Buy-to-let landlords need to think like savvy entrepreneurs rather than leaving the performance of property investments to chance, says a specialist with the UK200Group of independent chartered accountants and lawyers.
Earlier this month, a report by buy-to-let specialists Platinum Property Partners revealed that 93 per cent of buy-to-let investors had no five-year business plan, even though a key factor in their investment was to secure retirement income.
Some commentators have suggested that a new surge in buy-to-let investment could be around the corner, with the much greater freedom of access to defined contribution pension pots that savers will enjoy from April 2015 – including taking out all their pension funds if they wish – potentially triggering interest in property letting as an alternative source of income in retirement.
John Painter, managing partner at CB Chartered Accountants in Worcester, who chairs the UK200Group’s property and construction special interest group, warned: “The problem is that often property investment isn’t looked at in the way that an entrepreneur looks at a business. Many people have become landlords through inheriting property and often don’t understand what is required of them. Others go into it without considering the return that they are going to receive.
“In the past few months, we have gained one new client who needs to declare seven years of income to HM Revenue & Customs because he thought that as the monthly mortgage payment was greater than the rent, he would have no tax to pay.
“He was shocked when we told him that it was only the interest element of the payment that could be deducted from the rent. He has, as a result, a sizeable tax penalty and payment to make.
“In another instance, a client was looking to the property market for a greater return on his capital. He was thinking of acquiring a four-bedroom detached house in a rural location at a cost of £600,000. He had been told that the rent he would expect though was about £1,500 per month. I mentioned to him that he could buy three properties at £200,000 each in a nearby town and collect rents of £750 per month – giving him a 50 per cent greater return.”
He cited an example of sensible forward planning, in which the owners of a family-owned property – seen as the source of a deposit for younger members to buy their own home – have decided not to renew a tenancy that will soon be coming to an end.
Instead, they have offered the tenants a periodic tenancy, under which they would receive two months’ notice to vacate. This will then enable them to market the property for sale and give notice once a buyer is in place, enabling them to maintain rental income while the sale goes through.
John added: “Buy-to-let might seem an easy option as a source of extra income but those ‘amateur’ investors that take a more professional approach to managing their property – which includes recognising the value expert advice can add – are likely to reap greater benefits.”
Established in 1986, UK200Group is the leading mutual professional association in the UK with some 150 offices of quality-assured member accountancy and lawyer firms throughout the UK totalling over 550 partners, 150,000 business clients and global links in over 50 countries. UK200Group provide services and products that are designed to enhance the business performance of its members. Telephone 01252 401050, email firstname.lastname@example.org or visit www.uk200group.co.uk