Best approach to start up

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    Best approach to start up

    Hi All

    I am hoping you can help me make the right choice in starting up my investment business.

    My situation: I am a first time buyer, I have £50k for a deposit, my mortgage broker is lending me £270k or £350k with my wife (she is already a home owner) and we currently live with my parents in thier freehold house.

    What I would like to do: The plan is we buy a bigger house and all move, this allows my parents home to go on rent and helps pay for the new mortgage.

    Ideally while I have the chance I would like to buy our new home and a second small property (which can also go on rent) but not sure if I can achieve that with my mortgage and deposit.

    Lastly I think it's best if I registered as a limited company but not sure what that means to my parents home, or how I can access and use the money.

    I need to speak to an accountant but would like your advice and opinions on how you would tackle this situation.

    I am a total newbie to this, its difficult to know which path to choose, so I will really appreciate your help :-)

    #2
    You must have a very generous mortgage broking who is prepared to lend you so much , I am sure you mean arranging a mortgage !!

    Have you advised your broker of your intention to buy the residential home via a Limited Company ? I seriously ask this as I do not know who would consider such an application and if there were a lender the rates charged as a corporate loan would not be as competitive as those available for individuals .

    i am assuming that you have taken account of the Stamp Duty implications , both for yourself and your wife but als for your parents since if they were to join in as joint owners of the new property and rent out their existing property then again the new acquisition would definitely attract the 3% Stamp Duty Premium.

    You mention that your wife is already a homeowner but you live with your parents, do I assume that she has let her property with the consent of her lender or did she embark as a novice BtL investor.If the former I would strongly advocate if no consent to Let was obtained to legitimise the borrowings as a BTL.

    Borrowing via a Limited Company needs serious consideration and I would advocate a meeting with a qualified accountant and definitely not rely on any advice from your broker no matter how well intentioned and plausible is his recommendations.

    I applaud your intentions of buying jointly with your parents together with your wife and to slowly build a property portfolio but I can see a number of potential issues in such a joint arrangement and again do seek advice from your solicitor.

    Comment


      #3
      Hi LoanArranger thank you for your comment.

      The mortgage broker I have discussed this with has given me a quote so far on what I could potentially borrow. The mortgage will be used for my new personal home so I guess that won't be on the limited company. Also my wife purchased another personal property with her mum years ago, so when we got married she moved out but her mum still lives there so it's not a B2L.

      I doubt I will put my parents house into a limited company but they are happy for rental income from that to help pay for the mortgage on our new home (when I buy it).

      The reason I am thinking of a limited company is mainly based on research on best approach for creating a investment portfolio. I am not sure if I should just put new properties into this or the risk involved with putting my parents home in too?

      My wife's previous home and our new home will stay out of the limited company.

      What is the best way for me to proceed, seems like I have options but I am not sure which way is high or low risk and what sets me up the right way for the future? Thank you.

      Comment


        #4
        Excellent and thanks for clarifying the situation and intentions.
        Notwithstanding that your wife isn’t living at what is the family home with her mum , if there is a mortgage secured on that property she will still need to declare this as a liability and the extent of the mortgage payments given that she has 100% responsibility for making such payments even if her mum is self sufficient.

        In theory there are indeed tax advantages of having property owned by a Limited Company , to this extent Care needs exercising in terms of Directors and percentage shareholding’s when not being directors, clearly you wish to protect your parents from any associated difficulties which might occur with the company and therefore it is essential that your broker establishes with whomever the BtL application is to be placed with as to whether shareholding’s of 20% or 25% would trigger the need for Personal Guarantees noting that if your wife and parents do not want to directors then your own shareholding must exceed a level which couldn’t be challenged by the total shares of the other parties, hence why it is important to discuss such matters with an accountant.

        I can understand your rationale for what you are proposing and to succeed you need to cover all options , speak with legal & accounting professionals and ensureyour broker fully understands BtL loans through a corporate entity, you will be surprised that there are many good brokers experienced in residential home loans but seldom get engages in the complex zone of BtL loans via Limited Companies and often refer such cases to Master Packagers to whom other brokerage fees become payable.

        Comment


          #5
          Thank you, do you have any recommendations on people that I could speak to for further advice? ☺

          Comment


            #6
            Find a firm of Chartered or Certified Accountants in your local area and also a firm of solicitors who have a minimum of three partners and are on the panel of the majority of Banks & Building Socities. Most firms will offer an initial meeting without charge and then detail their subsequent charges. Your parents might already have a solicitor who is familiar with their circumstances including holding or having prepared their wills , such a firm might be appropriate for you .
            Clearlyyour Broker has done provisional work for you and you may have already provided him with a Fact Find which is a mandatory requirement when a broker is arranging a Regulated Mortgage so it is important that you determine yourself if he/she has the requisite experience in arranging BtL funding via Ltd Co’s, if uncertain source another broker with the necessary credentials.

            Comment


              #7
              Thank you for your help :-)

              Comment


                #8
                I think you should focus using your £50K deposit on financing your first time home and finding a location which suits all of you.

                Mortgage lenders will lend up 3.5 to 5 times of your annual income. You can get a better understanding of mortgage products by looking at money website

                Presently, a first time buyer can get exemption on paying sdlt up to £300K for purchase of property . But if your wife is already named as part owner of another property . then a purchase in joint names means you + wife don't qualify as a first time buyer.

                I suggest you put the grand plan of using a limited company for holding a BTL portfolio until later date.

                Comment


                  #9
                  Thanks Gordon! I have recently been thinking about doing this differently. Am I better off staying where I am for another 1 year but buying a B2L property instead with the money I have? And would I still be exempt from paying stamp duty if my first purchase was a B2L?

                  The reason is it may get me up and running with some additional rental income which I can then use later (alongside my earnings from work) to support buying my new personal home.

                  Any thoughts?

                  Comment


                    #10
                    JoshK
                    If you are buying a BtL solely in your name my understanding is that you would not incur the Stamp Duty Premium.
                    It is important to note that not all lenders will allow the net rental income to be used in the affordability assessment of a main residential property and your Broker should be able to advise on those that do or don’t .

                    If you read my posting yesterday under Mortgage News where I provided an extract of a trade publication which reported that Buy to Let purchases had fallen , this suggests that for an amateur investor this might not be the right time to enter the market given that the equity could be seriously eroded should the downward trend in property prices escalate.

                    Comment


                      #11
                      Ok thanks. Sounds like a risky time to start investing, but I guess it depends on the unknown and there could be winners and losers.

                      Comment


                        #12
                        Do all the research possible to minimalist the risk of the latter. BtL is no longer the Get Rich Quick Scheme As so often promulgated by so called property educators. Property is cyclical , tax benefits far less generous and much is going to depend on locality. You might be interested to note that many successful investors restrict such acquisitions to an area that they have considerable knowledge of.

                        Comment

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