Newbie(ish) - Advice on Equity Release and SPV needed

Discussion in 'General Property Investment Discussion' started by Sam Ebsworth, Jan 6, 2019.

  1. Sam Ebsworth

    Sam Ebsworth New Member

    Hello,

    I describe myself as a Newbie(ish) as i've been a landlord for nearly two years now and have already been through the mill in terms of a non paying tenant, solicitors, ineffective letting agents, courts and eviction processes. We are thankfully out of the woods with that and now have decent paying tenants in place on our one property portfolio. So now we are thinking of the nexts steps in expanding our BTL venture, which is where i am now stepping into the unknown and are seeking advice. The ultimate goal (i suspect along with a lot of other people here) is being able to build enough rental income to be financially independent. This, we are hoping to achieve in 7 years.

    To set the scene, we own one (mortgaged) property which we rent out at rough 4% net yield. We have a LTV on the mortgage of 53% meaning there is a sizeable chunk of equity in there that we would like to use as a deposit for another BLT property (at a push there may be enough there to cash buy a modest flat or even fund a number of deposits). The sticking point is that the mortgage is a fixed rate which has another 2 years to run. The early payment on the mortgage is approx £8000 so remortgage isn't a viable option. So the first part of the problem/question is unlocking that equity in the most cost effective way possible? Whilst i've research quite a bit, unless you're over 55 (which we're not) equity release doesn't seem possible.

    With equity released, the second phase would be to start a SPV Ltd Company to purchase the next BTL property. Having read around this quite a bit, i think this is the most tax efficient way of going forward with the plan. From there, i am hoping to keep the income from that property within the company, building it up and re-investing in more property as the rental income grows. At the 7 year point, my current employment contract will end and, with my income reduced below the higher tax band, then we can start with drawing income from the company at the reduced tax rate.

    At this point i should mention that we do only own one property which is rented out. My current employment provides accommodation for us at a significantly reduced rent so, we are able/willing to take a bit more risk as (for the next 7 years at least) we won't be homeless if it all goes wrong. Although my wife would kill me ;)

    I would be very grateful for any advice, thought on the above plan, particularly focused on ideas for releasing equity on our current property.

    Warm regards

    Sam
     
  2. diyhelp

    diyhelp Active Member

    Is there no way you could use your collateral on the partly paid up property (without selling it) to take out another mortgage? You would obviously need to find the deposit if you went down this route but there might be scope there?

    The idea of using an SPV is also very sensible as the mortgage interest offset rules are changing for private BTL landlords. However, they are unlikely to ever change for companies as offsetting costs against income is integral to any company.

    The sensible approach would be to buy one property at a time, pay it down and then remortgage but you might be able to get away with multiple deposits, if the rent would cover your mortgage payments and other costs. However, under new regs the mortgage companies will take into account your own financial situation - might there be a sticking point here?
     
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