Hi,
My brother owns his own construction company. He is relatively secure financially as he owns his own house with the mortgage paid off. He has a relatively conservative attitude to risk at this stage. He has 8 apartments in a section 23 area. The original plan was to build and sell them immediately but the decline in the housing market meant there was no real interest from buyers.
The 8 apartments total value would be roughly 1.4 million (~180K each). The company owns them and has an interest only loan of 450K presently. He has decided to lease them. 6 of them are already leased and there shouldn't be too much problem leasing the other 2. He is making the assumption that 6 of them will be rented consistently so we assume a rental income of 3K. Hopefully this assumption will cover any maintenance costs but as the apartments are new, they shouldn't be too high.
The way we see it is that he has 2 options:
He could buy them from the company and take out a mortgage. This would mean taking a substantial mortgage but he could benefit from section 23 with his rental income. He could then take the money out of the company to pay a large chunk off the mortgage but he would need to pay a lot of tax to do so. He eventually plans on selling the apartments on in maybe 2-3 years so the fact that he claimed from section 23 might put potential buyers off.
The other option is to keep them in the company and change his interest only loan for another type. He would have no benefit from section 23 for his rental income but it might make them easier to sell in 2-3 years time.
We are novices about this type of thing and would appreciate any advice. Maybe some of our above assumptions are incorrect and please point out if they are. I can provide more information if needed. Which option makes the most financial sense? Are there any other options he needs to think about? He will be seeking professional advice but it would be no harm to receive some here also. Thanks!
My brother owns his own construction company. He is relatively secure financially as he owns his own house with the mortgage paid off. He has a relatively conservative attitude to risk at this stage. He has 8 apartments in a section 23 area. The original plan was to build and sell them immediately but the decline in the housing market meant there was no real interest from buyers.
The 8 apartments total value would be roughly 1.4 million (~180K each). The company owns them and has an interest only loan of 450K presently. He has decided to lease them. 6 of them are already leased and there shouldn't be too much problem leasing the other 2. He is making the assumption that 6 of them will be rented consistently so we assume a rental income of 3K. Hopefully this assumption will cover any maintenance costs but as the apartments are new, they shouldn't be too high.
The way we see it is that he has 2 options:
He could buy them from the company and take out a mortgage. This would mean taking a substantial mortgage but he could benefit from section 23 with his rental income. He could then take the money out of the company to pay a large chunk off the mortgage but he would need to pay a lot of tax to do so. He eventually plans on selling the apartments on in maybe 2-3 years so the fact that he claimed from section 23 might put potential buyers off.
The other option is to keep them in the company and change his interest only loan for another type. He would have no benefit from section 23 for his rental income but it might make them easier to sell in 2-3 years time.
We are novices about this type of thing and would appreciate any advice. Maybe some of our above assumptions are incorrect and please point out if they are. I can provide more information if needed. Which option makes the most financial sense? Are there any other options he needs to think about? He will be seeking professional advice but it would be no harm to receive some here also. Thanks!