Buy to let purchase advise

Discussion in 'Buy-to-Let Property Investment' started by Mmm, May 19, 2018.

  1. Mmm

    Mmm New Member

    Hi all,

    Ive just joined this forum and I am new to the world of property investing.

    I would like help and advice about a property purchase I would like to make on which my offer has been accepted.

    The property would be bought for the purposes of renting out. The accepted offer on the property was £170k. I have slightly more than £170k in savings and as such I could purchase the property this way but I would prefer to keep some cash in my savings.

    I may potentially purchase another 1 or 2 properties and have thus formed a limited company acting as an SPV through my accountant. However my accountant has not really been able to explain to me why this is the best way forwards considering my circumstances and I have also noticed that the SIC of the company only includes 68100 but not 68209. Thus I have come here for some advice and direction/clarification.#

    I have son who is studying at university with no income and he has never bought property before. My initial idea was to purchase the property through him which would mean paying no stamp duty and he would be collecting the rent tax free as it would fall below the £11k pa threshold. I would be taking out a small mortgage on my personal home or using most of my savings to transfer £170k to him as a gift and he would purchase the property. I understand the implications of this in terms of him paying stamp duty on his first home when he graduates from university.

    My accountant formed a company and suggested that I purchase the property through the company by putting a 25% deposit in as a directors loan and finding a lender for the remaining 75%. I simply don't understand how this is a better option as the interest rate is higher. My strategy is not a long term one in that I would like to get the property paid off asap and be collecting the profits as a salary or dividends asap. Is it not possible for me to put £170k in to the company as a directors loan and purchase the property outright. The interest on a personal mortgage would be almost half.

    I am really quite confused as to how to go about this.

    In summary I have £120k to play with safely, I have 3 children, 1 with no income, 1 earning £30kpa and one earning £22kpa. I have had an offer of £170k accepted on a property which I would like to purchase and start earning rental income asap. I may purchase more properties in the future. I also have an SPV setup and I am awaiting the business bank account to be setup but I am very confused as to how this would benefit me.

    I hope this was not too confusing.

    Kind regards,
    MMM
     
  2. FWL

    FWL Member

    A couple of benefits when buying BTL property through a company are:-

    • You can offset mortgage/loan interest against company profits (you cant if you buy in your own name as a BTL investment)
    • If you buy each property in an SPV if you ever wish to sell then you only sell your shares in the company (no selling each property, saving on paperwork, fees, etc). The company will always own the property but someone else would buy the company - hope that makes sense?
     
  3. realdeals

    realdeals Active Member

    One bit of advice I was given many years ago was:-

    Dont not be afraid of debt (gearing up your finances) as this can help you grow BUT respect debt at the same time

    One example, if your projected return on a property development is 50% and you are paying 10% interest on finance then surely it is a no-brainer?
     
  4. lookinginvest

    lookinginvest Member

    If a property is self financing after completion and signing up a tenant - after taking finance costs into account - then using debt to expand might be the best solution. Otherwise you will end up with one property (fully paid off) earning a decent rental return but taking years to pay back what you invested, leaving you with no funds with which to expand your property portfolio. Debt is not always your enemy :)
     
  5. FWL

    FWL Member

    Where do you stand legally with gifting the property/funds to one of your children? I would presume there are some inheritance tax issues to take into consideration at best?
     
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