The Buy-to-Let (BTL) market in the UK is one of the most appealing property investment avenues for aspiring and experienced investors.
Buy-to-Let; the description is in the name but a short explanation will do no harm. The main purpose of a BTL investment is to secure a rental income on a residential property. In addition to rental income there is the possibility of capital gains either through a rise in market prices or by adding value to the property through renovation or extension.
The U.K is one of the most expensive places for rental accommodation in Europe, driven largely by the chronic under supply of housing. Basic economic theory is that when demand exceeds supply prices rise. While this is bad news for those who rent it increases the appeal of BTL opportunities to investors.
At present the BTL market has been boosted by recent pension reforms which have allowed individuals early access to their pension pots. Additionally, a steady rise in prices is creating more certainty in the current market and more investment activity is taking place.
There are the lucky few out there who can buy their investments outright then sit back and enjoy their rental incomes. However, a very large proportion of BTL investments are funded through mortgages. So there are some economic factors to consider when building or re-balancing your BTL property portfolio.
Mark Carney, the Governor of the Bank of England stated;
The judgement on whether interest rates goes up will be made around the start of 2016. If rates increase they will rise gradually over the next 3 years, reaching 2-2.5%.
These decisions are made by the banks monetary policy committee, which take into account a range of economic indicators and trends, including inflation. The Bank of England uses the base (interest) rate to control inflation. The theory being that higher interest rates encourage saving and reduce consumer spending. Less spending equals more pricing competition i.e. deflation.
Currently inflation is at 0%, but predicated to rise to 2% in 2016. If inflation rises too high or too fast, a larger rise in the interest rates may be used to counter it.
How does this relate to your BTL?
Mortgage products are reactionary, meaning that once the base interest rate changes the highly attractive current mortgages rates will change too. If you have buy to let mortgages whether interest only or amortising (paying down the principle (loan) and interest) it is worth thinking about remortgaging at a fixed rate while the economy is in our favour.
With rises in the interest rate and inflation predicted for 2016 the window of opportunity to get the best mortgage rates is closing. Now is the time to seriously consider moving onto a fixed rate mortgage.
Daniel Nelson, MSci
The idea of doing a joint venture with another investor is to achieve far more working together than you could on your own. If you are interested in doing some JV’s, you need to consider, “What you can offer a potential JV partner”. Why would they want to work with you? What skills, experience or resources do you have that someone else may not have? You have to consider what you can offer in order to attract a potential JV partner.
If you are just starting to invest, the first thing you need to acquire is knowledge. You need to educate yourself as to what makes a good investment and how to find them. You must have this fundamental knowledge. I sometimes meet amateur investors who are running round with a “deal”, looking for a JV partner to fund it. The main problem is that the supposed “deal” is not actually very good at all, but the amateur does not know that. This is a waste of their time and energy and is usually due to a lack of understanding.
Unfortunately, many amateurs do not even have the required knowledge and so they have no chance of finding anyone to back them. If you are not prepared to invest in yourself then why should someone else invest in you? It is worth mentioning here, that over the past 5 years a number of individuals who wanted to educate themselves with me did not have the funds to do so, have been rather enterprising in finding JV partners to sponsor them onto my property Mastermind programme in return for finding deals for the sponsor who may be cash rich but time poor.
Once you have the knowledge, you need to apply it to get some experience. This is often when many newbie’s fall down. They can’t get the experience because they cannot fund their first few deals themselves and they can’t find a JV partner because they have no experience. A true catch 22 situation!
So what can you do about it? The best solution is to work on some deals with more experienced property investors to gain more experience, credibility and track record for yourself. Maybe you could find an experienced investor to mentor you or maybe you could shadow them to learn what they do and how they do it. Why would an experienced investor do this? Well maybe you can help them. Maybe they have too many properties such that they can’t get a mortgage but you can, which would be valuable to them.
Or perhaps you could introduce an investor to them for one of their deals and you get the credibility from being linked to that deal.
Once you have the knowledge and some experience you can set about the task of finding some potential JV partners to work with. Working with friends and family before approaching strangers is a good one, however if you are new to property it may be hard to convince friends and family that you know what you are doing.
One of the easiest ways for you to find potential JV partner is to tell everybody what you do. I mean EVERYBODY you already know and EVERYBODY you meet from this day forward.
As simple as that sounds, so many investors just don’t bother to do it. I am pretty sure that if you think about it, you will come up with some people you already know, who are not aware that you invest in property. I teach my students to say “I do two things: I help people solve their property problems and I offer fantastic returns for investors”. This simple phrase is enough to potentially unearth some motivated seller leads and or find potential JV partners.
Sometimes is can be easier with people who you don’t know so well. The best place to find these people are at property networking meetings and property seminars. At most good network meetings there should be all the resources you need in just one place. The skill is for you to get to know the people in the room and understand how you can help each other.
Remember that when you go to networking events, it is not necessarily just the people you meet in the room who will be able to help you but also the contacts in their extended networks. The best question to ask when networking is “Who do you know who …” and then fill in the blank with whatever you are looking for. So it could be; “Who do you know who may be interested in getting a 12% return on their money?”
You need to pick your JV partners very carefully. I have seen a number of JV partnerships have difficulties because it was not really clear who was supposed to do what. In my opinion you should not rush into a JV partnership. You need to build up a trusting relationship with potential partners, which can take time. I suggest when you meet potential JV partners at the networking events you arrange a follow up meeting to get to know each other and work out if there is a potential to help each other.
Find out what is important to you both. Do you have similar goals and values? This is very important but often missed. Do you bring out complimentary skills and resources to the partnership? You need to be clear on exactly what your commitments and involvement are going to be. I would strongly recommend that you put down in a simple letter of intent, in black and white, how the joint venture should work. With the best will in the world, property deal do not always go to plan and so you need at least a Plan B or even a Plan C in case things don’t work out as expected. A clear exit strategy is very important to every JV deal.
One of the questions I am often asked about Joint Ventures is: How to structure the deal? The answer is … it depends. It is completely up to you and your JV partner but it all comes down to what you want to achieve.
Let me start by giving you some general advice on structuring deals and then I will share two case studies.
First of all, I don’t think it is wise to financially link yourself to other people. For this reason I would not recommend that you buy properties in joint names. Instead I would put each property in one person’s name and then have a separate Deed of Trust to represent the true ownership of the property. If you intend to build a property portfolio with partner on a 50% shared ownership basis, then you need to carefully consider the long-term exit strategy. I think the easiest way to do this is as you add each property to the portfolio you alternate the name on the deeds. If you want to go your separate ways in the future, it is very easy to do so with half the properties in your name and half in your JV partner’s name. This avoids the cost and of complication of having to sell the portfolio and split the profits.
Source: Your Property Network Magazine
Issue 43 January 2012
Written by: Ant Lyons
Bridging finance is great for cash-flow as you don’t normally make monthly payments. Instead interest is incorporated into the loan. Bridger’s use a couple of different ways to do that but the main point is no monthly payments during loan period.
Bridging finance decisions are made very fast. You are likely to be able to complete in a matter of weeks rather than months (right solicitors). You can get pre-approved for bridging finance so that if necessary you can provide proof of funds and you know that the money to exchange and complete will be available for you when you need it.
Expensive? Compared to what?
If you don’t have enough cash for outright purchases (and remember you’ll also need money for your refurbishment and legal costs) then bridging gives you the same bargaining power as someone buying with their own cash for the reasons outlined.
Leveraging – the speed at which bridging allows you to exchange contract may be key to securing the deal, even if it is not particularly below market value.
You also have the ability to make offers on property that buyers who require mortgage finance just could not buy. These include:
· Unmortgagable properties (e.g. without a kitchen or bathroom)
· HMOs (houses in multiple occupation)
There is the possibility of 100% plus financing.
Applying for bridging finance secured on your own property has a further advantage over bridging secured on the investment property. If using an investment property as security you can avail of 70% of the purchase price.
Private landlords in Larne are being urged to protect themselves against hefty fines by ensuring that deposits taken from tenants are secured in a government approved scheme.
From the April 1, 2013, all landlords and letting agents in Northern Ireland must protect tenancy deposits with a licenced scheme. The law was introduced to ensure that tenants are able to get their deposit back from a landlord or agent when they move out, provided they have met the terms of their tenancy agreement.
And it has emerged that Larne Borough Council recently fined a local landlord £1,650 for breaching the legislation.
The local authority received a formal complaint from the tenant of a private landlord in September last year, alleging that their deposit of £550 had not been secured in an approved scheme.
The council carried out an investigation in the complaint and was satisfied there was sufficient evidence that an offence had been committed. A fixed penalty was issued to the landlord and was paid in December.
The new legislation states that landlords must protect a deposit with a government licenced scheme within 14 days. Key information about the deposit protection must also be provided within 28 days.
A tenant can contact the council’s Environmental Health Officer if a landlord has not protected their deposit or issued them with the written information.
The local authority can ask the landlord to pay three times the amount of the deposit as a fine for not following the proper procedures and breaking the law. The council may also take court action and the court could fine offenders up to £20,000.
3 February 2014
The department for Social Development makes the following Regulations in exercise of the powers conferred on it by Article 65A(1) and (2) and Article 73(1) of the Private Tenancies (Northern Ireland) Order 2006(1)
1. The regulations may be cited as the Landlord Regulations (Northern Ireland) 2012 and shall come into operation on 2014
2. In the Regulations:-
· “the register” means the register of landlords of dwelling-houses let under a private tenancy;
· “the registrar” means the person appointed by the Department to establish and maintain the register;
· “authorised officer” means an officer of the district council, the Department of Finance and Personnel or the Northern Ireland Housing Executive authorised in writing
· “landlord” includes a person acting on behalf of the landlord in relation to a tenancy.
3. (1) A landlord letting a dwelling-house must register with the registrar in accordance with paragraph (2)
(2) A Landlord must:-
· Provide the information set out in Schedule 1; and
· At the same time, pay the fee prescribed in Schedule (3)
4. A landlord must register in accordance with Regulation 3 either immediately prior to the letting of a new tenancy, within 12 months from the commencement of these regulations.
5. (1) Registration under regulation 3 shall be for a period of 3 years.
(2) At the end of each 3 year period, a landlord shall:-
· Supply to the registrar such information as may be necessary to ensure that the information supplied for the purpose of regulation 3 is accurate at the date of that supply; and
· Pay the fee for continued registration specified in Schedule 3.
6. The registrar must:-
(a) Develop and maintain a landlord registration system capable of both electronic and non-electronic operation which:-
· Allows for the disclosure of information to the persons specified in regulation and;
· Enables a landlord to make amendments or adjustments to registered details held;
(b) Promote and publicise the requirement to a landlord register;
(c) Provide guidance on how the registration system works and how to register;
(d) Make available the information held on the register under Schedule 2;
(e) On completion of the process of registration, issue a certificate of registration containing the:-
· Landlord’s name and address;
· Landlord’s registration number; and
· Period of registration;
(f) Ensure a landlord is notified:-
· 4 weeks in advance of the expiry date held on their current registration certificate, of the conditions to be satisfied for the continued registration; and
· That where he fails to satisfy the conditions for the continued registration by the expiry date on the current registration certificate, he is no longer a registered landlord.
7. (1) The fees payable for registration and continued registration are specified in Schedule 3.
(2) A person who is the owner of a house in multiple occupation which is registered under a House in Multiple Occupation Registration Scheme as provided for under article 75B and C of the housing (Northern Ireland) Order 1992 is not liable to pay a fee under regulation 3.
8. Where a landlord is registered in accordance with regulation 3, the landlord must include his registration number in correspondence in so far as the correspondence relates to the discharge of his functions as a landlord.
9. Information held by the registrar and not included in the register shall, on request from an authorised officer be disclosed to:-
(a) A district council for the purpose of enabling or assisting that council to exercise its functions under any provision of the Private Tenancies (northern Ireland) Order 2006 and Article 54 of the Rent (Northern Ireland) Order 1978;
(b) The Department of Finance and Personnel for the purpose of its function under the Rates (Northern Ireland) Order 1977 or the Rates (Capital Values, etc) (Northern Ireland) Order 2006; or
(c) The Northern Ireland Housing Executive for the purpose of:-
· The administration of housing benefit; and/or
· The regulation of Houses in Multiple Occupation.
Senior Officer of the Department for Social Development
For more details contact
Mid Antrim Properties
02825 651 092
What Expenses Can Be Deducted From Rental Profits
The simple answer is that expenses must be incurred ‘wholly and exclusively’ for business purposes. Expenses must also be ‘revenue expenditure’ to be claimed as an income tax deduction. This means that the expense is incurred on an ongoing basis in order to earn income (revenue).
Expenses that are not ‘revenue’ expenses are usually‘capital’ expenses (and so are deducted from the capital gain when the property is sold).
Interest and Finance Charges
Interest payable on business borrowings, including mortgages, loans, overdrafts, and credit cards. Interest is allowable on borrowings incurred for the purpose of the property rental business. Borrowings up to the value of the property when first rented out may be claimed. Interest on additional borrowings is allowable if used for business purposes.
Mortgage and loan arrangement fees are also allowable as are venue expense. It does not matter if the borrowing is secured or unsecured; it only matters if the funds were used for business purposes.
Motor and Travel Expenses
Motor expenses (45p per mile for the first 10,000 business miles, 25p per mile thereafter) from your home to the destination (assuming you run your property rental business from home). This covers the cost of visiting Letting Agents, accountants,solicitors, checking on existing properties etc. other reasonable travel costs including trains, bus, air and taxi fares can be claimed. Hotel and meal costs can be claimed if an overnight stay is needed.
Repairs and Renewals
To be classed as a ‘revenue expense’ the repair or renewal must only restore the property to previous condition and not enhance the value of the property. Allowed as revenue costs is replacing single-glazed windows with double-glazed.
When completing refurbishment work that is a mixture of revenue and capital spending, it is worth asking the builder to invoice specific repairs (revenue item) separately to capital improvements (you will need to guide the builder on this). Also included are ‘incidental’ costs such as skip hire, general labour and clean-up costs etc (assuming the cost are revenue in nature).
Accounting, Book-keeping and Taxation Fees
Accountancy and tax advisory fee are fully-allowable expenses, as are general book-keeping fees.
Legal fees associated with tenancy matter and letting agent fees are allowable expenses. So too are legal fees specifically associated with arranging finance.
Insurance and Service Charges
Property insurance, including buildings insurance, rent insurance etc are all allowable expenses for landlords. Ground rents and service charges, and council tax, are also allowable.
Advertising and Marketing
All kinds of business advertising and marketing are allowable expenses, including newspapers, mail-shots, leaflets and website cost, provided that these relate specifically to a property rental business.
Generally, seminars, courses and books that are directly relevant to a property rental business are allowable expenses.
Other Business Expenses
A ‘provision’ may be allowable for income tax purposes before the expense has been paid. This applies if a legal obligation has been incurred, and the amount can be calculated with reasonable accuracy.
Telephone, Fax, Stationary & Other Office Costs
Technical books and publications relevant to a property rental business are allowable. Business land-line, mobile phones (a reasonable allocation may be used between private and business use), fax machine and internet cost are allowable.
Home office costs such as postage, stationary and printing and small computer equipment.
If you run your property rental business from y our home, you may claim a proportion of household bills as a business expense. (One fifth)
These are expenses that are incurred before a property rental business commences – but may still be claimed as allowable business expenses if they would normally qualified.
Such expenses can be claimed for up to seven years before the business commenced, and are treated as being incurred on ‘day 1’ of the property rental business commencing.
Arrangement fees are fully tax deductible against rental profits. Finance fees are not capital costs. Arrangement fees are almost always added onto the loan by the landlord, and the tax deduction is allowed when the expense is incurred.
When an investor buys a property initially with a mortgage, part of the solicitor bill relates to dealing with the purchase itself, and part relates to dealing with the lender and the mortgage.
However, it is only the latter element that is an allowable expense against the rental profits, and usually solicitors don’t split out their fees in this way.
Legal fees to remortgage a property are tax deductible against rental profits. So be sure to claim these costs along with the lenders fees in your rental accounts.
Employing Your Kids
Children receive an income tax Personal Allowance (2015 tax year of 10,000 per person) and income up to this limit is tax free. Therefore, paying children a wage can result in a one sided tax result, i.e., a tax deductible expense for the business, but NO tax bill arising on the income by the wage earner.
Bringing your children into the business at an early stage allows them to see the day to day reality of running a property business. It gives them a taste of self-employment which they may never experience, it may inspire them, teach them responsibility, learn them all aspects of being both a financial investor and a landlord.
Work children is permitted to do,
- Help with accounts, logging income and expenses
- Filling and general office admin
- Preparing paperwork
- Preparing properties for rentals, etc.
Age 13 – 15
- Work part-time
- Not before 7am and after 7pm
- Working in school hours not allowed
- Can’t work in factories or building site
- No national minimum wage
- No national insurance until the age of 16.
Age 15 – 17
- Children from the age of 16 can work full time – 40 hours
- National minimum wage of £3.79 per hour
- National insurance is payable if a child wages are £153 per week.
- Minimum wage is £5.13 per hour
- For payments of up to £5772 per year per person there is no need to operate a formal PAYE scheme. Most investors don’t need one, but it is important to keep proper records of hours worked, wage rate paid. Including wages paid to children in your accounts and tax returns become business expenses which could be scrutinised by HMRC.
- If you do operate a PAYE scheme you would add a new employee to the payroll and administer the wages in the usual way.
- Evidence of payment to the child, e.g. Monies paid into Childs bank account.
Your Property Network, Issue 37, July 2011