Buying a house to rent out

[Jobby]

Hi everyone, I have joined the forum to seek advice/tips/suggestions about buying a house to rent out.
I’m a director and 50% shareholder in a small company which is doing well but I’m getting on in years so I am looking into the near future and retirement. I earn £48k in salary/dividends and my wife has a salary of £9k.

We are thinking about buying a house to rent out long term and wanted to ask for any tips or things to look out for such as

Is it best to do it through a Ltd company?
If so then should we register for vat?

We are close to a university so we are thinking of student lets so any advice on making it an HMO?

Would an interest-only mortgage be a sensible idea to start off?
We can put down a 50k deposit and have choice of taking remortgage on our home or get a separate buy-to-let mortgage. Which would make more sense? or should we look at a combination of both options?

We won’t need to take any income yet so rental income would be used to reduce the mortgage until I retire otherwise I’d put myself in the 40% tax bracket but if my wife was a 50% shareholder could she draw dividends but not me?

I welcome any tips/advice/pointers/warnings from anyone who has experience in this, thank you all.

 

[Scalloway]

Is it best to do it through a Ltd company?

Any thread I have read on the subject says no.

If so then should we register for vat?

No. Rent is exempt for VAT.

 

[Newchodge]

Is your wife employed by your company? Is she a director? There may be ways to maximise her income that way. If she becomes a shareholder you need a good shareholders' agreement. Who holds the other 50% and how do they feel about her getting shares. You can use alphabet shares so that some shareholders receive dividends and some don't.

Can't help on the house purchase, sorry.

 

[WaveJumper]

There are so many “if’s and buts” and many threads here on this topic. What you need to do is sit down with an accountant and a good tax advisor so they can go through the various routes at the moment it sounds like you are in danger of mixing up a private purchase with a business purchase.

Obtaining a mortgage through a ltd will probably have a much higher interest rate than a “private” purchase BTL again tax advice here will help and an advisor will know of the best offers out there and more importantly what you will need to show in terms of income etc to get approved.

 

[Jobby]

Any thread I have read on the subject says no.

No. Rent is exempt for VAT.

I know rent is exempt for vat but I was thinking about reclaiming vat on expenses like maintenance, furnishings etc.

 

[Scalloway]

If rent is VAT exempt then you can't reclaim VAT on expenses. HMRC's guidance is here.

Exemption and partial exemption from VAT

Find out what to do if you supply goods and services that are exempt from VAT and how these affect the amount of VAT you can reclaim on your purchases.

www.gov.uk

 

[fisicx]

Use your savings and earnings to pay the mortgage. BTL will mean higher interest rates.

HMO means inspections and approval from the local council. Student occupancy may need extra checks by the university.

As a landlord there are multiple responsibilities

Start here:

House in multiple occupation licence - GOV.UK

Get a licence to rent out your property as a house in multiple occupation (HMO) in England or Wales - local authority, private renting, landlords, houseshare

www.gov.uk

 

[Stuart_Walker]

Hi everyone, I have joined the forum to seek advice/tips/suggestions about buying a house to rent out.
I’m a director and 50% shareholder in a small company which is doing well but I’m getting on in years so I am looking into the near future and retirement. I earn £48k in salary/dividends and my wife has a salary of £9k.

We are thinking about buying a house to rent out long term and wanted to ask for any tips or things to look out for such as

Is it best to do it through a Ltd company?
If so then should we register for vat?

We are close to a university so we are thinking of student lets so any advice on making it an HMO?

Would an interest-only mortgage be a sensible idea to start off?
We can put down a 50k deposit and have choice of taking remortgage on our home or get a separate buy-to-let mortgage. Which would make more sense? or should we look at a combination of both options?

We won’t need to take any income yet so rental income would be used to reduce the mortgage until I retire otherwise I’d put myself in the 40% tax bracket but if my wife was a 50% shareholder could she draw dividends but not me?

I welcome any tips/advice/pointers/warnings from anyone who has experience in this, thank you all.

And don't ignore the inventory> One of the biggest causes of regret we see from new landlords is when they don't bother getting a statement of condition before someone moves in and then not being able to claim on the deposit at the end of tenancy!

We only cover Dorset but you can find a good inventory company on the AIIC website.

 

[Jobby]

If rent is VAT exempt then you can't reclaim VAT on expenses. HMRC's guidance is here.

And this right here is why forums like this are so valuable, thank you

 

[Jobby]

I’ve looked at a few properties this week. HMO, empty and with tenants.

3-bed HMO, currently generating £15k/yr in rent, asking price £150k

2-bed apartment currently generating £6k/yr in rent, asking price £75k

Struggling to understand why someone owning these properties would want to sell up

 

[fisicx]

Struggling to understand why someone owning these properties would want to sell up

Maybe because the properties need upgrading or renovation. Their mortgage is too costly. Their license has been cancelled. The tenants are a pain. They have died and it’s a probate sale. They just don’t want to be a landlord anymore.

Loads of reasons why.

 

[IanSuth]

Check the energy certificates - might be they cant easily/affordably get them to the required standard to continue renting out

 

[Robert NW]

> 3-bed HMO, currently generating £15k/yr in rent, asking price £150k
> 2-bed apartment currently generating £6k/yr in rent, asking price £75k
> Struggling to understand why someone owning these properties would want to sell

Hi there. Yes, gross turnover before expenses of 10% is what you're looking for. After expenses you are looking for 5%, maybe 2 or 3% in London. Historically, property has not been a good investment if you properly account for tax, finance and expenses costs but it has two big advantages. You can't break off a wall and sell it for income, so there is in-built discipline, and second most people feel comfortable with the asset class. Given a steady attention to the needs of the tenants and and two decades, you can buid a strong portfolio. But (a) interest rates are probably going to continue high (b) local councils need cash so they will increase local taxes (c) the national tax on second property owners continues to rise all of which have led to an exodus of property landlords. There's no quick fix here. And you need to put in the time. And the property agents push hard to increase their cut of your rental income,.So you have to be really smart, accurate and careful. Iit will take your time. Students? Lousy tenants, unless you make sure one of them is house manager with obligations in exchange for a slightly lower rent. Choose the neat and well groomed ones for this task. You'll often find a property for sale is worth 200k to you when it's on the market for 280k... so learn to easily walk away. Spend two years looking for the right property if you have to.

 

[IanSuth]

Students? Lousy tenants, unless you make sure one of them is house manager with obligations in exchange for a slightly lower rent. Choose the neat and well groomed ones for this task.

i would disagree with this

When i was a student i ended up in a lecturers own house as he had been made a hall warden - he offered it to a mate who was a lovely looking girl. He nearly fainted when he saw me (leather jacket on a motorbike), our mate Rik (5,6, hair to waist, geordie carrying a flying V guitar) but sighed with relief at the other girl.

2 days into the let she launched a full bottle of red across the cream living room carpet, she also burnt out a part of the electrics using a hairdryer and tong thingies through a multiplug adaptor and nearly burnt the garage down with a poorly placed bbq.

All i did was damage a bit of front drive from a motorcycle sidestand in really hot sunshine and Rik (who was actually son of a cardiac surgeon and studying Italian & typography) kept his room immaculate

Students are often lousy tenants if they have never lived away from home / fended for themselves and have the common sense of the Swedish chef - the smartest looking are often the most mollycoddled and therefore dangerous to your property