22 October 2012

Commercial property investment: worth considering?

Traditionally, we have always invested in residential property. Its a market we know and understand and we're comfortable with the risks. However, a few months ago, we bought our first commercial property. Its a shop unit on the ground floor with a former restaurant on the upper floors. Its just under 6,000 sq ft of space and is located in a major town centre in the South East. We bought it at auction for an attractive price. It needed a bit of refurbishment so we repainted the front elevation and made sure the roof was water tight. The shop unit was empty when we bought it but we managed to let it to a new tenant within a couple of months on a 10 year FRI lease. We were pleasantly surprised with the gross yield on our investment and we've only let half of the building so far. So,it has made us rethink our strategy a bit and since this purchase, we have been looking at other commercial properties. There are plenty available at auction or by private treaty right now. We've registered for commercial property alerts on RightMove and there are quite a lot coming through at the moment. They range from plots of development land with planning permission throught to pasture land, shops, offices, warehouses, theatres and even an old school. The thing with commercial property is that they provide a lot of scope for adding value and there are lots of possibilities for change of use and residential conversions. They are also safe investments if you want to buy a bank or shop with a good quality tenant and a reasonably certain future income stream. If you have money sitting in a pension fund and you transfer it into a SIPP, you can buy a commercial property yourself and receive the rental income directly into your pension fund. There is no tax to pay on the income and no capital gains tax when you sell it! Worth considering?

17 May 2011

Student lets: how will rising tuition fees affect demand?

Thousands of buy to let landlords could find themselves among unexpected victims of rising tuition fees as more students decide to stay at home, causing a sharp drop in demand for flats in university towns.

That is the main conclusion of new research by Britain’s biggest friendly society, LV=, formerly known as Liverpool Victoria, which – if proved correct – would represent a major change of fortune for one of the most profitable forms of investment in recent years. The analysis suggests that some areas which are currently popular for student digs could turn into “ghost towns”.

A survey of more than 1,000 students found that just over half – or 52pc – said they would choose a local university to make ends meet after annual tuition fees rise to £9,000. Official figures suggest that at present only a fifth – or 21pc – of full time students currently live at home.

John O’Roarke, managing director of LV= home insurance, said: “Newcastle upon Tyne, Lincoln and Sheffield will see the greatest decline in student populations.

“Because these areas rely heavily on university populations to boost their local economies, they could become ghost towns as non-local students abandon them for cheaper study closer to home. The areas worst hit will be those with large student populations such as Jesmond and Moorside in Newcastle; Broomhill and Sharrow in Sheffield; and Boultham and Carholme in Lincoln.

“Other cities which will feel the impact of the student exodus include Swansea, Portsmouth, Stoke-on-Trent and Nottingham, with university student populations forecasted to decline by 40pc in these areas.”

You might wonder why LV= should care. The explanation is that the household insurer fears that after the student exodus begins when fees go up next year, the result will be an increase in criminal damage when many properties fall vacant or derelict.

14 May 2011

Tenant demand increases 51% in the first quarter of 2011

During the first quarter of 2011, tenant demand has increased a massive 51%, compared to the last quarter of 2010. Tenant demand is measured by the time it takes for landlords to let their property, with the average property let within 13 days compared with 17 days a year ago.

Interestingly, the number of small landlords has increased with those owning 1-3 properties making up 40% of the buy-to-let market. This would suggest that more landlords are trying to enter the market to meet demand.

The number of properties available was still not enough to meet demand in 2010, so with the news that tenant demand is going up by such a rapid figure, competition for homes will be even stronger. Whilst this may be good news for landlords, it makes life much harder for tenants trying to find somewhere to live. Most landlords we speak to would like to increase the size of the portfolio but are restricted by the size of deposit required by lenders and the fact that prices have stagnated so there is no capital growth in their portfolio.

1 April 2011

Furnished holiday lets: a good investment?

The previous Labour government was keen to abolish some of the tax benefits available on furnished holiday lets. Fortunately, the new Coalition government want to encourage tourism and help with prosperity and employment in tourist areas so they have kept some of the benefits.

There are around 65,000 furnished holiday lets in the UK, not just in coastal areas but also tourist hotspots, towns, cities and quaint villages.

Holiday lets qualify for certain tax benefits available to businesses as they are deemed to be a business activity by HMRC. However, you have to follow certain rules, which are:

1. Your accomodation must be available for letting to the public for at
least 140 days a year and let for at least 70 days during the year.

2. The property can't be let to the same person for more than 31 days

3. You must operate on a commercial basis with a view to making a profit

4. You cannot claim the tax benefits when you occupy the property yourself

5. The property must be fully furnished and let at a full market rent

If you meet this criteria then all your rental income is subject to income tax but ALL your expenses are allowable. These could include legal and letting fees, accountancy fees, cleaning, decorating, maintenance, heating & lighting, insurance, mortgage interest payments and travelling expenses.

The income can be quite lucrative with rentals of around £750-1000 a week for a three/four bedroomed property in a good location. If you live near your holiday let, you can manage the check-ins/check outs yourself and its nice to meet different guests and get their comments on your property from the guest book.

The work load is greater than a conventional buy-to-let and your bookings may fluctuate from year to year but if you operate within the FHL rules and manage your property well, the returns can be excellent.

4 March 2011

Shortage of rental property

There is a growing concern over the number of rental properties available and that a considerable under-supply could lead to problems.

Nigel Terrington, Chief Executive of Paragon Group has attributed this to the phenomenal demand. He said that there is anecdotal evidence of sealed bids being used to guarantee properties, and that "this will become more commonplace across the UK unless the private rented sector is able to expand to meet higher levels of demand."

He concluded by stating that if tenant demand continues on its current level or rises further, there will be “major implications” if that demand cannot be met.

This statement was in response to Paragon’s Private Rented Sector Trends report, which said tenant demand had hit a two-year high in the last quarter of 2010.

A higher number of landlords thought that tenant demand had grown compared to the third quarter. The number of landlords reporting a rise in tenant demand has risen month on month for the last six months. Only 4% of landlords thought tenant demand had fallen.

So with demand increasing, we need more landlords to meet the supply.
With the market as it is, adding more properties to your portfolio may be a highly lucrative move. The average void period at the moment is only 2.9 weeks for the year so rental income is consistent. The demand for rental property is evident with tenants clamouring for places to live.

If you research your investment carefully and choose the right location, it could be a very good time to invest.

17 February 2011

Rental demand increases

Private rental properties are being let within 15 days on average – five days quicker than a year ago, according to Countrywide, the country’s largest letting agency chain. It says there are an average of 4.4 tenants vying for each property across the UK, with the South-West generating the greatest demand with an average of 5.9 tenants.

In the last quarter of 2010, Countrywide said the number of new tenants registering for rental accommodation increased by 14% compared to the same period in 2009.

Overall, the total number of new tenants registering for rental accommodation exceeded 200,000 last year – a record high with new tenant registrations increasing by 37%, which peaked between July and September 2010.

Agents throughout the UK reported a significant lack of property supply, with the average number of properties available to let per branch falling by 29%.

So we have a classic situation of demand exceeding supply. However, the problem is, many landlords would like to satisfy the demand but are unable to do so due to the lack of mortgage finance available. At the moment, all our rental properties are fully let and we have a waiting list of tenants. Many people believe that the PRS will increase significantly over the coming years as more people prefer to rent than buy. So who is going to meet the demand?

We need the banks to be able to access more capital and funding and in turn, pass this on to the professional landlords who want to grow their portfolios.

11 January 2011

Are we entering the new decade of renting?

Ever since the Second World War, we've been encouraged to own our own homes. As a result, we've become a nation of homeowners and hardly a dinner party goes by without discussing property prices, extensions, what the neighbours are to etc.

But is the tide turning? Demand for rental property is at its highest for 10 years and has more than dobled in 3 years. 81% of ARLA agents report demand outstriping supply. Yet the Private Rented Sector is struggling to cope with the demand. A scarcity of mortgage finance and difficulties raising deposits means landlords cannot buy as many properties as they would like. So rents are likely to continue rising and tenants will continue to struggle to find the rental property they want.

Perhaps we will follow the French and German nations and become a nation of renters?