Now is the time to incorporate

martinsurrey

GreatApe wrote: »

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

And that would have to be priced into the paper, corporate bonds are bought in huge amounts by the insurance and pension sectors, they don't like uncertainty, and you would be shafted on rates if you held all the cards on a 30 year term.

GreatApe

martinsurrey wrote: »

And that would have to be priced into the paper, corporate bonds are bought in huge amounts by the insurance and pension sectors, they don't like uncertainty, and you would be shafted on rates if you held all the cards on a 30 year term.

You keep saying this but why can I get these terms on just 25% down while you think it would be impossible to get them on 40% down as a corporate? There is clearly much lower risk with 40% down

You could potentially argue that the market for such things does not exist in the UK today but on a risk basis I see no reason why large investor would not buy such paper especially as there is clearly a market for MBSs at terms the same as what I am suggesting here

Even a non geared REIT, ie zero debt the properties owned outright, would be much more efficient than owning property outright in your own name. Again zero taxes vs 45% income and 28% capital gains

Also your earlier argument of you can only put £20k into an ISA is a full non point as most people do not wake up with £300k one day to invest. They save over a period of time so if its 10 years saving before purchasing a BTL you should look at 10 years of ISA allowances.

And again there are pensions and LISAs to get tax relief on the way in!

GreatApe

martinsurrey wrote: »

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

For years I have said I wish there was a geared London residential REIT listed on the FTSE I could buy into rather than own properties directly in my own name. I would have gone the REIT route in a pension/ISA rather than purchase directly

It is not because of the S24 changes, this made sense before then and it makes more sense now.

I do think the biggest downside as you highlighted earlier is the stamp duty. Effective to start something like this you need a very rich person or a private equity house to front £1 billion and accept that they will be losing 5% almost instantly via the taxes and transactions which they may or may not get back in the premium for such shares after a float.

Start with £1 billion buy 2,000 London homes. Float on the market at £0.95 to £1.00 billion market cap. Then take on £600m debt and buy a further 2000 properties at 60% LTV. You would have 4000 properties worth ~£2 billion with ~£1 billion in debt and ~£1 billion in equity

martinsurrey

GreatApe wrote: »

You keep saying this but why can I get these terms on just 25% down while you think it would be impossible to get them on 40% down as a corporate? There is clearly much lower risk with 40% down

Did the bank ask you about your other sources of income? what are the REIT's other income streams?

Can they also come after your other assets if you default? What are the other REIT assets for the market to De-risk

Would you invest in a REIT if as a condition you had to personally guarantee an additional 1.5 X of your investment (effectively a personal guarantee of 1.5 X your 40% investment to cover the 60% gearing)?

GreatApe

martinsurrey wrote: »

Did the bank ask you about your other sources of income? what are the REIT's other income streams?

Can they also come after your other assets if you default? What are the other REIT assets for the market to De-risk

Would you invest in a REIT if as a condition you had to personally guarantee an additional 1.5 X of your investment (effectively a personal guarantee of 1.5 X your 40% investment to cover the 60% gearing)?

Multiple lenders have no income requirement for BTLs, their security is the 25-40% down

Yes they can come after my other assets however you can get a BTL with 25% down, so a corporate with 40% is already putting 'other assets' down I suspect in many cases larger landlords would not have other assets equal to their net equity in property

Would I invest in a 0% geared REIT is your last question, yes I would

I dont read german if you do maybe you could look up the annual accounts of a couple of german residential REITs some have as many as 200,000 properties! and see what gearing and costs they pay.

Why do German Residential REITs exist?
Also how do housing associations finance themselves in the UK.
They are effectively a corporate landlord

martinsurrey

GreatApe wrote: »

Why do German Residential REITs exist?

https://www.henderson.com/bepa/post/10762/german-residential-property-companies-strong-fundamentals-driving-rental-growth

very different markets, Germany in general has very low house prices (below reinstatement), very secure tenancy's and a propensity for renting for life (below 50% owner occupier) making the rental market more about long term rental yield than the UK's equity growth model and I know nothing about German regulations or tax


Also how do housing associations finance themselves in the UK.

Well, as you know, they buy their properties at a 25-40% discount, and then they get grants from the Goverment, and even then, when they do issue bonds they are at high rates for long term, 4.472% for 40 years. The rest is bank finance.

bond issue

They are effectively a corporate landlord

backed by Government with access to properties well below market prices

comments above

martinsurrey

GreatApe wrote: »

Multiple lenders have no income requirement for BTLs, their security is the 25-40% down
Would I invest in a 0% geared REIT is your last question, yes I would

But do those lenders offer 1.75% rates? You cant cream the top rates and compare to the riskiest products.

no not a 0% geared REIT, a REIT where you personally guarantee the gearing (as a % of your investment).

GreatApe

martinsurrey wrote: »

But do those lenders offer 1.75% rates? You cant cream the top rates and compare to the riskiest products.

rates available as of today from a lender which does not require income

1.74% fixed for 2 years 65% LTV or 1.99% fixed for 2 years 75% LTV or even 2.64% fixed for 5 years all with £2k fees however most of those fees are paid to the broker you have to go to not to the bank thus I would not include the fee certainly doing 10,000 homes together and bypassing a broker would mean the fees would be much much lower

Would I invest in a non geared REIT. Yes. Would I invest in a Geared REIT. Yes. Some notion about backing shares does not exist in REITs.


By the way here you go, British Land £400m unsecured bond issue at 1.5% for 3 year paper

http://cbonds.com/emissions/issue/94943

martinsurrey

GreatApe wrote: »

rates available as of today from a lender which does not require income

1.74% fixed for 2 years 65% LTV or 1.99% fixed for 2 years 75% LTV or even 2.64% fixed for 5 years all with £2k fees however most of those fees are paid to the broker you have to go to not to the bank thus I would not include the fee certainly doing 10,000 homes together and bypassing a broker would mean the fees would be much much lower

Would I invest in a non geared REIT. Yes. Would I invest in a Geared REIT. Yes. Some notion about backing shares does not exist in REITs.


By the way here you go, British Land £400m unsecured bond issue at 1.5% for 3 year paper

http://cbonds.com/emissions/issue/94943

hmmm that was a 5 year convertible bond, so just looking at the coupon is a bit misleading, and as you can see £399,900,000 of them have converted.

http://www.britishland.com/news-and-views/press-releases/2012/04-09-2012a

on the mortgage front, I'm sure they would have been underwritten even if they don't have explicit income requirements, can you find me a UK corporate BTL mortgage without a Director guarantee with a rate of under 2.5%?

GreatApe

martinsurrey wrote: »

hmmm that was a 5 year convertible bond, so just looking at the coupon is a bit misleading, and as you can see £399,900,000 of them have converted.

http://www.britishland.com/news-and-views/press-releases/2012/04-09-2012a

on the mortgage front, I'm sure they would have been underwritten even if they don't have explicit income requirements, can you find me a UK corporate BTL mortgage without a Director guarantee with a rate of under 2.5%?

I do not have the time to go digging for you but as I have already said an individual can get a 25% down BTL mortgage for less than 2.5% so why would a corporate with a bigger deposit not be able to get similar deals

Yes the mortgage company can go after other assets but since they do not check for other assets they likely do not count on doing that

Also what about MBSs that is quite a big market and rates are low

Anyway I think you are bogging this down in minor detail I dont have the resources or intention to start something like this its only saying that if it existed it would be interesting and offer a lot of advantages even a 0% geared residential REIT would be interesting