Well, maybe not the whole World, but a very small part of it. Yellow envelopes are our secret weapon though. How many letters do you get every day in yellow envelopes? That’s right. None! If someone sent you a bright yellow letter, would you be intrigued by it’s uniqueness and be compelled to open it? We think so!
The whole point of writing to someone by conventional means is to have your letter read. If you can get them to do that, you are in a perfect position to get your offer across. Stats indicate that for every 100 letters you send, 10 will result in a call back, 3 of those will be seriously interested in the offer and one will actually sign up to your offer. So it’s a numbers game. If you want 10 sign ups, you need to send 1,000 letters. That sounds a lot, but you don’t need to send them all at once! Spread them out so you can take the phone calls, otherwise you’ll be deluged. One deal a month is fine, so send out 100 letters every month. In this particular type of property deal, each sign up should be worth £3,000 per annum, so after 10 deals in a year you’ll be receiving £30k of passive income! Awesome or what?!
Getting started is the hardest part. What should I ask? How do I ask the questions? What if they are hostile, or turn me down flat? Well, i’m no expert, i’ve only been doing this for a few weeks, but i’m getting more confident by the day and, believe it or not, people are usually nice. The fact that they’ve rung the number on your letter means they’re already interested in what you have to say, so don’t be afraid.
My advice, for what it’s worth is, try to strike up a natural conversation. Work your questions into the conversation so they don’t really feel like questions at all. I now say “Tell me about your house”, and folks will generally let you know all there is to know about the property they are selling. To find out if there is a deal to be had, you need to know the details of their mortgage (type, monthly payment, amount remaining) and you also need to find out how motivated they are as a seller.
Once you have gathered all your info (always have a proforma sheet available to fill in the blanks as you talk), thank them for their time and schedule a call back after you’ve crunched the numbers. Always ring them back at the agreed time, it builds trust and let’s them know you’re professional and value their time.
Crunching the numbers is all about working out if there is any money in the deal for you both. It needs to benefit both the seller and you the buyer otherwise there’s no point in making a deal. I’ve learned quickly what sort of nett rent I need for a particular purchase price to make a deal viable. Get used to that too. If you need to cover a £600/month mortgage but local rental income is only £500/month then it makes little sense. Aim for a minimum of £250/month nett positive cashflow (£3,000 per annum) if possible.
Want to hear about a comedy call from a guy in Middlesbrough? This actually happened recently when we ‘yellow lettered’ the Teesside metropolis. You need to imagine the caller speaking in broad smoggie.
Me: “Hello, Dave O’Hara speaking, how can I help”?
Caller: “Alright mate, i’ve ‘ad a letter off yers”
Me: “Ah yes, we’ve sent a few letters to houses we’re interested in buying, can I ask the address please so I’m certain which house we’re talking about”?
Caller: “Aye, it’s number 10 mate”
Me: “And can you tell me the street name as well?”
Caller: “Aye mate” (long pause)
Me: (quickly realising this might not be straightforward) “OK, tell me about your house”
Caller: “It’s not my house mate, know what am sayin’ ?”
Me: “Are you the tenant?”
Caller: “No mate, it’s me mam and dad’s house like, know what i’m sayin’? ”
Me: “Ah right, well I think it’s them I need to speak to”
Caller: “Aye, probly”
Me: “Can I speak to them please?”
Caller: “Nah, ther in Benidorm mate, know what am sayin’ “?
Me: (knowing what he was saying) “OK”
Caller: “I’ve just split up with me girlfriend like, know what am sayin’ “?
Me: “Sorry to hear that, do you know when I can speak to your parents”?
Caller: “Problys aye. D’yer wanna buy the house like”?
Me: “Yes, I am interested”
Caller: “Me an me mates can buy this house like, know what am sayin’ “?
Me: “When can I speak to your parents please?”
Caller: “After August like”
Me: (with no intention of ever ringing back) “OK, i’ll ring back then”
Caller: “Alright mate, mint”
Thankfully, not all phone calls are like this, but sometimes you get them (know what i’m saying?)
Here’s an article which we found very helpful with the decision of whether to buy BTL properties as part of a personal portfolio or as a Limited Company. I hope it’s useful for those looking for information about this.
Buying to let as a limited company By Steven Boyde
There are two ways of owning buy-to-let property: using your personal name, or through a limited company.
Since April 2017, there has been an increase in the number of landlords purchasing buy-to-let investments in a limited company rather than in their personal name. This is largely due to changes set out by the government in the 2017 Budget, including a reduction in the amount of tax relief available for interest on buy-to-let mortgages.
Previously, tax was due on the net rental income after allowable expenses have been deducted, including mortgage interest. This meant higher and additional rate taxpayers could claim relief at their highest rate, 40 per cent and 45 per cent respectively. The government’s announcement means that over the next four years, tax relief will gradually be reduced until only basic rate (20 per cent) relief is available.
One of the primary reasons for the growth in limited company buy-to-let ownership is the different tax treatment. Instead of paying income tax as an individual, a limited company pays corporation tax, which currently sits at 19 per cent. This is reducing to 18 per cent in April 2018 and 17 per cent in April 2019.
The differing tax treatment also means that lenders’ stress testing is often more favourable for lending to limited companies versus ownership in a personal name.
The mechanics behind a limited company purchase are that the borrower sets up a limited company or property special purpose vehicle (SPV), which is purely for the purpose of owning property. The borrower then deposits funds into the limited company and arranges lending to it, which, combined, allows the company to purchase the property.
While increasingly popular, there are several things to consider and it should not be assumed that limited company buy-to-lets are suitable for everyone.
Tax should be favourable in the first instance, but once the income (rent) is paid into an SPV, profits will ultimately be distributed. This is usually done via dividends, which can be more complicated.
Only corporation tax is applicable at first when you do annual company accounts, but if you want to withdraw money, you have to do it in the form of dividends. Dividends are favourable at a low level, because the first £5,000 is tax free [£2,000 from April 2018], but this gets higher the more your draw out.
The latest tax rates according to HMRC are:
Basic rate 7.5%
Higher rate 32.5%
Additional rate 38.1%
Furthermore, when selling a property, the proceeds go into the limited company and there can then be tax efficiency challenges in accessing it.
For UK residents who have purchased in their own name, the sale of the property will be subject to capital gains tax (CGT) at either 18 per cent or 28 per cent. However, if it was bought in a limited company, it will be taxed – as above – at a rate of corporation tax.
Differences in lending
While lenders will still underwrite the director of the company’s circumstances, given that the limited company is legally a separate entity, the stress testing is favourable as a result of its tax position. Lenders tend to relax the stress testing when it comes to rental calculations. Usually, in a personal name, rental income must cover 145 per cent of the mortgage payments stressed at 5.5 per cent, but when lending to a limited company, it is common for this to be stress tested at just 125 per cent.
However, costs vary depending on whether you are buying in a limited company or as an individual. Mortgage costs are often higher for a limited company. Depending on the structure of the company, they will be taxed differently. It is also necessary to take into account things like CGT and additional stamp duty costs before deciding if buying in a limited company is the most appropriate option for you.
For those purchasing in their personal name, generally the monthly rental income must cover the mortgage payment by 140 per cent if the client owns fewer than four properties, increasing to 155 per cent if they own four or more. They also assume a stressed interest rate of 5.5 per cent to protect the borrower should the Bank of England interest rate fluctuate upwards, or the initial rate plus 1.55 per cent, ensuring the mortgage will be covered.
- One of the primary reasons for the growth in limited company buy-to-let ownership is the different tax treatment
- Lenders tend to relax the stress testing when it comes to rental calculations
- Owners of more than four buy-to-let properties will soon have to disclose all property details.
When buying as a limited company, the monthly rental income only needs to cover the mortgage payment by 125 per cent, with the stress test remaining at 5.5 per cent, or the initial rate product interest rate plus 1.55 per cent. This allows the borrower to fully maximise the borrowing.
There is also the advantage of opting for a five-year fixed rate, which will mean the lender will use the payrate in their rental assessment. The same 125 per cent/140 per cent/155 per cent still applies as this continues to give the lender security by locking the client into the term, so they will not suffer from any rate increases.
Changes to the market
If you own more than four buy-to-let properties (known as a portfolio) at the end of September, you will have to disclose all property details – that is, any income, expenditure or wear and tear – of all properties when it comes to re-mortgaging.
Portfolio landlords will still enjoy the same tax efficiencies, but their portfolio will be assessed as one, rather than on the merit of each individual property. Although the properties will be stress tested at the same rate of 125 per cent, and the process of buying in a limited company remains the same, this will have a big impact on a landlord’s ability to obtain finance.
For example, if one property in the portfolio performs less favourably than the others, this will have an impact on the underwriting of the portfolio as a whole, regardless of whether some are held in a personal name and others in a limited company.
Even with payrate products, it is more challenging to achieve higher loan-to-value loans, particularly for low-yielding properties.
Guiding on options
There are pros and cons to purchasing a buy-to-let in a limited company versus under a personal name. It entirely depends on the circumstances of the individual, particularly in light of recent and upcoming changes set out by both the Prudential Regulation Authority and the government, making the market more complicated to navigate.
An experienced mortgage broker will be able to guide you on your options. While they will not be able to provide tax advice, they will be able to put you in touch with property tax specialists.
This article Originally published by Steve Boyde, FT Adviser. September 20th, 2017
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