How to extend my BTL business?

Skag

I currently own outright 2 properties in the Brighton area, let to students.
I would like to multiply my business and end up having 5 properties. What are my options?
I've read about Let to Buy, which is raising equity on current property to fund another.
Anyone knows anything else apart from this, taking out the immediate cash factor?

I am interested even long term strategy suggestions.

danslenoir

Skag wrote: »

I currently own outright 2 properties in the Brighton area, let to students.
I would like to multiply my business and end up having 5 properties. What are my options?
I've read about Let to Buy, which is raising equity on current property to fund another.
Anyone knows anything else apart from this, taking out the immediate cash factor?

I am interested even long term strategy suggestions.

How about you reconsider. Homes, of which there are a chronic shortage compared with demand, are places to live in, not financial tools from which to profit.

You should also probably consider (if you haven't already) the recent tax changes that mean for many higher rate taxpayers, of which I'm guessing you are one if you already own and let out multiple properties, BTL/LTB is not going to be anywhere near as profitable as it has been with respect to income from rent. If you're banking on house price rises to give you a good return, the market does seem like it's already peaking, so you should think about what would happen if prices start falling again if your new buys are going to be mostly funded through interest only borrowing.

Miss_Samantha

Hi Skag,

If you are unable to (or don't want to) fund new aquisitions with cash, then your options are to take BTL mortgages on your existing properties or the new ones.

The former may be more attractive as you would not need a deposit and you would then be a cash buyer when going to the market to buy.

Keep in mind that tax rules on financing costs will soon change: make sure your numbers add up taking these changes into account.

martinsurrey

danslenoir wrote: »

How about you reconsider. Homes, of which there are a chronic shortage compared with demand, are places to live in, not financial tools from which to profit.

I suppose you bought the house you lived in, and lived there alone when (if) you were a student, great advice to students to buy their own places where they study for a few years.

must be great to get to ride about on such a high horse...

Skag

danslenoir wrote: »

How about you reconsider. Homes, of which there are a chronic shortage compared with demand, are places to live in, not financial tools from which to profit.

I'm sorry, did I ask about the moral correctness of BTL? For the future, please stick to the question if you have something to contribute.

Innys1

More than doubling your BTL empire won't be easy in terms of funding. Even borrowing against your existing equity won't be straight forward because, as others have said, the tax relief will be cut back from April next year.

Landlords who have stacks of cash in the bank stand to gain most as their highly geared peers steadily sell up. I don't think this applies to the OP.

As for the morality of BTL, that's the OP's business and no one else's.

Brighty

Theoretically, you could get a 75% BTL mortgage on both existing properties, then use that cash as deposits to buy 6 more properties, each with a 25% deposit and 75% BTL mortgage (assuming new properties cost the same as value of current 2). You would then have 8 properties each with 25% equity and 75% mortgages.
I wouldn't though, you'd have massive mortgage payments, which you will only be able to write off 20% of the interest payments against tax. You'd have a massive tax bill plus the new rules would push you into the higher tax bracket, if you aren't already. Plus you'd have big exposure to fluctuating house prices.
We own 2 rentals outright and another with a mortgage of just 20%, i have no intention of buying more with all our equity. I'm happy keeping myself under the higher tax bracket.

Brighty

martinsurrey

Brighty wrote: »

Theoretically, you could get a 75% BTL mortgage on both existing properties, then use that cash as deposits to buy 6 more properties, each with a 25% deposit and 75% BTL mortgage (assuming new properties cost the same as value of current 2). You would then have 8 properties each with 25% equity and 75% mortgages.
I wouldn't though, you'd have massive mortgage payments, which you will only be able to write off 20% of the interest payments against tax. You'd have a massive tax bill plus the new rules would push you into the higher tax bracket, if you aren't already. Plus you'd have big exposure to fluctuating house prices.
We own 2 rentals outright and another with a mortgage of just 20%, i have no intention of buying more with all our equity. I'm happy keeping myself under the higher tax bracket.

Brighty

that's thinking inside the box.

They could buy through a corporate using the old houses as security, that way 100% of the interest is offset against tax in the corporate entity, and the income from the old properties is out side the corp. Maintaining the current personal tax affairs of the OP, and they could withdraw £5k profit from the business a year tax free (after 20% corp tax).

There are many opportunities to be clever with the current rules, but they all need professional advice.

but its very high risk being that geared.

Innys1

martinsurrey wrote: »

that's thinking inside the box.

They could buy through a corporate using the old houses as security, that way 100% of the interest is offset against tax in the corporate entity, and the income from the old properties is out side the corp. Maintaining the current personal tax affairs of the OP, and they could withdraw £5k profit from the business a year tax free (after 20% corp tax).

There are many opportunities to be clever with the current rules, but they all need professional advice.

but its very high risk being that geared.

Will a lender provide corporate lending secured on an asset not owned by the corporate?

Granted, the asset will (probably) be owned by a shareholder/director of the Ltd Company, but that's not the same as a charge secured on the Company's own assets.

martinsurrey

Innys1 wrote: »

Will a lender provide corporate lending secured on an asset not owned by the corporate?

Granted, the asset will (probably) be owned by a shareholder/director of the Ltd Company, but that's not the same as a charge secured on the Company's own assets.

Everything is possible (for a price).

There could be a secured cross charge against all 8 properties, as well as a personal guarantee from the director.

I've seen people with 40 properties in 40 entities, with a single mortgage facility limited to 75% of the current market value of the properties, they could operate it like a current account (they were all £1m+ properties in and around SW1)...

these are BTL mortgages, which are far less regulated than residential ones.

edgex

Innys1 wrote: »

Will a lender provide corporate lending secured on an asset not owned by the corporate?

Granted, the asset will (probably) be owned by a shareholder/director of the Ltd Company, but that's not the same as a charge secured on the Company's own assets.

surely you'd put the assets into the corporate body?