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Hello, I am ready to purchase my first investment property and I can't find anyone with the relevant knowledge to help me figure out how to solve my dilemma.Firstly let me give you some context.I am 22 and I have 0 previous real estate experience apart from the countless books, property viewings, youtube videos and seminars I have read and seen.I have a relatively well-paid job which has allowed me to save £25,000 to invest in real estate. I still live at home currently and don't intend to move out yet. I can reproduce this amount of money saved almost yearly within my current situation so I would like to invest in multiple rental properties whilst I am in this position.
The issue; As I don't have a residential mortgage and never have done I have been told that I will not qualify for a buy to let mortgage.I understand the benefits behind buying property under a company name because I am in the higher tax bracket prior to an investment property.Therefore I don't understand how I am to go about investing.If buying in my own name will wreck my cash flow because of the tax I will be paying then surely I need to buy through an LTD company but I can't do that if I don't have a mortgage already.I considered buying a property and "living" in it for so long before transferring it to a company owned property which would allow for a smaller down payment (preferable obviously) but then I would have to pay tax and fees on the transaction. If anybody could give me some advice on this I would be extremely grateful.
Those are the rules im afraid if you're new to the game. You need a job paying over £25k and be a homeowner before they will lend. Your other option is to go to a commercial lender but the rates and fees will be much higher
I thought that was for personal purchases? Didn't get say he wanted to buy through a limited company, so you dont need to be a home owner but you will need to give a directors guarantee
Slowly working towards financial freedom
Hi Josh and welcome to the tribe.You have been given inaccurate information.You actually don't need to be a home-owner to access BTL finance, although you will need a salary of more than £25K.
If you contact the PT Brokers Team (number above) they will be able to advise you of the financial products you have access to, including residential mortgages.I would recommend that you consider buying your own home and then renting out up to two rooms to lodgers. You can benefit from the £7.5K tax free Rent A Room allowance while learning to reference and manage tenants.When you are in a position two (say after two years), change your residential property to a buy to let mortgage, redeem your resi loan, and then use the difference as a deposit on your next residence.See - Using residence as stepping stone to BTL - where I explain this is how we started our portfolio 15 years ago. Our 2 lodgers bring in £1250.00 per month, but our mortgage is half that, meaning you may be able to build up your deposit pot quicker from this excess cash flow.Hope that sparks a way forwards and good luck!
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Thank you, Vanessa, I hadn't considered doing that but it is certainly something I would like to do in the future. I feel like property prices are going to dip a lot (temporarily) when Brexit actually happens so I think I may wait for that to happen and then invest in a property which requires light refurbishment so that I can buy low and add some sweat equity allowing me to make a good chunk of money on the way in.
I live in South Wales. So if I was to do this would you say to invest in an area such as Cardiff (where there are universities and a high chance of value growth) or would the town where I live(Bridgend) be a viable option? There are a lot of houses being built here lately and it has great transport facilities and is only 20 minutes outside of the capital. If I did this for two years as you said and saved say £40,000 would I be able to sell the property to my own LTD company and then rinse and repeat or is the 7.5K tax-free a one-off?
Thanks for replying anyway, I will give PT brokers a call.
There is common misconception about needing to have another property (your home) before securing a BTL mortgage. This is driven by misunderstanding of the rulers and how lenders apply them.
Lenders are concerned that you will secretly love them and so the mortgage may be regulated and bring them regulated risk.
it's a valid concern but one that's easily dealt with by dualoguing with lenders. Of course some your circumstances are a red line never to be crossed but for many this won't be a problem. You just need to evidence what you've said above.
We do these sorts of mortgages frequently so it won't be a problem. Borrowing in a company reduces the pool of lenders further but not terribly and as a tax advisor (and broker) it is usually only sensible if you wish to retain profits in the company as s24 tax may be a kick in the teeth but paying corporation tax and then income tax on dividends hardly makes anyone much better off. However reading into what you plan I can see the merits particularly as you don't have your own home yet.
if you need any help please give me a shout.
Chartered Accountant, Tax Advisor and Mortgage broker
(and BTL portfolio owner)
Thank you for getting back to me, I will email you in the coming week to discuss your different services if thats cool.
There's two main points I take from your situation:
1/ Your ability to save 25k per year, this is excellent by the way and your biggest asset/advantage.
2/ The fact you'll want to move out of your parents at some point which will hamper your ability to save 25k per year.
In your situation, I would do this:
Save until you can buy a residential 3/4 bedroom freehold house in your area, then rent 2 or 3 rooms out to lodgers, that way your mortgage will be covered and you'll have a house effectively cost free giving the same net benefit of living with your parents and crucially preserving your ability to save 100k every four years.
Thanks for your advice, I appreciate it a-lot.
I currently think this is the route I am going to take when the market is right, I didn't know there was a 7.5k tax relief until today so I think thats a huge bonus.I don't really want to move out but it seems there is more pros than cons.
Out of interest Josh how much does a 3/4 bedroom house cost in your town?
Hi Josh,NatWest will loan you money for a buy to let even if you do not have a residential mortgage. Hope this helps.Regards