A large bridging Loan Within 48 hours – a case study example

Here is a recent case study example of a client looking to buy to sell quickly.

A property in Kensington in London was offered to our client at a below market value (BMV) price as the owner wanted to avoid putting the property on the market and wanted to sell it as soon as possible.

Alan was contacted on a Tuesday morning and were told that he had until Thursday at 12.00 to sell the property or the owner would be putting it on the market. It was a flat in a very desirable area of London so a significantly large bridge loan of 600,000 was needed in a very short space of time and he was able to get back to the seller first thing Thursday morning.

The valuation was performed the very next day and, because of a good asset portfolio, we were able to secure a good deal on a bridge loan.

The property was sold five months later at very significant profit.

To sell or to let

Should You Buy to Let or Buy to Sell?

Property investing needs to come with strategy – what is your strategy in the UK for 2013? You can buy to let (BTL) or buy to sell (BTS). You need to know ahead of time what exit you plan to take with the property before you understand which option will work best.

Buy To Let

The UK was introduced to buy to let mortgages in the nineties, however, the sector has only taken off in the past decade. Buy to let investors are becoming more comfortable with the option and are beginning to look deeper into the specifics of the option. Any proceeds received from a rental property are considered income by the HMRC and will be taxed. Most people consider this first when thinking over purchasing for letting.

Investors are also considering their personal tax brackets when considering letting options. If an investor has income and is classified in the higher rate tax bracket, or
£35,001 to £150,000, the taxes taken will be 40% of the generated income. Luckily, tax deductions do exist, such as mortgage interest and maintenance costs, which reduce tax liability for investors.

Buy to Let Yield

One very important factor in the purchase of a buy to let property is the specific yield. Yield is the measure of annual rental income against the value of the property. Both gross yield and net yield are essential; gross yield is the yield including cost and net yield subtracts cost. Net yield provides a more accurate image of the building’s return. Of course, higher yield means a more successful property. Gross yield should be in the 10% range to be considered profitable, while HMO’s produce greater gross yields at 15% or more. When investors manage the properties correctly, the buy to let holdings become a steady, safe investment which returns over time.

Buy to Sell

Any strategy involving buy to sell is intended to be a short term plan for increasing capital. The method behind buy to sell is usually purchase, renovation and resale. Investors will often require extensive knowledge of the local housing market to make sure the property is purchased at just the right price. The biggest unknown in this strategy is the selling point, as property market factors change consistently and quickly. Fast changes will reduce or increase not only prices but the individual’s ability to purchase a remodeled property.

The refurbishment specification always needs to be greater than the buy to let properties. Presentation is vital for selling properties quickly. Cutting corners will hurt an investor in the end and the property will not sell as fast as necessary.

The income received from a property sale is classified as capital gain by the HMRC, and is taxable. The current capital gain tax is between 18% and 28%. It’s obvious that buy to sell properties come with much more risk than buy to let options, but they produce results right away. The best way to analyse a property for a buy to sell strategy is to begin with a minimum of 30% return on your investment. This is the only way to make it worthwhile.

If you have a property in mind and you’re not sure whether to sell or to let, get in touch with us. An adviser we work with can look at rates, risks and costs for both options to help you make the right decision.

What taxes are involved when buying and selling for profit?

Property taxation, as an area of advice, is incredibly specialised. Do not treat this article as a complete guide but, rather, as a basic introduction. A broker can help you with tax information when buying a home.

If you’re trying to ensure that you’re paying your tax correctly and taking as much profits as possible from your investments then feel free to drop us a line. We can happily recommend you some accountants that are more than qualified to give you the best advice regarding trusts etc. For any advice related to buying and selling property for profit, please get in touch with us and we will get an adviser on the case right away.

Buying your home

Land tax, more often referred to at stamp duty, is an amount that needs to be paid when a property of £125,000 or more is purchased. The rate at which you pay tax also depends on the property value.

For properties over £125,000, 1% of the purchase price is paid in tax. This increases once you reach £250,000 to 3% and then anything after £500,000 is paid at 4%.

Selling your home

The first thing to consider when selling your home is capital gains tax. This only applies if it relates to a second home that you own. The assumption is, perhaps unfair in certain circumstances, that buying more assets means that you have the intention of making a profit on it. This means that any profits made on the investment should be subject to taxation when the property is sold off.

Just as with stamp duty, capital gains taxation rates are calculated in brackets based on profits. Any gains made at the end of a year are taxed.

Inheriting your home

As well as capital gains tax you also need to consider inheritance tax. This is paid on the entire ‘estate’ and taxes all that is owned upon death. It is only applied when your entire ‘estate’ is calculated to be worth more than £285k. If the estate is left to your legal partner, then the tax doesn’t apply, even when above the threshold.