New Landlord - HMO Sector Views

[Porky]

Hi all,

Yes, i know i am another would be landlord. Not trying to do anything different from anyone else just trying to create long term asset for future gen.

If anyone in this sector would be prepared to take a few minutes out to reply here i would really respect and appreciate that - Thanks in advance:-

So, i'm looking to spend about £250k cash outright in a catchment area of a University so high demand. Its a three bed house and i will convert to three student rooms and one main shared kichen and bathroom. I will be doing it in a Limited company shell. No commercial mortgage. IF this first one goes well i will buy another one later. I intend to use a managing agent, i don't want to be hands on with individuals.

What are my pitfalls here? apart from it being unoccupied/ students trashing it / the obvious. What are the drawbacks from those of experience of this?

Thanks again

 

[Mark T Jones]

There was someone here about a year back who specialised in HMOs - but I can't remember the name, which isn't terribly useful.

On the bright side, the Powers That Be have quietly binned plans to abolish Section 21.

 

[IanSuth]

As a parent of 2 children recently graduate the current set up seems to be.

People look for a property in Nov/Dec to rent from July 1st to end of May with June being a fallow month for repairs/cleaning (although some seem to be a month later than that, def a 11 mth contract however)

Don't do the place up, just make it neutral coloured, get cheap mattresses and replace each tenancy change and cheap furniture expecting to change it often.

The white goods should be from somewhere with a decent warranty OR you need quick access to cheap replacements. Students will pay a bit more if they see washing machine & dishwasher - nobody likes going to launderette. Also get decent broadband installed but make sure you get the tenants to take the contract for usage, same with energy bills. You don't want to get lumped with a huge utility bill from a disappearing tenant.

Some students have cars but as they are unlikely to be able to drive to campus the proximity to a useful bus route will hugely determine how easy it is to rent out

 

[NickGrogan]

3 bedroom house will give you 4/5 student rooms as you'd convert the lounge and dining room as well.

1 Bathroom for 5 students might be a bit harsh, so look at adding ensuite to the bigger rooms if possible - higher rents and less issues.

 

[IanSuth]

3 bedroom house will give you 4/5 student rooms as you'd convert the lounge and dining room as well.

1 Bathroom for 5 students might be a bit harsh, so look at adding ensuite to the bigger rooms if possible - higher rents and less issues.

Before you do that living room conversion check the local uni

Many have an accommodation office and push students to landlords registered with it - they have their own rules to comply with to get that registration - Warwick for instance have bathroom/common area/bedrooms rules

 

[WaveJumper]

The bigger question should be how are you going to 'set up' your property portfolio for your long term goals and that future generation, have you taken any advice on this

 

[Porky]

Thank you very much @IanSuth and thank you @NickGrogan these are great points I will certainly take into account. This is a new venture for me and I’m a total greenhorn, lol.

Thanks @Mark T Jones for replying also, need all the help I can get.

@WaveJumper i haven’t taken tax advice on this yet, I should probably do so. Both my two are over 18 now so I was thinking LTD Coy, they are equal shareholders, loan coy the money, reinvest returns, excepting the massive CGT every year, if in 10 years time property sold up, business takes the CGT hit and they take the personal tax hit on cash taken out less my loan. If later life they need a job/income instead business pays them on PAYE. That’s what I had in mind anyhow. This being a minimum 10 year plan.

 

[IanSuth]

Thank you very much @IanSuth and thank you @NickGrogan these are great points I will certainly take into account. This is a new venture for me and I’m a total greenhorn, lol.

Thanks @Mark T Jones for replying also, need all the help I can get.

@WaveJumper i haven’t taken tax advice on this yet, I should probably do so. Both my two are over 18 now so I was thinking LTD Coy, they are equal shareholders, loan coy the money, reinvest returns, excepting the massive CGT every year, if in 10 years time property sold up, business takes the CGT hit and they take the personal tax hit on cash taken out less my loan. If later life they need a job/income instead business pays them on PAYE. That’s what I had in mind anyhow. This being a minimum 10 year plan.

Be aware if you put the property in the name of your children do it carefully taking advise as it can affect things like their ability to get a first time mortgage or use of a lifetime isa etc as big brother knows they already have a property associated with them

 

[Porky]

Thanks @IanSuth
I was thinking LTD company, children buy say £1k each in shares, 50/50 of shares in issue.
I lend business £250k, business buys a property, insures it etc, converts to HMO, rents out.
Business reinvests the rental income over next ten years less Corporation tax.
Sell the property at a profit (hopefully) in 10 years less the CGT
Business pays back my loan
Remaining paid to children as dividend less personal taxes
That’s the plan anyhow
If they don’t want to sell in ten years and want an income then they go onto PAYE with it.

I think this would avoid personal ownership as it’s a business and they are buying shares like any other company

 

[IanSuth]

Thanks @IanSuth
I was thinking LTD company, children buy say £1k each in shares, 50/50 of shares in issue.
I lend business £250k, business buys a property, insures it etc, converts to HMO, rents out.
Business reinvests the rental income over next ten years less Corporation tax.
Sell the property at a profit (hopefully) in 10 years less the CGT
Business pays back my loan
Remaining paid to children as dividend less personal taxes
That’s the plan anyhow
If they don’t want to sell in ten years and want an income then they go onto PAYE with it.

I think this would avoid personal ownership as it’s a business and they are buying shares like any other company

No idea

It is def something I would get professional advice on due to sums involved