24th June 2015 by Alistair Hargreaves
As part of the High Net Worth Service at John Charcol I often help clients to plan and grow their buy to let portfolio. As with any investment or business decision, it’s important that a proper review is carried out around strengths and weaknesses, and that any money spent is well placed and not wasted.
On that note I want to share with you my top five strategies/tips for managing a HNW funded BTL business.
1. Spread your risk – you might be able to put down a deposit on a £3m house in Parsons Green, but you are putting all your eggs in one basket. Firstly you are limiting your potential tenants to one part of the rental market; and secondly any rental voids (times when your house is not let) will be expensive. Depending on your individual circumstances, you could be better off buying three or four flats at £500,000 each and spread your costs and risk that way.
2. Be smart with your taxes – always speak to your accountant and solicitor, in conjunction with your mortgage broker, before making a purchase. It’s always good to model your potential tax liability and tax savings on both a personal basis and a limited company basis. Once you have these figures your mortgage broker can confirm the relative costs of raising finance in your personal name and using a limited company, and so make an informed decision.
3. Use your main residence wisely (i) – you may wish to capital raise against your home to go towards the deposit of your new BTL. If you are doing this, and you are buying a new property immediately, make sure that the mortgage funds go straight to the purchase solicitor and not to your account. This way your accountant can confirm to HMRC that the funds were used to buy an investment property, and potentially the interest that you are charged on that capital raise can be offset against the rental income. Confirm this with your accountant as there are variations to this.
4. Use your main residence wisely (ii) – if you do not have a property in mind, but you want funds available to buy straight away, you may wish to consider an offset remortgage. For example, you might capital raise £500,000 and put all the funds in a payment reducing offset account; this means that by offsetting the £500,000 against your new mortgage you reduce the interest costs on a monthly basis, hence keeping your residential payments to a minimum. Then, when you see the perfect investment opportunity you can move quickly and efficiently.
5. Balance your portfolio – are you planning to buy for growth, income (current or future) or both? You might be using your investments to go towards your retirement strategy, which may involve taking a lump sum out of the properties, or simply an income from the rent. Either way planning ahead is the key, and a balanced portfolio might contain a couple of houses for capital growth and some flats for income. Each individual case is different, but it’s important that you consider what you want out of the investment at the end.