Prime Portfolio - Residential Real Estate for Private Clients

Owning a property outright is not always the best option for investors and is often not tax efficient. By obtaining loan finance at the time of purchase towards the cost you can, if property prices rise, significantly increase the return on your initial investment. Furthermore, you should be able to offset for tax purposes any interest payable on the loan against the rental income received from the property.

For example, if a property purchased for cash rises in value by 5% after acquisition costs, a 5% return will be achieved. However, by taking a conservative loan of only 50% of the property value, the return on capital would be 10% and 20% if the value increased by 10% after such costs. The maximum loan available to assist the purchase of a property depends on the value of the property concerned and the ability of the net rental income to service the loan interest with a margin being required by the lender.

Prime Portfolio are not mortgage brokers but we have extensive property financing experience and are available to discuss the various financing options in connection with your new investment property acquisition, to include the cashflow requirement should it be in respect of a refurbishment or conversion project. We will, if required, also prepare a proposal on your behalf for submission to the lender and provide you with support and guidance during the process.

The value of a property investment and the income from it can go down as well as up and you may not get back the amount invested.

Example based on a conservative 50% loan finance
	Without Finance	With Finance
Purchase Price	£500,000	£500,000
Stamp Duty @ 4%	£20,000	£20,000
Agents / Solicitors @ 2.5% + VAT	£14,700	£14,700
Total Cost	£534,700	£534,700
Investment Breakdown
Client's equity	£534,700	£284,700
Mortgage 50%	0	£250,000
Total Investment	£534,700	£534,700
Sale after 5 years (price rises 8% p.a.)
Value at time of sale	£700,000	£700,000
Profit	£165,300	£165,300
Return on investment	30.91%	58.06%
Rent @ 5%	£25,000	£25,000
Fees @ 16% + VAT	£4,700	£4,700
Sundries Guide(insurance, repairs,etc)	£1,000	£1,000
Net rent	£19,300	£19,300
Mortgage @ 6% (Base Rate 4.5%)	£0	£15,000
Surplus which is subject to UK tax**	£19,300	£4,300

No allowance has been made for rental voids

UK tax will be chargeable on surplus rental income and we recommend that tax advice be obtained

** Subject to deductions of capital and other taxable allowances which will need to be calculated by a UK tax specialist.