Property Finance & Business Setup

[OCC]

Hi

My first post here... any help appreciated.

I have a circa 40% stake in a piece of land, which has an existing house and full PP for 7 additional houses (granted Oct 22). My ex has a 40% stake and remaining 20% is financed (residential mortgage). It's all on one residential title at present - was the family home.

Price has been agreed for me to buy her out and we're both keen to proceed.

I am set on building a home I have already had designed. The site will be prepared, services put in and individual fully-serviced plots put on the market (retaining one for me) along with selling the existing house. I am fortunate enough to have the involvement and experience of my parents - they have previously built around 15 houses. They are also willing to offer a property as security if necessary.

My main questions are:

1. What is the best way to finance this venture and what interest rate would be reasonable? Circa £500k cash (additional security option if required), with £725k finance required over 12/18 months.

2. Will securing finance be possible/straightforward given today's market and my situation/finances?

3 . What is best way to set up this venture? Transferring property into new limited company or keeping in personal name? Having looked into this, this may be a complicated answer due to PRR, CGT, Stamp Duty etc. but if you have any nuggets of advice, that would be great.

4. Is Stamp Duty avoidable when you business 'buys' part-owned personal property of business owner?

Thank for reading and any advice appreciated!!
Jim

 

[Mark T Jones]

@tony84 may have some of the answers

 

[tony84]

I helped someone do something similar not long after I first became a broker, but its not something I do on a day to day basis. That was a steep learning curve!

Really you need to sit down with someone, probably an accountant and mortgage broker. In order to answer your questions I think I have more questions than you have asked.

There are plenty of ways to do it - do you split the land up (your home on one deed and the the others on another deed? or do you keep it all on one deed?) Do you plan to rent them, sell them, a mixture?

How much is your income? If your income is not enough, then you are probably limiting yourself to a bridging loan or development finance. If your income is enough, you might be able to take out a normal mortgage to make a start but then you will probably need to raise a bridge later down the line. How long do you expect it to take.

Im not looking for answers, just making some points for you to consider.

2. Securing finance is easy enough they generally look for equity. They might want to know about experience so having parents on hand could help with that. The cost of the finance has increased over the last 6 months, although going off a discussion I had earlier in the month not by as much as I expected... Although its not me having to pay it.

4. I dont think you can avoid stamp duty, but you can deduct it from however much CGT you end up paying I think. Im not qualified to advise on this, so just get a professional opinion on that as I could be wrong.

 

[Gyumri]

Price has been agreed for me to buy her out and we're both keen to proceed.

That the first step to consider before development of the land. A TR1 should be executed by your wife and the consideration stated. When and how does she get paid?

The question of whether the land should then be transferred into an Ltd which you own shouldnt give rise to CGT but you need to check this.

The ability to service a loan would be uppermost in any commercial lender's eyes as you would be a new company.

All this requires the advice of a solicitor experienced in property development issues.

 

[OCC]

Great, thanks for taking the time to respond in detail. Much appreciated!

My regular salary is not that great, so I wouldn't be able to raise the finance based on my income. It would be based on equity and the ability to repay when selling off individual building plots. Like you say, the existing home could be separated and part of the finance raised on a residential mortgage (perhaps 25%). So a bridging loan or development finance is the way forward for the bulk of the finance.

Please can someone advise the best route to applying for a bridging loan or development finance? Obviously Google will point me in many directions, but do you have any recommendations? My parents were building in the 80s, 90s and early 00s - they tell me they just used to go and ask their local branch bank manager for finance - I assume things have moved on a lot since then.

Thanks for reading.
Jim

 

[WaveJumper]

On a side issue, does buying the ex out include a share of the profits on the planned development, does she know what your planning?

 

[Gyumri]

I agree with @WaveJumper that the wifes's interest needs to be resolved first as it is the matrimonial home and she has 40% of the interest in the land.

She would need to take separate legal advice on what she is giving up and for what value if any.

 

[OCC]

On a side issue, does buying the ex out include a share of the profits on the planned development, does she know what your planning?

Hi WaveJumper. The ex is aware of the plans. She will not have any share of future profits. We are having a clean break and she is happy to take her cash out now to be able to move on. The agreed price reflects an offer (a cheeky one in my opinion) made on the site by a local property developer. She wanted to accept at that price, I didn't, so it was agreed I would buy her out. Typically, as soon as the PP was signed off a couple months ago, developers have been scared off by market conditions. She's keen to move on.

 

[Gyumri]

Generally it is good practice that in the agreement which must be in writing it is said that she has obtained independent legal advice and really she should go to a solicitor who will explain to her what she is giving up and attest to the fact in a signed attendance note that she has been given legal advice. This stops any claim later that she didn't know what she was doing and was pressurised by you to sign.

The next point is how does she get her payment and when? If per the written agreement she gets paid immediately and in consideration for the payment she transfers her 40% then the TR1 will reflect that in the box marked for consideration.

This aspect must be dealt with by a solicitor who will then file the TR1 with the land registry to show your name only on the title, which takes at least three months to show up on the register due to delays.

Were then back to your original question as to how to raise finance in order to develop the land and build the houses per the planning permission - assuming that the venture is likely to be profitable.

That in itself is a pig in a poke and would be best answered by others on this forum connected with commercial finance.

I believe there is no capital gains tax to pay if you are transferring your personal assets - ie the freehold title - into an Ltd which you alone own- but an accountant could advise.

What is a "PP"?

 

[MBE2017]

In your position, personally I would finalise your wife’s share and take control of the house and land first. Then I would be looking to arrange the title splits for your and the other planned houses.

Regarding finance, personally I would recommend arranging a bridging loan, if you have enough equity, or you and your parents do, a cross collateral bridge or something similar would probably suit yourself well.

There are several types of bridging loans available, typically a standard type bridge will run for up to 12 months, but it can be longer. Contrary to a mortgage, bridging finance companies are more interested in the value of the property than income. You need to speak to a specialist, PM myself if you want a contact.

Obviously once built the house(s) can be moved onto suitable mortgages or sold outright.

 

[OCC]

I agree with @WaveJumper that the wifes's interest needs to be resolved first as it is the matrimonial home and she has 40% of the interest in the land.

She would need to take separate legal advice on what she is giving up and for what value if any.

Hi Gyumri. This has been put through solicitors already and she is fully aware of values and plans. We have an agreement based on me being able to raise the finances. We have already completed full financial disclosures and had valuations on the site/house/plots. The matter will be signed off through the court once finance is approved.

 

[OCC]

Generally it is good practice that in the agreement which must be in writing it is said that she has obtained independent legal advice and really she should go to a solicitor who will explain to her what she is giving up and attest to the fact in a signed attendance note that she has been given legal advice. This stops any claim later that she didn't know what she was doing and was pressurised by you to sign.

The next point is how does she get her payment and when? If per the written agreement she gets paid immediately and in consideration for the payment she transfers her 40% then the TR1 will reflect that in the box marked for consideration.

This aspect must be dealt with by a solicitor who will then file the TR1 with the land registry to show your name only on the title, which takes at least three months to show up on the register due to delays.

Were then back to your original question as to how to raise finance in order to develop the land and build the houses per the planning permission - assuming that the venture is likely to be profitable.

That in itself is a pig in a poke and would be best answered by others on this forum connected with commercial finance.

I believe there is no capital gains tax to pay if you are transferring your personal assets - ie the freehold title - into an Ltd which you alone own- but an accountant could advise.

What is a "PP"?

PP = Planning Permission

Thanks for all the advice and direction. You make a good point about a written agreement stating she has received independent legal advice to prevent any future claims.

 

[OCC]

In your position, personally I would finalise your wife’s share and take control of the house and land first. Then I would be looking to arrange the title splits for your and the other planned houses.

Regarding finance, personally I would recommend arranging a bridging loan, if you have enough equity, or you and your parents do, a cross collateral bridge or something similar would probably suit yourself well.

There are several types of bridging loans available, typically a standard type bridge will run for up to 12 months, but it can be longer. Contrary to a mortgage, bridging finance companies are more interested in the value of the property than income. You need to speak to a specialist, PM myself if you want a contact.

Obviously once built the house(s) can be moved onto suitable mortgages or sold outright.

Great, thanks MBE.
I feel like I have a plan now. Bridging loan seems the way forward and I'll look in more detail at cross collateral bridging loans.
As you say, complete the transfer and legal business with the ex.
Then separate the titles, prepare the parcels of land and sell what I intend to sell.
I'll PM you for the contact.
Thank you

 

[OCC]

Thank you everyone for your input! Got a plan together now!

 

[tony84]

You will probably need a mortgage broker. I tend to refer our enquiries to a broker I have known a while in Yorkshire (wrong side of the Pennines really but they are alright), speak to some brokers. See how you get on with them.

 

[Gyumri]

Bridging loan seems the way forward

Be vigilant about the terms and especially those which relate to percieved "defaults" otherwise a lender could have you over the barrel and demand repayment simply because you've sneezed.

It can't be a loan repayable on demand or such to permit the lender to call in the loan if in its opinion the value of the land has finished for any reason.

With such offers which are all too common it is better to do nothing.

 

[m4hmo]

If you can finance the build upto water tightness, you can get loans at 0.5% interest for 6 months for the rest of the build last time i checked (have enquired about this about our own potential development).

Things like this is usually supported or funded by other property you own with equity to work with. Ideally mortgage free properties with high yield.

 

[AndreasC]

Hi

My first post here... any help appreciated.

I have a circa 40% stake in a piece of land, which has an existing house and full PP for 7 additional houses (granted Oct 22). My ex has a 40% stake and remaining 20% is financed (residential mortgage). It's all on one residential title at present - was the family home.

Price has been agreed for me to buy her out and we're both keen to proceed.

I am set on building a home I have already had designed. The site will be prepared, services put in and individual fully-serviced plots put on the market (retaining one for me) along with selling the existing house. I am fortunate enough to have the involvement and experience of my parents - they have previously built around 15 houses. They are also willing to offer a property as security if necessary.

My main questions are:

1. What is the best way to finance this venture and what interest rate would be reasonable? Circa £500k cash (additional security option if required), with £725k finance required over 12/18 months.

2. Will securing finance be possible/straightforward given today's market and my situation/finances?

3 . What is best way to set up this venture? Transferring property into new limited company or keeping in personal name? Having looked into this, this may be a complicated answer due to PRR, CGT, Stamp Duty etc. but if you have any nuggets of advice, that would be great.

4. Is Stamp Duty avoidable when you business 'buys' part-owned personal property of business owner?

Thank for reading and any advice appreciated!!
Jim

Hey Jim,

I'm an accountant so have dealt with this for clients before.

As the others have said bridging finance is your solution and they charge approx 10-18% p.a. interest depending on the project. A broker can advise what the rate would be for your project. If you would like some introductions let me know.

As you are developing the properties to sell then your 'profits' are going to be subject to income tax and not Capital Gains tax. I'll need the full background/history and what your goals/intentions are to advise what is best but the property you want to retain for yourself you will want to own that part/plot personally and not through a company.

On your % of ownership you have 20% mortgaged but I assume the property is owned 50:50 with your Ex.

I'm sure the lawyers have got this covered but if you were married and split up in one tax year but the house was formally transferred another year then there can be Capital Gains Tax to pay by the seller (your ex in this case).

Rgs

Andreas

 

[macScot]

Might be worth checking out Samuel Leeds, I like watching his Youtube videos on property investment, I am sure someone like him can either get involved directly or put you in touch with people in the area.

 

[tony84]

Just be careful about the people on the internet.
There is a site for mortgage brokers and a running joke about people who calling up wanting you to be part of their "power team".

As soon as someone mentions those 2 words or similar, we all switch off as we know you have just wasted a couple of grand and have been given duff information.

My advice would be avoid the internet, get your advice directly from the people who are:
1) Paid to help you (and only get paid if they help you),
2) Actually helping you.

Some tit on the internet (im not suggesting Samuel Leeds is... I have no idea who he is), making all sorts of grand plans and telling you things that can no longer be done or were never possible helps nobody.

 

[ethical PR]

Great, thanks for taking the time to respond in detail. Much appreciated!

My regular salary is not that great, so I wouldn't be able to raise the finance based on my income. It would be based on equity and the ability to repay when selling off individual building plots. Like you say, the existing home could be separated and part of the finance raised on a residential mortgage (perhaps 25%). So a bridging loan or development finance is the way forward for the bulk of the finance.

Please can someone advise the best route to applying for a bridging loan or development finance? Obviously Google will point me in many directions, but do you have any recommendations? My parents were building in the 80s, 90s and early 00s - they tell me they just used to go and ask their local branch bank manager for finance - I assume things have moved on a lot since then.

Thanks for reading.
Jim

Can I ask why you are not asking your parents who have bought fifteen houses. As mentioned previously the people you should be asking are an independent mortgage broker and whoever you are appointing as your accountant.

 

[m4hmo]

I said above my mortgage broker told me if i can build the development upto watertightness then its 0.5% for 6 months interest, followed by 0.75% interest during the build. This quote was from a year or so ago though.

I dislike the interest on bridging loans and would probably avoid it if possible.

As above whats wrong with your parents releasing some equity for you to build?

 

[m4hmo]

Can I ask why you are not asking your parents who have bought fifteen houses. As mentioned previously the people you should be asking are an independent mortgage broker and whoever you are appointing as your accountant.

Yea his parents should have a mortgage broker on side who he can call on for advice anytime. Thats what we have. Ive enquired about this sort of thing and am still in the planning process, we withdrew our application as local councillors got involved and did a petition against it with the neighbours. lol.