First time landlord advice? (Purchasing additional property)

jordan12291257

Hi All,

As you probably noticed by the title, I am looking for some advice on my current situation regarding becoming a property landlord. 

I bought my first residential property 2 years ago, completing a full refurb on it at the time (increasing the property value around 30%). Now I am looking to move out of my first property, into another property (longer term home) whilst letting out the original property, but I am keen to understand what I need to consider and the best way of doing this. 

My basic understanding so far is : 
- I would need to switch property 1 to a BTL mortgage (est. 25% deposit)
- It is possible to set up a LTD company and transfer the asset (property 1) to the LTD company, which can be beneficial (not entirely sure on this)
- I will need to pay increased stamp duty on the additional purchase. 
- I have equity in property 1, I think this may allow me to re-mortgage at the new value, covering the 25% deposit and allowing me to withdraw some equity. (Again not 100% sure on this)

If possible my plan would be : 
1. Switch property 1 to a BTL mortgage, using the revalued amount to cover the 25% deposit, whilst withdrawing around 10% equity which is broadly the difference between the remaining 75% BTL mortgage on the new property value and my current mortgage value on the property as of today. (based on current market rates) 
2. At this point, transfer the asset to a LTD company (not entirely sure what this entails)
3. Use equity from property 1 and additional savings to fund purchase of property 2 which the mortgage would sit in my personal name. 

Any advice / information would be massively appreciated.

El_Torro

If you are considering setting up a Limited Company then the best suggestion I can give is to speak to an Accountant who can look at the pros and cons for you and see if it's worth doing. Are you a 40% Income Tax payer? If you're a 20% tax payer it's probably not worth doing. If you are in the 40% (or higher) tax bracket then it may be worth doing, though not a certainty. 

Bear in mind that Buy to Let mortgages are more expensive within a Limited Company than if you get one yourself. The interest rate will probably be about 0.5% higher within the Limited Company. The fees are also surprisingly high. If you speak to a mortgage broker they can compare the two. You don't even have to pay the mortgage broker for the initial meeting.

As well as speaking to an Accountant it's worth doing some research yourself. I'm currently researching this for my own situation and taking money out of the Limited Company is not as tax efficient as I first thought. 

As for the deposit, 25% equity is about as low as you can realistically go. This is true whether you do it privately or through a Limited Company. 

ReadySteadyPop

jordan12291257 said:

Hi All,

As you probably noticed by the title, I am looking for some advice on my current situation regarding becoming a property landlord. 

I bought my first residential property 2 years ago, completing a full refurb on it at the time (increasing the property value around 30%). Now I am looking to move out of my first property, into another property (longer term home) whilst letting out the original property, but I am keen to understand what I need to consider and the best way of doing this. 

My basic understanding so far is : 
- I would need to switch property 1 to a BTL mortgage (est. 25% deposit)
- It is possible to set up a LTD company and transfer the asset (property 1) to the LTD company, which can be beneficial (not entirely sure on this)
- I will need to pay increased stamp duty on the additional purchase. 
- I have equity in property 1, I think this may allow me to re-mortgage at the new value, covering the 25% deposit and allowing me to withdraw some equity. (Again not 100% sure on this)

If possible my plan would be : 
1. Switch property 1 to a BTL mortgage, using the revalued amount to cover the 25% deposit, whilst withdrawing around 10% equity which is broadly the difference between the remaining 75% BTL mortgage on the new property value and my current mortgage value on the property as of today. (based on current market rates) 
2. At this point, transfer the asset to a LTD company (not entirely sure what this entails)
3. Use equity from property 1 and additional savings to fund purchase of property 2 which the mortgage would sit in my personal name. 

Any advice / information would be massively appreciated.

You can`t assume increases in value until a buyer`s valuation has been completed, interest rates have also increased so it is likely that this could cancel out any "refurb value", in general BTL is going to be very difficult to do now, you might not even make a profit and there is a ton of legal responsibility, best bet is just to sell and move to a new home.

jbrassy

ReadySteadyPop said:

jordan12291257 said:

Hi All,

As you probably noticed by the title, I am looking for some advice on my current situation regarding becoming a property landlord. 

I bought my first residential property 2 years ago, completing a full refurb on it at the time (increasing the property value around 30%). Now I am looking to move out of my first property, into another property (longer term home) whilst letting out the original property, but I am keen to understand what I need to consider and the best way of doing this. 

My basic understanding so far is : 
- I would need to switch property 1 to a BTL mortgage (est. 25% deposit)
- It is possible to set up a LTD company and transfer the asset (property 1) to the LTD company, which can be beneficial (not entirely sure on this)
- I will need to pay increased stamp duty on the additional purchase. 
- I have equity in property 1, I think this may allow me to re-mortgage at the new value, covering the 25% deposit and allowing me to withdraw some equity. (Again not 100% sure on this)

If possible my plan would be : 
1. Switch property 1 to a BTL mortgage, using the revalued amount to cover the 25% deposit, whilst withdrawing around 10% equity which is broadly the difference between the remaining 75% BTL mortgage on the new property value and my current mortgage value on the property as of today. (based on current market rates) 
2. At this point, transfer the asset to a LTD company (not entirely sure what this entails)
3. Use equity from property 1 and additional savings to fund purchase of property 2 which the mortgage would sit in my personal name. 

Any advice / information would be massively appreciated.

You can`t assume increases in value until a buyer`s valuation has been completed, interest rates have also increased so it is likely that this could cancel out any "refurb value", in general BTL is going to be very difficult to do now, you might not even make a profit and there is a ton of legal responsibility, best bet is just to sell and move to a new home.

Agree with this. Sell up, buy your new place, and invest in a stocks and shares ISA instead (specifically in a well diversified low cost index tracker fund). You'll make way more over the long run than a buy to let and it'll be a lot less stressful.

_Penny_Dreadful

jordan12291257 said:

Hi All,

As you probably noticed by the title, I am looking for some advice on my current situation regarding becoming a property landlord. 

I bought my first residential property 2 years ago, completing a full refurb on it at the time (increasing the property value around 30%). Now I am looking to move out of my first property, into another property (longer term home) whilst letting out the original property, but I am keen to understand what I need to consider and the best way of doing this. 

My basic understanding so far is : 
- I would need to switch property 1 to a BTL mortgage (est. 25% deposit)
- It is possible to set up a LTD company and transfer the asset (property 1) to the LTD company, which can be beneficial (not entirely sure on this)
- I will need to pay increased stamp duty on the additional purchase. 
- I have equity in property 1, I think this may allow me to re-mortgage at the new value, covering the 25% deposit and allowing me to withdraw some equity. (Again not 100% sure on this)

If possible my plan would be : 
1. Switch property 1 to a BTL mortgage, using the revalued amount to cover the 25% deposit, whilst withdrawing around 10% equity which is broadly the difference between the remaining 75% BTL mortgage on the new property value and my current mortgage value on the property as of today. (based on current market rates) 
2. At this point, transfer the asset to a LTD company (not entirely sure what this entails)
3. Use equity from property 1 and additional savings to fund purchase of property 2 which the mortgage would sit in my personal name. 

Any advice / information would be massively appreciated.

Unless your refurb involved increasing the size of the property or taking an unmortgaeable property and making it mortgaeable I doubt the 30% increase has much to do with the refurb.  It's more likely the increase is to do with the local market than anything you've done.

1. You can set up a limited company and have the limited company purchase the current property from you.  The purchase by the limited company will attract the higher rate of SDLT/LBTT/LTT.  It is during the limited company's purchase that you can release equity.  Note that its the limited company, not you, that will require the mortgage to purchase the property from you. Limited company mortgages tend to have higher interest rates.
   
2. As above, any release of equity to you will need to be done when the limited company purchases the property from you.  You can't remortgage the property yourself to release equity and then transfer it to the limited company.
3. Okay

If, and that's a big if, you want to get into BTL, assuming you've already looked at alternative investment vehicles, consider whether your current home makes a good investment property.  Speaking from personal experience it can be disheartening see tenants being careless with a property that was previously your own home.  I find it easier to detach with properties that were investments from the get-go.  Is there demand in the area for rental properties of your type?

I second El Torro's advice to speak with an accountant.  It might not make sense to use a limited company once you've crunched the numbers.  Once upon a time gearing was the way landlords made money which then allowed them to purchase more properties.  Changes in the tax treatment of mortgage interest now makes being a heavily geared landlord unattractive.

GDB2222

If you put the property into a company, wouldn’t you have to pay SDLT, including the 5% surcharge? I’m assuming the property is worth less than £500k?  If it’s over £500k you would be looking at 17%.

On the other hand, you would not have to pay the surcharge on the new house you purchase. 

GDB2222

I must say that the 5% extra sdlt, together with the planned changes in tenancy laws, would put me off entirely. 

theartfullodger

What experience or training in being a landlord?? If none, the alternative (ignorance) is likely painful, expensive, difficult.

Do you have the financial AND emotional reserves to cope with the tenant-from-hell (or agent-from...) not paying for say 7 months whilst you pay mortgage, all fees, legal expenses etc?? And repairs?? Repairs ?? Well if you don't repair judge will decidde you've been harrasssing tenant and either find against you or grant tenant longer to remain.

Sam_666

What a wild idea, full of holes like swiss chease.