Now is the time to incorporate

GreatApe

martinsurrey wrote: »

hmmm I quoted both the coupon and the yield to maturity.

5.357% is the coupon and 4.618% is the yield to maturity...

Unless that 10 year bond was issued this year you are quoting simple yield which looks like the case

Face field / price = simple yield
5.357 / 1.16 = 4.618

Quote the yield to maturity for a shorter term bond or look up a bind with just a few years left to run and quote the yield to maturity of those

martinsurrey

GreatApe wrote: »

So it really is 0% tax both on once and capital basins vs 45% income tax and 28% capital gains. Not to mention the HUGE advantage of buying shares for 0.5% stamp city rather than London property for 5% stamp duty. An investment of £400k geared up is going to cost the individual £60k in stamp (2 x £500k BTLs) while a £400k purchase of shares would cost £2k in stamp so that is a massive difference. Likewise on sale you are looking at over £10k cost as an individual while the shares only cost £10 to sell.

again you are cherry picking.

please explain how an investor would get his shares into an ISA, at £20k a year it would take them 20 years to get their £400k investment (40% deposit on a £1m property) into an ISA.

and the REIT has to pay the stamp duty anyway so to get those 2 £500k properties the investor is going to have to contribute £560k to get this thing off the ground, so its still a start up cost... as most private landlords are in for the long haul the liquidity of a REIT isnt a big draw.

GreatApe

Maybe mortgage backed security can be used. Lower risk versions of those yield not much more then government paper. Write a 60% LTV mortgage for its properties and sell the MBSs. 2 year rates at 0.55%......

GreatApe

martinsurrey wrote: »

again you are cherry picking.

please explain how an investor would get his shares into an ISA, at £20k a year it would take them 20 years to get their £400k investment (40% deposit on a £1m property) into an ISA.

and the REIT has to pay the stamp duty anyway so to get those 2 £500k properties the investor is going to have to contribute £560k to get this thing off the ground, so its still a start up cost... as most private landlords are in for the long haul the liquidity of a REIT isnt a big draw.

£40k per year into an ISA as a couple is significant. Potentially also £80k as a couple into a pension yearly. So as much as £120k per year invested into a pension/ISA. You could also get tax relief going into the pension or even the Lifetime ISA bonus!

Also importantly if this existed say 20 years ago. The London REIT shares would have returned approx 190x so a single £20k invested in 1997 would be worth £3.8m today. The power of geared returns where house prices moved up almost 10% a year for 20 years. Tax free as opposed to over £1m in capital gains if done in your own name. Of course there is no guarantee of past performance being the same in fact I would wager it won't be as high.

However taking 2.5% annual house price growth. 5% yield 2.5% debt 10% costs. Your looking at a £20k ISA investment/reinvestment worth ~£135k in twenty years time.

Oh also not forgetting that this allows smaller investment you need at least £250k nowadays to buy a £500k London house at 60% LTV + costs. So there is that advantage too for people who don't have the £200k plus to do this in their own name

GreatApe

martinsurrey wrote: »

again you are cherry picking.

please explain how an investor would get his shares into an ISA, at £20k a year it would take them 20 years to get their £400k investment (40% deposit on a £1m property) into an ISA.

and the REIT has to pay the stamp duty anyway so to get those 2 £500k properties the investor is going to have to contribute £560k to get this thing off the ground, so its still a start up cost... as most private landlords are in for the long haul the liquidity of a REIT isnt a big draw.

I would suggest that in a rising market the shares would actually be worth the additional stamp duty so you would not actually be losing the stamp duty element since new investors are likely to pay some/most of the stamp duty premium to buy via the REIT rather than themselves going and buying a BTL.

martinsurrey

GreatApe wrote: »

In short how can a million small landlords be more efficient time/tax/interest/other than a company with 100,000 properties

Nothing about REIT is new (and the corp tax changes dont change anything about a normal corporate holding resi) , if it was such an easy choice, I can guarantee that we'd see the companies you think should exist, while we are 2 fools arguing on the internet there are a lot of highly paid specialists looking at things like this, and the existing REIT's would be exploding if they could out compete everyone else and get such cheap funding.

so my question is, if its so easy and obvious, why hasn't it happened or why aren't the existing entities exploding?

martinsurrey

GreatApe wrote: »

I would suggest that in a rising market the shares would actually be worth the additional stamp duty so you would not actually be losing the stamp duty element since new investors are likely to pay some/most of the stamp duty premium to buy via the REIT rather than themselves going and buying a BTL.

So now you are relying on a rising market and fresh share issues to pay your costs AND only having an average secured funding maturity of 1 year, with a £1.5b short term funding requirement...

Who again would be your auditors signing off on these accounts?

GreatApe

martinsurrey wrote: »

Nothing about REIT is new (and the corp tax changes dont change anything about a normal corporate holding resi) , if it was such an easy choice, I can guarantee that we'd see the companies you think should exist, while we are 2 fools arguing on the internet there are a lot of highly paid specialists looking at things like this, and the existing REIT's would be exploding if they could out compete everyone else and get such cheap funding.

so my question is, if its so easy and obvious, why hasn't it happened or why aren't the existing entities exploding?

I do accept what you are saying, but then again you can not really argue that well if something does not exist today it means there is not a good reason for it to exist because if that were the case nothing new would ever come into existence

My guess as to why purely residential REITs do not exist in the UK is because until not that long ago the biggest landlord was the government who was a zero profit entity in fact they built using subsidised money and pay no taxes and make no profits so a REIT probably could not compete (I know 1990s London there was so much an excess of council homes that people were taken around to 3-4-5 properties to pick the one they liked best rather than take what was given)

Large residential REITs do exist in other countries and of course non residential reits exist in the uk

GreatApe

martinsurrey wrote: »

So now you are relying on a rising market and fresh share issues to pay your costs AND only having an average secured funding maturity of 1 year, with a £1.5b short term funding requirement...

Who again would be your auditors signing off on these accounts?

As I said before you could potentially issue 2 year paper with another 28 years after that. That would be akin to a 30 year BTL mortgage with 2 years fixed 28 years floating.

That way you guarantee 30 years of funding but can go to a cheaper option 2 years down the line if it is available which for the last decade has been the case

martinsurrey

GreatApe wrote: »

I do accept what you are saying, but then again you can not really argue that well if something does not exist today it means there is not a good reason for it to exist because if that were the case nothing new would ever come into existence

New things generally come into existence due to a change in something (especially such a shift as you are proposing), the only thing that has really changed is tax on mortgage interest, is that a big enough change to go from no real resi REIT, to one being one of the largest companies in the UK?

I think not