ASK496: Should we use a Ltd Co for just one property? PLUS: Is there capital growth in this area?

0:01Hi, I'm Rob. And I'm Rob. And this is Ask Rob and Rob. Hey everyone, welcome to Ask Rob and Rob, the show where you get your wonderful questions in, most of the time about property, and we, most of the time, no actually, all the time, answer your questions. And we're absolutely going to deliver on that promise once again. But before we do, a quick reminder of how you can get involved and get your question on the show. Yep, all you want to do is go to propertyhub.net slash ask. So easy. You can send us a written question for the Sunday Times, or you can send us a question with your voice and we'll play it back on the show, just like we will now with Sean.

0:35Hey, Rob, thank you guys for everything you do. Absolutely love the podcast, been listening to it for a few years now, really helped inspire both me and my wife into hopefully investing in property. We're finally at the stage where we're looking at starting that journey by releasing some equity in our own home and then turning our own home into a buy-to-let mortgage and renting that property out and then moving to somewhere else where we want to live. Everything I had heard previously suggested I'd be better off when we only have one place that we're renting out to not do it for a limited company.

1:06Unfortunately, I can't seem to work out any of the benefits for not doing it for a limited company. Could you please tell me if there are any or if I'm just misunderstanding something? That would be amazing. Thank you guys so, so much. Sean, thank you for the question. The answer here is it's not really about just one property. it's about the fact that you already own the property. So let's put aside the fact you already own it for now and imagine that you're just starting and going like I want to get one property I want to get my first investment property should I do it in a company or not and I think there are a lot of people who have the belief that it's not worth having a limited company for just one property and in a way they might be right if that's the only property you're ever going to own because there is extra admin around it there are higher accountancy costs associated with having a company.

1:53So depending on how much income you've got from other sources and all kinds of other things, if you're only ever going to own one property, it might not be worth it. But if you're buying your first property, but you plan over a number of years to end up with more than one to build a portfolio, then it makes sense to have that company from day one, despite the extra cost associated with it in the early days. Because as we're about to talk about with your case, transferring a property from individual to company ownership once you already own it is expensive. So ideal world, you might have a property, you might even have to wait till the tax becomes a pain, you've hit the for higher rate threshold, and they go, okay, boom, going to put them into a company now.

2:30But the problem is you're literally selling them from one legal entity to another, which means if there's any capital growth, you have to pay the capital gains tax at that point, and you'll have to pay stamp duty on the purchase, including the surcharge for additional properties, which means it's an expensive exercise. So this is the situation that you've got with the home that you live in and are planning to move out of. You already own it, of course, which means if you were to move it into a company, you'd be selling it to the company and you'd have all the associated tax costs of that. Now, eventually, if you're planning to hold onto this property for a very long time, it might still be worth taking the hit.

3:06It's possible that over time, the annual savings will more than compensate for the one-off hit, but it's probably not worth taking that hit up front just because you haven't done it yet. You don't really know if property investing is going to be for you. So what I would recommend doing is first of all, make sure you really understand the limited company versus personal ownership trade-off in general. You can go and search our YouTube channel. We've got videos on this, which set it out really clearly. Secondly, do take some tax advice because on podcasts and in videos, we can only talk about things in general terms and everyone's situation is going to be different.

3:38But then once you've done that, chances are the answer is going to be to just keep on owning that property yourself for now. So once you've verified that that is the case, then definitely do get that mortgage sorted and speak to a mortgage broker about that because that is one thing that definitely is the case if you're going to be renting the property out you do need to move it to a buy to let mortgage or get consent to let from your current lender so they will allow you to rent it out that second option could be appealing based on how solid your plans are how sure you are whether you want to keep the property for the long term or not so speaking to a mortgage broker about that would be a really good idea so sean hope that clarifies and best of luck with your plans.

4:13Hi fellas, great show, long time listener calling from Dubai. I would like to get your opinion on a specific area in the UK which has been very popular on social media the last couple of years. I think you have hinted about it not being a great area in your view in previous podcasts but I'd like to get your opinion on using the BRR method in the South Wales Valleys area. There's lots of people and companies investing there and offering their services, but they're generally offering around the 20 % cash on cash return doing the BRR method. So effectively buying a house for give or take 60K, spending 30 to 40 on it and getting a reval of like 120 or 125.

4:57How do you see that market? From speaking to agents and other people on the ground there, it seems like rental demand is very strong for good properties, newly rehabbed properties, as there is a shortage of good supply from a rental point of view. In terms of capital growth, there is some investment going in there. They're building new roads, I think the Heads of Valley Roads, and re-electrifying the train network in and around the area from Cardiff out into these valley towns. So there is definitely government spending going on. What's your opinion overall on that market using this BRR method and potential, if any, capital gains on these properties.

5:32For me personally, right now, I can't see there being great growth there, especially if you get a higher refill value if there's still so many run-down properties in that market. I can't really see that market growing anytime soon unless it's just driven by investor demand. But I'd like to hear your thoughts and opinions. Thanks for all your previous shows. Cheers. T, thank you for your question. I'm going to tackle this in two parts. I will answer your question about the area, but I think it's more important to actually talk about the effectiveness you will have deploying this strategy. Because you and the majority of people listening won't be living in South Wales, but they may be interested in doing something similar to you, which is doing a buy, refurbishment, and then revaluation, which for those who didn't know is the BRR method.

6:18And the first thing you need to be super sure on is the partner you're working with. because if you work with an external company to find you a property with you being abroad or invest in an area you don't know if it's just a standard buy to let it's quite easy to assess desktop research will get you the vast majority of the way there you'll be able to see other properties just like it you'll be able to assess the value and you'll be able to make a well-informed decision if you put that bit of research in which you must always do even if you work with a company let PropertyUp invest. It does not negate you from doing research.

6:54That's very important to say. And why do I emphasize this point? Well, it's because if it goes wrong, it goes really wrong because refurbishments, and this looks like a sizable refurb based on the value of the property, if you partner with the wrong person, it's going to be painful. So research them so hard, like really do get comparables, ask to speak to other people they've worked with. Don't accept answers that sound convincing but don't give you what you want. You really need to take your research to another level here. Because if you partner with the wrong person, they may do a shoddy job or they may overcharge you because extra costs occur for whatever reason.

7:33That's typical with a refurb that it goes beyond budget if you don't know what you're doing. But if the partner you're working with wanted to take advantage of you, they really, really could because you're in Dubai or you're living elsewhere from this property and they're the people on the ground. They can get away with really charging you significant sums. Now the people you're speaking to may be very legit and after you've done your research you have complete confidence so should you continue? Maybe. Let me give you an alternative strategy and the reason I give you this alternative is because you are not on the ground.

8:05If you lived in South Wales or close to it and you had experience of doing refurbs then I'd say crack on. You know what you're doing, it's your area and you've got the experience to take advantage of this. But let's assume that you don't for a minute and you really really need to rely on that partner the alternative strategy would be to take the 100k roughly that you'd put into this deal and put it into a normal buy to let and let's say that you can get a buy to let without 100 grand for about 300 000 i appreciate if you leverage 100 in we get you 400k but we have to take into consideration things like costs and so on.

8:42Now, if you buy at full market value and that property goes up by 10 % at some point, whether it takes one year, two years, or a bit longer, that property then would be worth$330 ,000. But if you buy your property here and it goes up by 10%, if it's worth$120 ,000, it's now worth$132 ,000. So you've had a$12 ,000 gain. Now, people listening will be going, well, you've refinanced and you've taking your money out. That all depends on you getting this right each and every time. And what I mean by that is if a valuer disagrees with your numbers, you are left with this property and you absolutely should be prepared to hold this property.

9:23I mean, you will be anyway, but hold it because you want to anyway. And if you don't get your money out, you're really happy. Now, you will be able to refinance and get some money out. That is absolutely true. But then you're going to start building up a portfolio of smaller properties. and with these type of properties your rents can be quite quickly wiped out with things that go wrong because a boiler in a 100k property costs the same as a boiler in a 300k property. I'm not saying this is a poor strategy but what I'm highlighting to you is all the risks involved. Another way of enhancing the simple buy-to-let strategy is buying at a discount.

9:59So let's say you can get 10 % off that 300 ,000 you're buying it for 270 and then when it gets an increase in value by 10 % to 330, you've actually got a 50k gain in equity because you bought well and then the market looked after you as well. Your return on investment is really supercharged. And finally, what do I think of the area? The question you actually have asked. It's fine. It's okay. There are better areas. We name them all the time on the podcast. What we do as an organization is Rob and I spend our time discussing, analysing with our team the best areas to invest each year. And then we go and find deals in those areas.

10:39We are led by what's best because our reputation relies on that and we publicly talk about the areas that we think will perform strongest. And then we go and source properties or do deals ourselves in those areas. That's how we work. We don't let the tail wag the dog. And what I mean by that is we don't go into the cheapest areas, one of which would be like South Wales and go, well, let's just do that because we can get deals. That's not the best way to operate. And South Wales, with the exception of Cardiff, hasn't appeared in any of our lists. So that is a really long answer to you, but it was really to make you and others think about what is easiest.

11:15You want to play property on easy mode most of the time for most people, unless you have the skills or the local knowledge or the resource all the time to do these more exotic strategies, you should probably stick to the easier stuff. It may not be as sexy, but you can still achieve great returns and it's a lot less risk. Well, there you go, T. Great answer for you. So you and Sean both sorted today, but I'm sure there are other people with questions out there. So do send them in via propertyhub.net slash ask. That is us done for today, though. We will see you back here on Thursday for the Property Podcast.

11:46Until then, have a great week. Bye-bye. Bye-bye.