Company investing in property

BalHouseBuyer

Hi all,

I'm just looking for your opinions on this matter.

The company my dad works for/co-owns is doing very well at the moment. After a turbulent recession there doing better than ever, and as a result, they have a nice stockpile of cash in the bank.

They are looking to put the money to work, by buying an investment property. The property they're after is near the IFSC, but not exactly in a fantastic area. The area is upcoming, with companies such as Facebook having plans to open an office nearby.

The property is 220K, they plan to pay 50% with the companies cash pile, and mortgage the other half. The renovation will be funded trough companies money also. The reason for a mortgage is they do not want to spend all the company funds. The expansion and operational cash is also a priority.

220K purchase, plus 8% for stamp duty and legal fees, plus 20K to renovate is circa 260K. The rent is going to be roughly 1700 a month. So the gross yield is 7.8%.

Now they're going to go to a financial advisor. But I enjoy hearing what boardsies have to say.

Is this a good idea?

VonBeanie

Glad to hear that a financial advisor is being consulted. That's essential.

I would generally think putting a property in a company, especially a mortgaged one, is not the best idea. Banks don't like giving a mortgage to companies (as due to limited liability, they have trouble recovering their debt if the company goes bust) and will expect higher LTV and interest rates as a result. Profits from the rental will be subject to Corporation tax, and then dividends to the owners will be subject to income tax - so there is double taxation.

It may be better to pay excess profits into a self administered pension scheme and have the pension scheme buy the property.

A financial advisor may be able to suggest a more efficient structure.

The_Conductor

Also- 20k is not going to go very far towards renovation- it depends entirely on what amount of renovation is required- but rental standards are increasing on an ongoing basis- 20k may be quite optimistic (depending on the current state of the property). Also- it is not the case that you hand over your 220k, get a tenant in, and watch the money accrue in the bank. Being a residential landlord- requires a reasonable knowledge of the regulatory environment in which you're operating- and ongoing management of the tenancy. It is not the sort of slam-dunk your father seems to imagine it to be.

I would seriously suggest looking for a commercial rather than a residential unit- if at all possible- as the regulatory regime in the residential market- is a nightmare for prospective landlords.

jimmycrackcorm

VonBeanie wrote:

I would generally think putting a property in a company, especially a mortgaged one, is not the best idea. Banks don't like giving a mortgage to companies (as due to limited liability, they have trouble recovering their debt if the company goes bust) and will expect higher LTV and interest rates as a result.

I would disagree. The bank would find it easier to repossess the property unlike family homes and the LTV makes it attractive.

VonBeanie

jimmycrackcorm wrote: »

I would disagree. The bank would find it easier to repossess the property unlike family homes and the LTV makes it attractive.

ICS, as an example, charge 4.29% on an individual Buy2Let Capital & Interest mortgage (if less than 50% LTV). The same rate for a company Buy2Let is 5.45%.

Also, adding in a residential letting business into the company may devalue the existing trading company. If you have a successful printing company, that company will have a value to other printing companies etc.. Adding in a residential letting business into the company may actually devalue the existing company as any trade purchaser for the company is unlikely to be interested in the letting business that will become a problem rather than a benefit.

wordofwarning

The gross yield is nothing amazing. You could do a lot better on apartments in the likes of Ballymun or commerical units in working class areas of Dublin. IMO you are buying into this area, not as the yield is amazing. But the nice story of Facebook etc opening offices there