Setting up a company + the right approach

[Owen Jay Adams]

Hi, I am about to buy a property outright (£65000) with the intention of renting it out. I aim to collect rent from the property for 2-3 years and then put a deposit down on a second property and do the same until I have a few properties which will eventually create a nice amount of cash flow. I am currently 35, so I have plenty of time I hope. ha ha!

I had wanted to try a different approach to create a portfolio quicker. However due to a few health conditions at times I am unable to work, This is the case at present so I would be unable to get a mortgage and I also wanted to take a safer approach.

Anyways, I wanted to know if people on the forum thought that it was a good idea to set up a company to start this property venture and if yes what type is best and why?

Thanks a lot for your help it is much appreciated. I am new to property investment so please dont be afraid to tell me I am stupid or that there is a much better approach for me to take given my circumstance

Regards

Owen

 

[nmb]

Some people use SPVs (for individual properties) or normal limited companies (for numerous properties). With SPVs you can sell the SPV when you want to sell a property without traditional property sales paperwork and costs. Using a limited company also allows you to spread company costs across a number of properties.

There was a report recently which suggested the limit at which it becomes viable to use a company rather than your own name but I cant find it at the moment.

On a side note, you might struggle to raise finance if you are not able to get a mortgage in your own name. Unless you had additional partners in the business willing to put the cash up, or guarantee the first mortgage.

 

[George Ahye]

Hi, I am about to buy a property outright (£65000) with the intention of renting it out. I aim to collect rent from the property for 2-3 years and then put a deposit down on a second property and do the same until I have a few properties which will eventually create a nice amount of cash flow. I am currently 35, so I have plenty of time I hope. ha ha!

I had wanted to try a different approach to create a portfolio quicker. However due to a few health conditions at times I am unable to work, This is the case at present so I would be unable to get a mortgage and I also wanted to take a safer approach.

Anyways, I wanted to know if people on the forum thought that it was a good idea to set up a company to start this property venture and if yes what type is best and why?

Thanks a lot for your help it is much appreciated. I am new to property investment so please dont be afraid to tell me I am stupid or that there is a much better approach for me to take given my circumstance

Regards

Owen

Hi Owen, very exciting times for you! I've invested in a few properties myself and from my understanding it's best to set up a company mainly for tax reasons.

Company tax stays at 19% until 2019 and will reduce to 18% from 2020 which is a great option especially if you're a higher rate tax payer, in effect you'd save 21-22% tax on income.

However if your property income is only small and you remain on normal income tax at 20%, or even slightly over the higher income tax of 40%, the costs and paperwork involved in setting up and running a company don't really warrant the benefit.

So to summarise, are you making enough profit through property to warrant the costs and time spent on running it?

Another thing to consider, with £65,000, personally I would invest in 2-3 homes if possible splitting the money between deposits and getting a buy to let mortgage. This way you already have let's say 2 homes, you should be taking home profit each month, plus both homes if bought correctly (i.e. location, condition etc.),will increase in capital value giving you an option to take out your investment a few years down the line whilst keeping the properties!

Hope this helps.

George

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[FWL]

Hi @George Ahye

Am I right in assuming that splitting the £65k between 2 or 3 income producing properties (funding the balance through mortgages) will allow the mortgage interest to be offset if done within a company?

 

[realdeals]

Yes, it is also my understanding that finance costs can be offset against profits within a company set-up. To change this concept for buy to let investments within a company would be crazy and is never going to happen in my opinion. It is not viable.