Our clients are tradesmen so they know their way around building and renovation. That means, sooner or later, they’re obviously going to think about buying and doing up property.
Having bought and sold a few properties myself over the years, what I always tell them is, don’t rush into it – work out your strategy first.
Ask yourself what appeals most and, obviously, where there’s the most money to be made. Certain approaches can also reduce your tax bill compared to others.
Is it furnished holiday lets you want to get into? Long-term rental? Student flats? Or do you want to buy a place, use your professional skills to sort it out, and then flip it and forget it?
Each approach has its pros and cons.
Do you want to be a landlord?
A lot will depend on whether you want to be a landlord or would you rather just deal with the bricks-and-mortar side of things.
The benefits of renting out a property are pretty obvious: we’re talking about recurring income, for as long as you want it.
One of the things I focus on with my clients is getting them to think about getting off the tools at some point, rather than running themselves into the ground.
If you can build a portfolio of properties, delivering a decent rental income, you’ve got yourself room for manoeuvre as you get into 40s or 50s.
The problem is, it also amounts to a whole second job if you do it properly, which you should.
You’ve got to look after the property in line with housing regulations – smoke alarms, carbon monoxide detectors, boiler maintenance, annual gas and electric checks and all that. And if you happen to get the wrong tenant, that’s a whole different story again.
It’s also worth saying that rental income isn’t guaranteed. The market has been pretty steady, and increasing, in the North East of England for years now. But in 2020, we all saw the wobble in the rental market when people started moving out to the country and the students stayed at home.
I suppose it almost goes without saying that long-term rentals offer more stability and mean you’re not constantly chasing new tenants.
The benefit of shorter-term lets, such as to students, is that it’s easier to keep adjusting the rent to match market rates. And if you decide you want to sell the property, you’ve got natural breakpoints in the tenancy to do that.
It’s worth saying, as well, that using letting agents to manage some or all of your landlord duties could save you time and even money, in the long-run, if you do the sums right.
Speaking of short-term rentals, furnished holiday lets (FHLs) are the ultimate – and some people absolutely coin it with city apartments, country cottages or Airbnb.
This year especially, the UK holiday letting market went absolutely mad because people couldn’t go abroad, or didn’t want to.
That won’t happen every year (I bloody hope not, anyway) but even in an average year, holiday cottages can go for a few hundred pounds a week.
You can also claim capital gains tax (CGT) reliefs on FHLs and can claim capital allowances for things like furniture, equipment and fixtures.
Just be aware you might have to work hard to market your holiday property and keep it occupied, though.
That’s important because, obviously, you want to make some money and also because if you don’t rent it out for at least 105 days each year, it won’t qualify as an FHL for tax purposes. There are a load of other complex rules, too, that I won’t go into here.
You might think managing rental property sounds like more trouble than it’s worth.
Personally, that’s the calculation I’ve always made, and why I’ve tended to do up properties and sell them on.
Of course there’s a tax hit there, too: you’ll pay the 3% stamp duty surcharge on top of the standard rate for buying a property that’s not your main residence, and if you sell a property at a profit in 2021/22, you’ll be liable for capital gains tax at 18% or 28%.
Give us a shout if you want to talk about property and long-term planning.