Growing a Property Investment Business
Many entrepreneurs consider property investment to be a great choice as a business start up. However, there is plenty to consider and learn if entrepreneurs what to successfully grow a property investment business.
Multi-let versus single-let
Multi-let properties, often referred to as HMOs, differ from single let properties in many ways and have the potential to create more cash flow. A rental property is considered a HMO when there are at least three tenants that share kitchen, toilet and bathroom facilities.
A typical single let property may generate a yield of around 7% whereas a multi-let property could potentially offer yields of up to 20%. A multi-let proposal will result in less properties to maintain but they may still have higher maintenance costs overall and require more management time from the entrepreneur.
Tenant turnover will also be higher on a multi-let property as there are simply more tenants. But, the multi-let system protects the invested business better as a smaller percentage of the rental income is lost while the room is empty.
This compares to a 100% percent loss of rental income from a single-let property. If a portfolio of single-let properties are to be part of the business’s investment strategy then rent guarantee insurance should be considered.
From a legal standpoint, a HMO licence must be acquired if the property is to have at least five or more tenants or have three or more storeys.
Where to invest
Considering where to invest is a key if start ups are to be successful. It is advisable to invest in the local market and to stick to one area. This rule can be bent though if investment partnerships are formed. Investment partners can be found easily through websites such as that of Glenn Armstrong Property.
Areas saturated with rental properties should be avoided and the greatest number of success stories come from locations that have at least 20,000 people of working age in the immediate area. This information can found on the census or via various other means on the internet.
A multi-rent can appear more attractive if the rental includes utilities and council tax, which can be divided and accounted for in the total rental charged to each tenant. However, the biggest positive factor is to ensure that the property is suitably located and developed for the potential client.
HMO properties close to transport hubs will attract professionals to rooms that have modern décor and students to rooms that are easy to clean and have communal areas designed for social gatherings. Single-lets close to schools attract families to rooms that are unfurnished and have a blank canvass that can be added to in order to create a homely feel.
The spending on HMOs is seen as revenue and as such it is income tax deductible. This includes spending on repairs but not renovations such as building walls or an extension.
For taxation purposes, a portfolio of rental properties is seen as one business and as such single-let losses can be deducted against the profit from HMOs. This essentially creates tax free income.
A wear and tear allowance of 10% of the net rental income can be claimed and this is often a better choice compared to claiming a tax relief on, for example, replacing furniture.
Capital allowances are available for qualifying items in the communal space of a HMO. These purchase and capital improvement costs can be classed as an expense. This allows them to be offset against any non-property income in order to gain a tax rebate.
Tackling taxation can be tricky for the new business start up so it is essential to use a specialist property accountant