100 properties in 10 years. Quick maths 10 properties per year.

Do you have the ability to do that with just a 200k pot? Where in the country are you? Do you have any trade experience? Or are you going to get trades in to do the work?

[GT03ROB]

clio007 said:

100 properties in 10 years. Quick maths 10 properties per year.

Do you have the ability to do that with just a 200k pot? Where in the country are you? Do you have any trade experience? Or are you going to get trades in to do the work?

I can just see the dragons den pitch now……

[Hammersia]

If these ten properties per year are never your main residence then you will have CGT to pay on all of them for any increases in value.

[fat80b]

I'd agree with some of the other posters that it is not perhaps the best time to be getting into property.....
But if you can make it work now, then maybe it is actually a good time to do it. All depends on your attitude to risk.

I personally think the interesting question is around the return that you might get and whether or not it is worth it when the alternative might be to use an ISA, stocks and/or REITs to achieve something similar return wise with zero effort and no tenants phoning you in the middle of the night.......

I actually watched this vid this morning of somebody sharing all their costs as they do something very similar to your plan. The bit at the end when he explains how his profit effectively drops to 0 on a £1M block of flats if interest rates are at 5.5%......

[ghost83]

clio007 said:

100 properties in 10 years. Quick maths 10 properties per year.

Do you have the ability to do that with just a 200k pot? Where in the country are you? Do you have any trade experience? Or are you going to get trades in to do the work?

Well it was someone else who said the way to do it is remortgage your original home buy another for cash then remortgage that and buy another, so everything is mortgaged and when you get to your final one whatever the number, remortgage that and pay your original remortgage off, so you’re paid back as such and as it’s all under a limited company it can easily pass down to get round any death duties on the future,

Reason for holding company: I work in the family company and will be taking over that in around 4yrs time and that will be going limited, I’ve been told by doing this you can move money between the companies to lower your tax implications and in some cases pay no tax if you’re constantly expanding??


Also yes I’ve seen smaller landlords selling up due to high interest rates but I’ve heard these are set to start falling in 2024, do these small landlords operate under limited companies? Do you still have the 40% to pay on a limited company or is it just the corp tax? For 10yrs there will be no wage taken from this every penny will go back into building it up as we can live quite comfortably from our jobs

[LooneyTunes]

ghost83 said:

The plan was to loan the business the money from remortgaging, buy a property out right for cash do abit to it remortgage and buy another then carry on doing that till we get where we want to be, ideally over 10yrs we either want 100 houses or commercial units, in the early days we aren’t looking for a wage as we have jobs already

You do realise that your transaction costs will be significant? I reckon on a property not covering these for 12 months.

You also have to factor in the fact that you won’t get 100% mortgages, so if you want to rinse and repeat you’re going to need to be adding serious value to each whilst consuming as little liquidity as possible.

If aiming for a a lot of properties, your structuring cost will be significant if you want to minimise tax liability down the line but optimally structuring for tax can bring other issues.

Until you get a few under your belt, and can give them a regular flow of work, trades can be hard to find (but getting easier in current climate).

Also think about how you’re going to manage letting, maintenance, etc. Very little work when you only have one or two but gets much more time consuming the more you have (and this will take time away from your refurb activities if you were planning on doing this yourself).

Lastly, think about your risk capacity. A defaulting tenant, or one who causes significant damage, can cause thousands of pounds of losses. 6 months rent, legal fees, and a refurb wouldn’t be out of the question if you end up with the tenant from hell.

[ghost83]

LooneyTunes said:

You do realise that your transaction costs will be significant? I reckon on a property not covering these for 12 months.

You also have to factor in the fact that you won’t get 100% mortgages, so if you want to rinse and repeat you’re going to need to be adding serious value to each whilst consuming as little liquidity as possible.

If aiming for a a lot of properties, your structuring cost will be significant if you want to minimise tax liability down the line but optimally structuring for tax can bring other issues.

Until you get a few under your belt, and can give them a regular flow of work, trades can be hard to find (but getting easier in current climate).

Also think about how you’re going to manage letting, maintenance, etc. Very little work when you only have one or two but gets much more time consuming the more you have (and this will take time away from your refurb activities if you were planning on doing this yourself).

Lastly, think about your risk capacity. A defaulting tenant, or one who causes significant damage, can cause thousands of pounds of losses. 6 months rent, legal fees, and a refurb wouldn’t be out of the question if you end up with the tenant from hell.

In regards to trades,

My brother in law is a builder
My father in law is a painter/decorator
My father is a qualified sparky

I was thinking risk to reward would better with commercial units

Also not stuck on 100 in 10yrs it’s just a nice aim point,

But once the other business transfers over if they’re both limited and owned by a holding company I can utilise profits from other company to help the property side which lowers the tax burdens,

This is to set us up for the future and set my kids up and their kids up and their kids up etc etc, I want to build an empire,

Edited by ghost83 on Tuesday 17th January 18:17

[LooneyTunes]

Will they work for mates rates without wanting a share of the upside? Great if they will, but easy to see interest wane if you’re expecting low prices in order to hang on to the spoils.

Fwiw, a friend’s family is fairly big into commercial units (the sorts of levels you’re aspiring to hit). It provides a very good living but now often involves some significant outlay for site acquisition as he’s got to that sort of scale by getting to the point that he’s building afresh on brownfield sites. If he sees a site he likes, he buys it. No messing around with mortgages. I doubt he’s the only one. One one hand it’s good to see that those levels have been achievable, but on the other serves to highlight that there are local whales out there that you’re competing against when it comes to sourcing.

ghost83 said:

This is to set us up for the future and set my kids up and their kids up and their kids up etc etc, I want to build an empire,

Multi-generational structures are hard (and expensive) to set up and operate, so it’s a balance around when to set things up like that. Too early and you hurt your yield, too late and you have more outside the structure/need to consider restructuring (which adds further cost).

Worth also considering how the maths works against future beneficiaries. 100 properties sounds (and is) a lot for a private LL, but if you have two kids, each of them has two, and then they each have two suddenly you’re at 8 families being beneficiaries of the structure (and we’ve ignored IHT etc). This is fine if each generation works to top things up further but the wealth division can cause big problems if a generation decides they’re going to coast.

[Jon39]

ghost83 said:

... The plan was to loan the business the money from remortgaging, buy a property outright for cash, do a bit to it, remortgage and buy another, then carry on doing that till we get where we want to be, ideally over 10yrs we either want 100 houses or commercial units, in the early days we aren’t looking for a wage as we have jobs already

Property; debt; commencing at the end of a property boom; higher interest rates; landlords are selling.
Exciting, what could possibly go wrong?
In relation to average wages, do you think property is now undervalued, therefore making it the ideal time to buy for investment?

Check back to the early 1990s, so that you are at least aware of the risks with property investment. Economic history does have a habit of repeating.

Perhaps a humorous parallel for you.
Mr. Warren Buffett tells a story, about what he does, when he has any thoughts about buying airline shares.
He has a 24 hour number, to ring Airlines Anonymous.
They gently talk him down. -
He still remembers, years ago losing a huge amount on USAir shares, but became an aeroholic.

[LooneyTunes]

Jon39 said:

Property; debt; commencing at the end of a property boom; higher interest rates; landlords are selling.
Exciting, what could possibly go wrong?
In relation to average wages, do you think property is now undervalued, therefore making it the ideal time to buy for investment?

The chap I referenced is still buying.

[MaxFromage]

Your guy is doing things differently though.

The OP is late to the party and now is not the time to start. We have many property clients. Development continues to some degree (plenty are pausing), but buying residential 'investments' stopped early last year for the wise. Our largest client with hundreds of properties has now moved onto redevelopment of the properties purchased over the last 5-10 years. Easy to sit on those properties and wait for a turn in building costs/labour...

[LooneyTunes]

MaxFromage said:

Your guy is doing things differently though.

The OP is late to the party and now is not the time to start. We have many property clients. Development continues to some degree (plenty are pausing), but buying residential 'investments' stopped early last year for the wise. Our largest client with hundreds of properties has now moved onto redevelopment of the properties purchased over the last 5-10 years. Easy to sit on those properties and wait for a turn in building costs/labour...

Agree completely, was just addressing Jon’s statement that could have been taken as a blanket.

I didn’t view any new residential from mid-2021 onwards and in 2022 only completed on those that were already in progress from the summer or earlier. Holding off for a few months more as I expect to be able to pick up more stock from people with more leverage who can’t make the numbers work. I certainly wouldn’t be dipping toe in for the first time now if there was significant scope for leverage/valuations to result in capital being significantly eroded.

Have a (smallish, but still significant for me) development site, and it’s good to see materials costs and labour availability improving and costs/rates coming down a bit. This time last year it was hard to get building trades and materials were on allocation. Nothing is now really out of stock, deliveries next day for builders merchants orders placed at 4pm, and even seeing a couple of brickies/plasters advertising for work on FB. I think construction is in for a tricky year.

[ghost83]

I’m just enquiring now, yes I may be late to the party so to speak but I’ve never being in the position to consider it,

My mortgage if I carry on overpaying at the current rate will be clear june 2024 with an aim to start this in early 2025, in essence I’m hoping that either people get reposessed if residential and houses get a bit cheaper and mortgage rates get cheaper OR with commercial I’m just looking at what there is and what land may be available to even build on,

People always say there’s always money in property

[Eric Mc]

ghost83 said:

People always say there’s always money in property

People aren't always correct.

Property developers go bust too.

[JQ]

Eric Mc said:

ghost83 said:

People always say there’s always money in property

People aren't always correct.

Property developers go bust too.

Indeed - prime industrial investment values have dropped 40% since June 2022, industrial land values have dropped 50% over the same period. Plenty of people out there losing money at the moment. The difference is the banks are far better prepared after the car crash of 2008. There won't be the level of repossessions there was last time should things get worse. Occupier demand is still good, rental growth is strong and as such interest payments continue to be paid and debt serviced.

OP - your proposed business model seems to rely on remortgaging to take equity out of each property. That works (to a certain extent) in a rising market. We're unlikely to be in a rising market for several years. You need to work out how you're going to add significant value to each property to do what you're proposing. Otherwise, all you'll be doing is putting your family home at risk to enable you to acquire a small rental portfolio (3/4 properties).

It can definitely work, but you need to be clear on every element before you start. I would write a business plan detailing every element of each property purchase, including timescales and costs. Without understanding every single cost you can't begin to work out what you should pay for the property. Overpay for a property at the outset and you can never recover that position in a static market.