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  • Buy-to-Let

    BTL ROI calculations done through company

    Hi Team,

    I am a amateur landlord on a learing curve recently started ltd company and planning to invest. Just for an example i projected my net ROI income in the company after paying corporation tax as follows. Please note that net income 3656.92 is after paying corporation tax ( Netprofit to the company )

    Details£
    Purchase price145000
    Stamp Duty4750
    Other Expenses on Buying1200
    Deposit (%)30%
    Refurbishment0
    Monthly Rent650
    Rental Void Months0
    Agency Charges (10%)780
    Mortgage APR2.59
    Maintenance300
    Deposit (30%)43500
    Overall Initial Investment49450
    Loan101500
    Interest/yr2628.85
    Tax Rate ( Corporation Tax )20%
    Annual Rent7800
    Accountant Fees300
    Gross Cash flow4571.15
    tax to be deductted914.23
    net income3656.92
    ROI7.395187058

    If the above calculations are correct, After paying tax at the company level, I will have 3656.92. In case if I take that out of the company to my personal account and that will have dividend tax and income tax which will bring down my net ROI much below 5%.

    I am wondering whether I am close to correct in my calculations. When people referring 15%-20% ROI what they mean. is the net ROI or the gross before paying any tax.

    Sorry about the detailed list, I thought it might bring some clarity

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    Corporation Tax is currently 19% (reducing to 17%)

    Your Agency Fees don't include VAT. Is the agent not VAT registered?

    You should include voids as everyone gets them. I include 2 weeks voids as that is my average

    You can tax out £2k a year dividend tax free. If you have a partner and they are involved in the business then they can also take this dividend tax free (assuming neither of you receive any other dividend payments)

    Which 'people' get 20% ROI on a standard BTL?

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    Thanks for your response. When i watch you tube videos from many investors like samuel leeds and others keep saying we should only accept Property with ROI 15% or above and reject anything else. Many people keep saying this through many videos. I get in to that doubt of that i am not good at looking or i should look in to very cheap properties where ROI might be higher. but at the same time i might not get good tenants or void periods...
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    I would presume they mean ROCI - Return on Capital Invested - in which case 15%+ should be achievable if done smartly.

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    Hello,

    No buildings insurance (most lenders insist on this), also I can't see anything for making the property ready to rent (smoking alarms, gas safe certificate, electric) although the property may already have these items?
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     Nanda

    Just a couple of observations.

    Firstly, you need to run figures on both a cash and a trading basis.  If your loans are repayment, then the cash requirement will be higher when compared with profit.  It is likely that in some years you will make a profit, but not be able to draw cash.

    Corporation Tax is currently 19%.

    You definitely need buildings' insurance (as pointed out by others) and definitely need to allow for voids, even if it's only at the beginning when setting things up.

    Your accountancy fees seem cheap, although in fairness this should be every straightforward.  There are costs which accountants incur for submitting corporate accounts.  Don't forget the £13 Companies House fee each year.  How have you terated the costs of setting up the company?

    I'd bump the maintenance up a bit for budgeting.  Remember you need to pay for a gas check each year, electric check at the start, inventory, etc.

    To get the real ROI you need to run the business for a few years as there will be swings and roundabouts in terms of expenditure.

    Love the joke about 15-20%; interesting that these figures only appear on guru type videos and seminars (not in reality)!

    Best advice is don't be too optimistic about cash generation.


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    Thanks Graham for your feedback. As you mentioned After tax and other deductions our actual gross ROI is not moving over 6 per cent. Incase if we look for cheap properties in the northwest, is it possible to get that type of returns. I am always hesitant on this because I leave in the south-east and investing north of England where I have very little knowledge scares me a bit

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    If you have little knowledge and it scares you, then perhaps don't do it!

    I am based in the north and would't argue with your figures; I run several companies and partnerships so have good data.  If you go for cheaper properties your need to factor in more voids, more arrears, more management, more repairs.  Therefore the bottom line isn't necessarily different.

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    Hi Graham

    Any ideas of how can I get good data about investments in the north. Does anybody share that? Please, could you hint me with your experience?

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    Is the agency fee tenant find only or TF and management?
    If you hold tenants info you'll need to register with the ICO £40 PA.
    You will need to pay for Check In and Check Out.
    Any garden maintenance?
    Pre and post tenant clean.
    DPS registration.
    Membership of a LL organisation (not compulsory but highly recommended, and tax deductible).
    Does your council operate Selective Licencing in your area (or might they introduce it?)
    Do you have a contingency/float in case something goes wrong?
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    I invest on the wirral, in a small area that I target specifically. I can buy for around 70-85k with rental from 475 - 575, which does give a much higher roic and lower costs, however the figure is sort of skewed a little as year1 obviously has the initial purchase costs which are a one off
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    Slowly working towards financial freedom