Buy to Let for retirement

Diplodicus

Good thread. 
The magic number is 15 isn’t it?

Once you get to 15 properties you can call it a company and harvest all those VAT rebates etc

How many of your tenants are paying with their own money, Jaco?

Jaco70

Diplodicus said:

Good thread. 
The magic number is 15 isn’t it?

Once you get to 15 properties you can call it a company and harvest all those VAT rebates etc

How many of your tenants are paying with their own money, Jaco?

I would think about half, and half on benefits. I won’t get to 15 because I’ve hit a bit of a midlife crisis, whereby I want to keep my borrowing ratio at 50% or below. It’s currently about 48%. 

[Deleted User]

Then the obvious alternative is to sell your portfolio to a scale investor.

You dont have to make this decision now; just be aware how valuable your portfolio is to a potential buyer.

Keep that in mind.

[Deleted User]

This is a proverbial “all eggs into one basket” scenario. And its an illiquid one at that, which is a problem - one always has to sell at the worst possible moment.  For example if the interest rates go up, a diversified portfolio will have some assets going up and other assets going down. All your assets will respond in exactly the same way. 

You could win huge. Or you could lose big. And the probability of the latter is far too high.  The game of investment is ultimately won by not losing.

Jaco70

Deleted_User said:

This is a proverbial “all eggs into one basket” scenario. And its an illiquid one at that, which is a problem - one always has to sell at the worst possible moment.  For example if the interest rates go up, a diversified portfolio will have some assets going up and other assets going down. All your assets will respond in exactly the same way. 

You could win huge. Or you could lose big. And the probability of the latter is far too high.  The game of investment is ultimately won by not losing.

Yes you're right, but I'm not sure at this stage how to diversify and as I've mentioned before it wasn't pig-headedness that stopped me from investing in a pension, but lack of 'spare' funds. I did put in 10k from my business last year, but that isn't possible most years. I make a living, sometimes a decent living, from my business, but nothing more. I don't think that winning big is at all likely and I've also realised in recent years that paying the mortgages off completely before I retire is unlikely, although this had been the plan at the outset. It probably wasn't unreasonable to expect property price appreciation when I started but I seem to have owned at a poor time for this.
I have a friend who did very well in the car trade and with the money invested heavily in property, both commercial and residential, and he said that the biggest frustration is that you can't 'spend' a property, whereas you can turn a car into cash very quickly.
One thing I have realised from lockdown, which concurs with my accountants view, is that I am unlikely to need quite as much monthly income as I may have originally thought in retirement.
'The game of investment is ultimately won by not losing', I like that, its very Warren Buffet.

[Deleted User]

Jaco70 said:

Deleted_User said:

This is a proverbial “all eggs into one basket” scenario. And its an illiquid one at that, which is a problem - one always has to sell at the worst possible moment.  For example if the interest rates go up, a diversified portfolio will have some assets going up and other assets going down. All your assets will respond in exactly the same way. 

You could win huge. Or you could lose big. And the probability of the latter is far too high.  The game of investment is ultimately won by not losing.

Yes you're right, but I'm not sure at this stage how to diversify and as I've mentioned before it wasn't pig-headedness that stopped me from investing in a pension, but lack of 'spare' funds. I did put in 10k from my business last year, but that isn't possible most years. I make a living, sometimes a decent living, from my business, but nothing more. I don't think that winning big is at all likely and I've also realised in recent years that paying the mortgages off completely before I retire is unlikely, although this had been the plan at the outset. It probably wasn't unreasonable to expect property price appreciation when I started but I seem to have owned at a poor time for this.
I have a friend who did very well in the car trade and with the money invested heavily in property, both commercial and residential, and he said that the biggest frustration is that you can't 'spend' a property, whereas you can turn a car into cash very quickly.
One thing I have realised from lockdown, which concurs with my accountants view, is that I am unlikely to need quite as much monthly income as I may have originally thought in retirement.
'The game of investment is ultimately won by not losing', I like that, its very Warren Buffet.

Well, you could have fewer properties and have the delta invested in stocks and bonds with the same level of overall leverage. 

I think the quote comes from William Bernstein but not 100% sure.

fizio

I think the key is getting a decent balance and taking advantage of tax breaks where appropriate. I currently have both i.e a small portfolio and a dc pension. There are tax advantages to pension for sure but also in BTL via a ltd company. Neither option is risk free and both have an advantage - stock market is tax free input and liquid., rental property holds up well in that demand generally beats supply and you get the big advantage of leverage.

None of the issues mentioned here are insurmountable - whether is stock market crashes or managing rental properties.

Jaco70

fizio said:

I think the key is getting a decent balance and taking advantage of tax breaks where appropriate. I currently have both i.e a small portfolio and a dc pension. There are tax advantages to pension for sure but also in BTL via a ltd company. Neither option is risk free and both have an advantage - stock market is tax free input and liquid., rental property holds up well in that demand generally beats supply and you get the big advantage of leverage.

None of the issues mentioned here are insurmountable - whether is stock market crashes or managing rental properties.

Ok, I've mentioned setting up a limited company to my accountant in the past but he waffled a bit and didn't seem to feel it was worth it. What in your opinion would be the reason to do this? I run a limited company, and have done for many years, so understand how a limited company works, but what would the advantages / disadvantages be if I set up one for the rentals. 
I wouldn't be interested in rolling the properties into my existing ltd co, as that would involve tying them up with potential, unrelated redundancy payments etc, if that ever became necessary.
Bear in mind there are nine properties with a maximum gross rental take of around 55k, it is not a big portfolio with a large income or profit.

fizio

Jaco70 said:

Ok, I've mentioned setting up a limited company to my accountant in the past but he waffled a bit and didn't seem to feel it was worth it. What in your opinion would be the reason to do this? I run a limited company, and have done for many years, so understand how a limited company works, but what would the advantages / disadvantages be if I set up one for the rentals. 
I wouldn't be interested in rolling the properties into my existing ltd co, as that would involve tying them up with potential, unrelated redundancy payments etc, if that ever became necessary.
Bear in mind there are nine properties with a maximum gross rental take of around 55k, it is not a big portfolio with a large income or profit.

It massively depends on your personal situation and isn't the right answer for all situations. For example if you are  already a high rate tax payer who is building a portfolio with income needed later in life then LTD is  a big help. There are advantgae sin being able to employee 'family' members as well as options to do with inheritance. There are also plenty of downsides so you def need some indepth advise befopre going down this road but it made a huge positive difference for me.

Jaco70

fizio said:

Jaco70 said:

Ok, I've mentioned setting up a limited company to my accountant in the past but he waffled a bit and didn't seem to feel it was worth it. What in your opinion would be the reason to do this? I run a limited company, and have done for many years, so understand how a limited company works, but what would the advantages / disadvantages be if I set up one for the rentals. 
I wouldn't be interested in rolling the properties into my existing ltd co, as that would involve tying them up with potential, unrelated redundancy payments etc, if that ever became necessary.
Bear in mind there are nine properties with a maximum gross rental take of around 55k, it is not a big portfolio with a large income or profit.

It massively depends on your personal situation and isn't the right answer for all situations. For example if you are  already a high rate tax payer who is building a portfolio with income needed later in life then LTD is  a big help. There are advantgae sin being able to employee 'family' members as well as options to do with inheritance. There are also plenty of downsides so you def need some indepth advise befopre going down this road but it made a huge positive difference for me.

fizio said:

Jaco70 said:

Ok, I've mentioned setting up a limited company to my accountant in the past but he waffled a bit and didn't seem to feel it was worth it. What in your opinion would be the reason to do this? I run a limited company, and have done for many years, so understand how a limited company works, but what would the advantages / disadvantages be if I set up one for the rentals. 
I wouldn't be interested in rolling the properties into my existing ltd co, as that would involve tying them up with potential, unrelated redundancy payments etc, if that ever became necessary.
Bear in mind there are nine properties with a maximum gross rental take of around 55k, it is not a big portfolio with a large income or profit.

It massively depends on your personal situation and isn't the right answer for all situations. For example if you are  already a high rate tax payer who is building a portfolio with income needed later in life then LTD is  a big help. There are advantgae sin being able to employee 'family' members as well as options to do with inheritance. There are also plenty of downsides so you def need some indepth advise befopre going down this road but it made a huge positive difference for me.

I am generally a higher rate taxpayer, but not always. I earned well last year but the self assessment bill was so high (relative to how much I earned over 50k) that I deliberately took less out this year and paid some into my pension. I find that aspect of our tax system very frustrating, a real disincentive to take money out of the company. When I’ve made decent profits in my limited company, corporation tax seems a very reasonable rate by comparison. This sounds interesting and I will speak to my accountant and my IFA about this, to get a handle on the pros and cons. Thanks 👍