Buy to let - good idea?

[ChrisD.]

I've seen a house for sale in my local area which has current tenants in. I know the current tenants do not want to move home so there's pretty much rental income straight away. I can afford the mortgage repayment if someone isn't in the house anyway so that's not too much of a concern but I'd obviously prefer having the income.

To me it seems a good idea, yes I realise that I won't make any money from the rent due to the cost of solicitors fees, tax on the rental income, stamp duty being higher, ongoing maintenance cost at the second house as well as my own and what not. Yet I would still have an asset that I can only see going up in value while all the while the mortgage is going down.

But I see so many people saying buying to let is a bad idea? I've got an agreement in principle for the BTL mortgage but I would have to release some equity on my own house which would put me back to 80% LTV when I've only just got it down to close to 60%.

The only other thing which is a doubt about this all for me is that in about a year me and the mrs would want to buy our own house together, and having released equity already would reduce our buying power. But then again my intention would have been renting my current house out but it's worth a fair bit more than the buy to let house I'm looking at.

 

[Burned_Alive]

Personally I wouldn't be doing anything right now that might affect your borrowing power for your potential new house.

 

[Kaka]

BTL only makes sense to me if you already own your home or you are close to paying off your current mortgage. Any other scenario is just too risky.

 

[Quartz]

BTL also can make sense if you do it through a company. Take proper advice and do your sums.

 

[Mcnumpty2323]

Thing with buy to let as well
Get a good tenant and its
Plain sailing
Get a tenant from hell
And its its a totally stressful
Expensive nightmare
Especially if you play by the rules
Worked for property developers
In the past
Some of whom played by the rules
And lost many thousands in unpaid rent
And damage to the property
Others sent a few of the
Largest blokes you will ever see
Round
To "help the tenant leave the property"
Not condoning the 2nd option
But it was way cheaper
And faster
And more effective
Than the ones who played by the rules

 

[SeatIbiza]

BTL also can make sense if you do it through a company. Take proper advice and do your sums.

This - don't forget the tax rules are changing now and, thanks to Osbourne, you can't write off mortgage interest. The whole "income" less normal costs such as agents fees is then added to your salary. You can then claim 20% back on the mortgage costs as a tax deduction. It's absolutely bonkers and too late for people who already own these properties and are getting stung retrospectively!

I wouldn't bother in this day and age - private landlords are an easy target and I can't see this changing any time soon.

 

[BUDFORCE]

Setup a limited company and buy it with that, run the BTL as a business and you only pay corporation tax on profits.

Im not giving a direct answer to what you should do, but this will very legally get you round the tax thing.

 

[ChrisD.]

I have a Ltd company however I will shortly be going through the MVL process. I've had a think and I'm not going to bother with it. I'm fairly confident my mrs and I will buy in about a year and if I sell my house we could have our own home mortgage free or near enough mortgage free, which to me is a much better prospect. It won't be a 4 bed detached like I have now, but it'll be more than big enough for the both of us and being mortgage free is a great place to be with us both being in our 30's.

 

[Psycho Sonny]

Setup a limited company and buy it with that, run the BTL as a business and you only pay corporation tax on profits.

Im not giving a direct answer to what you should do, but this will very legally get you round the tax thing.

So how does one get the money from the business account into the personal one without tax?

Otherwise it's the businesses money and can only be used for business purposes.

 

[BUDFORCE]

So how does one get the money from the business account into the personal one without tax?

Otherwise it's the businesses money and can only be used for business purposes.

You pay corporation tax on profits. I didn't say you can completely avoid tax, it's much more efficient then having the BTL in your personal name.

 

[Psycho Sonny]

You pay corporation tax on profits. I didn't say you can completely avoid tax, it's much more efficient then having the BTL in your personal name.

Yeah but that is the businesses money.

You can't use that to pay for your groceries, holidays, house, etc.

You still need to pay income tax on it as well.

 

[Burned_Alive]

You pay corporation tax on profits. I didn't say you can completely avoid tax, it's much more efficient then having the BTL in your personal name.

And as above, income tax when you transfer the money out of the LTD into your personal accounts, either in the form of standard income tax or dividend tax.

 

[Mark M]

You pay corporation tax on profits. I didn't say you can completely avoid tax, it's much more efficient then having the BTL in your personal name.

Much more efficient? It depends on individual circumstances more than anything as bacis rate tax payers still get full relief on the mortgage interest. Its certainly an option but dont go jumping straight into the limited company route without serious thought. The accounts preparation is more expensive, legals are usually more expensive, mortgage rates are often slightly higher and you need a bank accout set up in the company name.

You also have an issue when you come to sell it as you get no CGT allowance and the "profit" will be taxed twice, first at 19% Corporation Tax and then the balance at 32.5% when you take it of the company. If you buy the property in your own name you can transfer it to your wife and get 2 CGT allowances (and basic rate tax bands potenitally).

 

[Bounce]

Personally I wouldn't go into buy to let, all it takes is 1 bad tenant not paying rent for months on end and then having to pay for them to be evicted by high court enforcement officers and your screwed. Plus you have to think about maintenance of the house, repairs etc and when you take all that into account your taking a big risk for what £100 a month in profit? nah just not worth it.

If your looking for income, I'd look at stock market dividend paying stocks. You can get Shell for example paying 7% dividend yield. There are higher yielding stocks but that comes with more risk.

But like everything it has its risks.

 

[BUDFORCE]

Much more efficient? It depends on individual circumstances more than anything as bacis rate tax payers still get full relief on the mortgage interest. Its certainly an option but dont go jumping straight into the limited company route without serious thought. The accounts preparation is more expensive, legals are usually more expensive, mortgage rates are often slightly higher and you need a bank accout set up in the company name.

You also have an issue when you come to sell it as you get no CGT allowance and the "profit" will be taxed twice, first at 19% Corporation Tax and then the balance at 32.5% when you take it of the company. If you buy the property in your own name you can transfer it to your wife and get 2 CGT allowances (and basic rate tax bands potenitally).

Ok fair point, if you are going for any number of BTLs to build up a portfolio it is.

 

[Kaka]

Profits from the rental income is only part of the picture. You're primarily looking at owning an appreciative asset at the end.

 

[wesimmo]

I've got a house I let out, I didn't intend to I just had to move 200 miles quite suddenly so let the house I had and rented for a while before buying the house.

All in all it's been about 12 years the house has been let out, managed by an agency as it's 200 miles away, and TBH the biggest hassle I had was with my first letting agents being absolute morons. Since I swapped it's been a nice hassle free income stream.

 

[Bounce]

Profits from the rental income is only part of the picture. You're primarily looking at owning an appreciative asset at the end.

Yes possibly, but like I said it only takes 1 bad Tennant and you could be thousands of pounds out of pocket. All you need to watch is can't pay we'll take it away and you'll see.

Besides house prices aren't guaranteed to go up, no one knows what effect Brexit will have.

 

[shadow_boxer]

In this scenario where you're having to pull equity out your main residence and will be looking to climb the property ladder I wouldn't be getting a BTL just yet.

Get yourself settled into your new property and then see BTL as just one avenue for investment. I see moving up the property ladder as an investment anyway. My Dad has a few BTLs so I've always believed in bricks and mortar but golden age of private landlords has been and gone.

Stamp duty, mortgage interest relief, mortgage eligibility have all made it harder, then there's landlord licencing, stronger tennant powers, stricter rules too just to name a few things that also haven't helped private landlords.

The property, in my opinion, has to tailored to the type of tennant you'll hopefully want. At the end of the day it's your choice to pick and choose the one you feel is right and won't be a liability. Young professionals, young families and the retired are pretty good bets but spend time thinking about the area and property, job opportunities for your potential tenants etc.

Ltd company is the way forward at the moment but it depends on you and your wifes financial circumstances eg if your are both higher rate tax payers and want to develop a nest egg for retiring then it makes sense. You need to think about what the company will reinvest in as there is a hefty tax penalty should you take the profits out of the company. Yes there are dividends and directors salaries but both are relatively small. It's actually easier to get a mortgage via a Ltd company and you can borrow substantially more also but higher legal costs need to be considered.

I'm no expert but hope that helps.

 

[Ahleckz]

I’m going to jump in here.

I’m renting out my flat, what can I claim back from the tax man? I assume this I do via a self assessment. I understand there’s the mortgage interest?

Assume rental income £600 and mortgage £350 at 2.09%. I’m a basic rate payer.