hariseldon Posted January 22, 2012 Report Share Posted January 22, 2012 Hi, I have recently come into some money from a departed relative. I am considering buying some small terraced houses to rent out (say three or four initially outright). With a further similar house purchased with a mortgage which will be covered and overpaid buy the rental income. My aim would be to gradually build up a portfolio in this way without becoming over leveraged or too sensitive to interest rates or voids etc. I would be grateful if someone could say what typical rental yields they aim for and what would typical costs be versus the total rental yield. (i.e. letting agency fees, insurance, damage/repairs etc) What is the most tax efficient way of paying down the mortgage. Would it make sense to incorporate a company and use that to buy the properties and then put rental income against the mortgage liability to avoid profit and therefore tax? Any help would be greatly appreciated! Hari Link to comment Share on other sites More sharing options...
Guest theartfullodger Posted January 22, 2012 Report Share Posted January 22, 2012 Welcome: There is good general advice for new Landlords here... http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12 Link to comment Share on other sites More sharing options...
Carryon Regardless Posted January 22, 2012 Report Share Posted January 22, 2012 Hi and welcome. My advice is to read loads, here and other forums can forewarn you of many pitfalls likely to be ahead. Take off rose coloured glasses, if you have them, and chuck 'em. It is only being business minded that will aid success. Sorry if I sound pessimistic but the industry, ignoring the possible capital ups and downs, is high risk. No one is expecting significant property capital growth in the short term, if any, so there are very likely to be 'bargains' to be had for some time yet. That's to your advantage as the time spent learning can make a drastic difference to your decisions. Your questions are "how long is a piece of string" type questions as so much depends on where, who, value, condition........... If you read some and ask questions I'm sure we'll give opinions Link to comment Share on other sites More sharing options...
hariseldon Posted January 22, 2012 Author Report Share Posted January 22, 2012 Thanks for reply. I have a basic question regarding taxation of rental income. From what i can read from HMRC/direct gov only mortgage interest is liable to tax relief - not the mortgage principal. That is to say after deduction of annual mortgage interest and costs the remainder is subject to 40% tax (i am a higher rate tax payer) prior to paying down the mortgage principal. Having run through the numbers this would substantially prolong the lifespan of the mortgage from 4.x years to 9.x years. Which would make the gradual growth of the portfolio very gradual indeed! Is there a more tax efficient way of doing this? My idea alluded to in the previous post was to form a company, buy houses with it and use the mortgage as a liability. I can't find much on the web about this. Hari Hi and welcome. My advice is to read loads, here and other forums can forewarn you of many pitfalls likely to be ahead. Take off rose coloured glasses, if you have them, and chuck 'em. It is only being business minded that will aid success. Sorry if I sound pessimistic but the industry, ignoring the possible capital ups and downs, is high risk. No one is expecting significant property capital growth in the short term, if any, so there are very likely to be 'bargains' to be had for some time yet. That's to your advantage as the time spent learning can make a drastic difference to your decisions. Your questions are "how long is a piece of string" type questions as so much depends on where, who, value, condition........... If you read some and ask questions I'm sure we'll give opinions Link to comment Share on other sites More sharing options...
Richlist Posted January 22, 2012 Report Share Posted January 22, 2012 Yes only the mortgage interest can be offset against income tax but there are 100's of other expenses you can offset as well. This link will give you some ideas of the expenses you can offset but is by no means definitive Setting up a limited liability company is rarely worthwhile for just a small portfolio. If you have a spouse or partner who pays 20% tax you can arrange to legally own 99% of the property whilst your partner takes the beneficial interest and only pays 20% tax on the profits. You would need a solicitor to set this up and it will cost £200-£300 Link to comment Share on other sites More sharing options...
hariseldon Posted January 22, 2012 Author Report Share Posted January 22, 2012 Richlist, Thanks for speedy reply. Looking at the whole picture, having to pay 40% tax on rental income puts a sizeable dent in my original plan. My partner is also a higher rate taxpayer so what you have suggested is not an option, sadly. I will need to look again at everything. How is anyone making a living from being a landlord without a huge number of houses? Hari Link to comment Share on other sites More sharing options...
Richlist Posted January 22, 2012 Report Share Posted January 22, 2012 How is anyone making a living from being a landlord without a huge number of houses? I can't speak for others but for me: * Most of my properties were bought a few years ago at a fraction of todays prices. * Others were bought at below market value or as repossessions or as wrecks & refurbished. * I have a large part of my total mortgage finance at 0.5% above bank base.......something totally unavailable today. * All of my properties are in good condition and let to quality tenants. * I have processes in place to minimise risk & maximise profit. * I spend a lot of time selecting suitable tenants. * I don't waste money or spend any without adding value. * I employ professionals sparingly and don't pay agents management fees. * I do my own accounts & tax returns and spend time and effort minimising tax liability. * I read anything and everything to do with renting and letting. * I remain open to new ideas and ways of doing business. * etc etc Link to comment Share on other sites More sharing options...
Melboy Posted January 23, 2012 Report Share Posted January 23, 2012 I am the same as Richlist...... especially lines No.1 & No.2 Although I did buy a property 15 months ago from an older person(s) in financial distress with high mortgage repayments and they now rent their property back from me. Bought well below market value though I have to say and also they are very nice people caught up with overstretch debts at the time but now completly cleared. I would certainly look at going down this path again if a business opportunity arose again. Mel. Link to comment Share on other sites More sharing options...
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