Restructuring multiple buy to let mortgages - is it possible ?

[Brendan Burgess]

It is also important (is it not) that he sells the one in most negative equity first to offset the capital loss against others or he could have a large capital gains tax bill if he does not offset the highest loss first.

This is a complication I had not thought of.

He will have to compile a schedule for each property as follows:

Purchase Price
Current Value
Capital Gain/Loss
Mortgage
Maturity Date

And unless all the properties are in positive equity when the first one matures, he may have to sell a loss making one first or at least in the same year as the most profitable one.

Say he sells a property in January with a capital gain of €200k. He can use the net proceeds of sale to pay down the mortgage on the one which has a loss to set against the €200k capital gain.

So, I think that the strategy now is unchanged. Pay any surplus savings against the one which matures first. Whether it suits him to sell that or not, he has to sell it or go into default. Then sell one of the others to use up as much as possible of that gain. He can choose at that stage which is the optimum one to sell.

The problem is that it can take a long time to sell a property. And he could get caught out badly. He makes a big capital gain in 2025 and misses the deadline on another property which does not sell until 2026.

I wouldn't worry too much about all of this now.

The key decision today is which mortgage to pay down first and that is the one which matures first.

Brendan

 

[Brendan Burgess]

A properly structured pension would allow him to put money away while he is still collecting rent, in such a way that he would not loose it if a receiver was appointed. Proper professional advice would be needed there.

I don't agree with this messing at all. This is an attempt to defraud creditors, whether it is legal or not.

And I don't see how it works as he has plenty of equity in his home. So he can't avail of a PIA.

I think he is much better off using his resources to have a managed sale of his properties rather than a forced sale of his investment properties by a receiver with a judgement for the shortfall registered against his home.

Brendan

 

[cremeegg]

I think he is much better off using his resources to have a managed sale of his properties rather than a forced sale of his investment properties by a receiver with a judgement for the shortfall registered against his home.

He may be, but without some detailed numbers we don't really know. If property prices rise by 20% over the next 5 to 7 years (not a wild increase), he may walk away with cash in his pocket.

I don't agree with this messing at all. This is an attempt to defraud creditors, whether it is legal or not.

On a number of previous occasions I have queried if it is reasonable for posters on AAM to make people aware of dubious methods they might adopt to better their own financial position. For example to let people know that it is unlikely that a large company will go to the expense of pursuing a small debt through the courts.

It is a difficult question and one that inevitably involves a judgement, around what is a dubious method. Any efforts I have seen to address the question seem to devolve into a question of how much sympathy there is for the predicament the poster is in. As a landlord myself, I have perhaps more sympathy for landlords than others may have. The rules of course should be the same for all.

It is of course legal to start a pension, there is nothing dubious about it. In the event of the OPs "going broke" in whatever form that might take, a pension would probably not be touched. Any solicitor who failed to advise of this would be failing in their duty to their client.

The OP would be well advised to look into the practicalities and advantages of contributing to a pension.

 

[llgon]

The problem is that it can take a long time to sell a property. And he could get caught out badly. He makes a big capital gain in 2025 and misses the deadline on another property which does not sell until 2026.

I wouldn't worry too much about all of this now.

The key decision today is which mortgage to pay down first and that is the one which matures first.

Brendan, I disagree with this part of your advice. You agree that he could get caught out badly but you say not to worry about it now. If he follows your advice and pays down the particular mortgage you point to he is a lot more likely to get caught out, in my opinion.

We have no information on his mortgages and properties so any advice on which mortgage(s) to pay is speculative. I think though that it would be advisable to target two or more mortgages for repayments to bring the properties into positive equity and this should be reviewed annually. Capital gains/losses would be a significant factor in selecting these properties, due date of repayment is relevant but less important.

 

[Brendan Burgess]

It is of course legal to start a pension, there is nothing dubious about it.

He cremeegg

It is legal but just not a good idea at all.

Leaving aside the morality of this, it appears that this person has plenty of equity in their home, so there is no point in going for a PIA which might protect the pension.

Their clear objective is to try to manage this under their own control without the premature appointment of Receivers.

By putting money into their pension fund now, they are reducing their chances of having a managed work down of the properties.

Brendan

 

[Brendan Burgess]

I wouldn't worry too much about all of this now.

The key decision today is which mortgage to pay down first and that is the one which matures first.

Hi ligon

You have to take these two sentences together.

It seems clear to pay down the loan which matures first. If it's a CGT lossmaker, then there is no downside in doing so.

If it makes a capital gain, then he can choose which of his other properties to sell first.

I think though that it would be advisable to target two or more mortgages for repayments to bring the properties into positive equity and this should be reviewed annually.

There is no need to do this and it could backfire. Let's say he can overpay by €50k. He overpays one mortgage by €25k and the other by €25k. Neither might be enough to take it out of negative equity.

By paying down the mortgage on the property he knows that he has to sell first, he keeps all the overpayment available to him.

Let's say he sells the first property in January 2024 at a Capital Gain. He will have a big lump of cash. He should then put two of the Capital Loss properties on the market immediately. He can allocate the big lump of cash to pay the shortfall on whichever property gives the best combination of price, capital loss and speed of sale.

When it comes to that time, he has to keep an eye on the issue of missing the deadline. I would be fairly sure that Pepper would allow a negative equity sale with an undertaking from the solicitor that the proceeds of the positive sale will be used to clear the shortfall. So he could put one of the Capital Loss properties on the market in advance of the first property to mature. Again, Pepper will allow this if they see a big lump of equity on another property which is about to be sold.

Brendan

 

[llgon]

Let's say he can overpay by €50k. He overpays one mortgage by €25k and the other by €25k. Neither might be enough to take it out of negative equity.

Based on those figures I would agree with you. However, based on rents received, I think over the next six years he should be aiming to pay at least 200k off the mortgages which should be enough to bring at least two properties out of negative equity, especially if there is a modest growth in property prices. If there is no growth or a decrease in prices he's in trouble regardless. If we were to see the same growth of the past six years continue for the next six this strategy will also be irrelevant.

Paying down one mortgage is putting all his eggs in one basket. If for any reason he can't sell this property reasonably quickly when the time comes he could be in trouble. If Pepper have, for example, five properties in significant negative equity, all dependent on the sale of one property with positive equity, I would not expect them to be too patient. On the other hand if all properties were close to breaking even it would be more satisfactory.

 

[Brendan Burgess]

This is getting very complicated. We don't know the numbers today and we won't know the final figures until 2025.

He could have difficult selling any property. But...

• The first property is the one he has to sell first
  
• If he can't sell it, he is in difficulty if he still has a mortgage on it
• If he has cleared the mortgage, at least this property won't cause him a problem

The more I think of it, the clearer it seems to be to pay down the property with the lowest mortgage first. And this is probably the first property.

As soon as he clears that mortgage, he puts the property on the market and sells it. He may have a couple of years to sell it which should be enough.

The only other consideration is that as he is a single person, he might consider moving from his home to one of the investment properties. If so, then he should not clear the mortgage of the potential home first as that will be of little value to him, unless the equity on his existing home is so big that it will clear all the other mortgages.

Brendan

 

[Susie2017]

Hi Brendan and others again. Can I just ask again about CGT. You mentioned that when selling one with a loss to sell the second with a gain in the SAME year. Is it necessary to do this ? I thought if you had a loss you could carry it forward against any future gains indefinitely but perhaps I'm incorrect on this. Many thanks.

 

[Brendan Burgess]

You can carry a loss forward indefinitely.

So if the first property you sell is at a loss, it does not matter when you sell the second property.

However, you can't backdate a loss.

So if you sell a property at a profit in 2018 and another one with an equal loss in 2019, you will pay CGT on the gain in 2018 and so won't benefit from the loss.

So if you sell a property at a profit in 2018, you must try to sell the loss making property before the end of 2018 to use the loss.

Brendan