Buying a Property to Rent Out - How to Own it?

pid2004

Dear everyone, I have been for ages looking at this great site and have finally got round to posting.:j We are looking at buying a property to rent out and have now found one that we can afford etc. We are wondering what the best way of owning it is and how to take the rental income. Should we set it up as a property company and the compnay owns the house? Then all the rent and expenses are channeled through the compnay and tax paid? I could maybe take a salary (am low tax bracket) as the manager of the business? but do not know what the drawbacks are. Or should we just buy it and pay the tax on any profit via self assesment? Any ideas or experiances appreciated. xx

PasturesNew

It depends what figures you're working on.
Does the maths stack up?
Is your business plan sound?
What's your exit strategy?
What's your driver to go into business in property right now?

If you care to share the figures then some people here might be able to comment more appropriately.

pid2004

Wow, what a fast reply
The house is for £175k and we are buying it cash so there are no mortgage costs etc. We are hoping to rent it for between £800 to £900 a month. We have researched the area etc and we could get more but to get the property let quicker, we will have accept lower rental amount etc. The house doesnt need anything doing to it. Dont know about other costs yet like insurance etc. Does this help at all?

silvercar

In my opinion you are using a sledgehammer to crack a nut. Buy the property in your name, declare the rent on your tax return and pay any tax due, after you have taken off expenses.

I don't see the benefit of a company.

franklee

So 5.5% yield before any costs if fully occupied all year, not that good IMO.

pid2004

Hi All,
Silvercar, happy to pay tax (well nothing is free in life!!) but wasnt sure if the company idea would help to legally save tax.
Franklee, agree the yield isnt the best but the cash at the bank is giving nowt return. Property has potential for capital appreciation if we ever get out of the recssion.

kestra

i would gear the money instead

you could buy at least 4 properties in other areas and its a buyers market.
do interest only mortages and deduct interest and expenses for tax etc

insurance try alan boswell on internet
broker best4let.com

are you managing yourself or using an agent? your figures dont currently stack up include 10% min for voids, what about repairs etc. if it has gas you have to get it checked by corgi registered plumber. If furnished make sure it all meets regs etc.

silvercar

pid2004 wrote: »

Hi All,
Silvercar, happy to pay tax (well nothing is free in life!!) but wasnt sure if the company idea would help to legally save tax.
Franklee, agree the yield isnt the best but the cash at the bank is giving nowt return. Property has potential for capital appreciation if we ever get out of the recssion.

Problem with having a company is getting money in and out of the company.

Say you open a company (cost about £100), then you want to lend the company money so that it can by property. So either the company pays you interest on the money (and you pay income tax on the interest received) or the company will make a profit and pay corporation tax.

The long term hope is that the value of the property increases. So now the company has money that you want to get your hands on. To withdraw money from the company you will take a small salary and declare dividends (most tax efficient way), so you still have the tax to pay.

We did look at it a couple of years ago. It really isn't worth the hassle.

socrates

The yield on this property is too low once you factor in all the things that can go wrong.

I tend to think you should look for a property that costs less than that - probably around £150k for a similar rental return - you can put silly offers in as you are a cash buyer and can move quickly.

Good luck

pid2004

Hi, we have put a silly offer in:rotfl:, the house was up for £205k. They have a higher offer in but first time buyers etc and have gone with us. But hasnt the yield gone on the rental market? Is anyone really getting any where near a 10% return? sorry maybe I am not doing the maths right?

PasturesNew

pid2004 wrote: »

Hi, we have put a silly offer in:rotfl:, the house was up for £205k. They have a higher offer in but first time buyers etc and have gone with us. But hasnt the yield gone on the rental market? Is anyone really getting any where near a 10% return? sorry maybe I am not doing the maths right?

So you're a new BTL LL pricing FTBs out of the market ... that's not very nice is it.

OK, so savings rates right now aren't great, but they will be again.

How will you feel if in 2 years' time the house is worth £140k, savings rates are at 6% and the only way you can get a tenant in is at 30% of today's rent price because there are so many spare houses to rent? Or what if you've had the tenant from hell in there for a year and it's trashed?

Perhaps you can rent it to that FTB couple, they'll thank you for it in 2 years' time when they move out to buy something better/cheaper.