Investing in Property: Why is Now the Best Time?

Investing in Property: Why is Now the Best Time?

 

We get asked this question often. Why do we still invest in property? Why should we invest in property? 

We always answer these questions with the same answer. Look at some of the richest individuals in the world, and they’ll have made their money through property or invested in property as their investment vehicle of choice. And it’s the same reason we invest in property personally. We see property as a safe place to invest our wealth long term in comparison to other investment methods.

Many individuals ask why now? Why is now a good time to invest in property? We are going to summarise why we think now is an excellent time to get into property.

The population is growing. More people means more homes are required. Demand for property has never been higher.

We have seen a shift to renting long term. The younger generation favours renting; whether that’s to allow them the freedom to follow their career or to go travelling. Many young professionals cannot afford to buy a property.

Leverage. When you buy a property, you only need to put down a deposit; therefore for every £1 you put in, you can borrow 3 times this from the bank. This is important when we look at capital growth over time, as you benefit capital growth on the total property price rather than just growth of the equity you hold in the property.

Make money when you buy. If you can secure a property below market value, you are technically making money when you buy the property.

Timing: no matter what the market is doing, so long as you buy smart, you should get into property now. There will always be political issues, crashes in the market etc. So long as you are prepared to hold property long term, you will grow your wealth regardless of when you get into the market.

Tax changes (Section 24). The Government brought in a new law last year, that meant that anyone with rental properties would no longer be able to claim their mortgage payments as a tax-deductible expense. Many landlords are realising their rental properties are costing them money, and are keen to sell them quickly and for a low price.

Pensions. Many people are starting to realise their pensions are not going to allow them to live the life they’ve dreamed of, let alone cover their current costs of living. Property can be used to create passive income for retirement, and many of our clients are in property specifically for retirement income. If you are self-employed or have a limited company, you could use your pension fund (via a SSAS pension type) to build your property portfolio. We have a video on our youtube channel explaining the benefits of SSAS pensions in property and I’ll link to it at the end of this video.

Finally, savings accounts. We’ve had so many clients reaching out to us to start their property journey with £50K+ in their savings accounts. These savings accounts might make them 2% annually. Imagine if you could get a 4% net yield year on year, not to mention capital growth over time. It’s really a no-brainer – get your money to work harder for you!

We hope this article has been useful in highlighting why now is the best time to invest in property. The benefits are life-changing.

Click the link below to book a call and find out how we can help you on your property journey.


Repairs: What Can Make or Break a Deal?

Repairs: What Can Make or Break a Deal?

 

Knowing when to walk away from a potential investment property because of unforeseen problems can be a tough pill to swallow. A property may be in the perfect location to add to your portfolio, but if an expensive repair comes along, we need to decide whether it will make or break the deal. 

When looking for an investment property, crunching the numbers is vital to making a property profitable or not. Everything comes down to cost. If we make an offer on a property before costing up a specialist repair, we could end up out of pocket rather than cash flowing.

When looking to buy a property for our clients, we have to be very aware of certain repairs which may make or break a deal, for example, damp, asbestos, roof damage or structural issues. If we suspect any of the problems previously mentioned, we call in an expert for advice. Some specialist repairs can be surprisingly low on cost and inconvenience when compared to others. 

This can separate us from the average investor, who may run a mile when something like dry rot is mentioned. We always instruct a trusted professional to come in and quote for a job before making an offer on a property – that way; we have peace of mind that no stone has been left unturned.

Having a quote to rectify a specific problem can be used during the negotiation process. For example, if a property has dry rot, we would make an offer on the property minus the cost and time delay to complete the necessary work. That way the seller knows exactly why an offer has come in slightly lower than anticipated (or previously discussed) and we have a quote for the necessary work from a trusted professional. 

Sometimes the defect isn’t nearly as costly as first feared. According to figures from the Building Cost Information Service and the Royal Institution of Chartered Surveyors, the cost of eliminating damp from one wall of a terraced house can be as little as £204.

There is, however, a big difference between dampness in one wall of a house and rising damp that affects the whole house. This can cost tens of thousands of pounds. And dampness is often not the highest cost repair. Japanese knotweed can be extremely costly, and from our experience, would tend to be a deal-breaker as you cannot eliminate the infestation (you can only control it). 

Asbestos can be a costly house repair that many fear being found in their property. Asbestos presents a health hazard to all occupants, but only if it is disturbed. The safest course of action is to hire a licensed contractor to remove it. Asbestos can be found throughout the home and can be found in insulation, fire retardants, ceiling and floor tiles. 

Once a specialist repair has been quoted for, we can start the negotiation process. For many individuals, this process will involve speaking with the seller’s estate agent or solicitor. We always try and talk to the seller themselves, to allow for transparency with an offer on their property and reasoning behind the offer made. We find this is the best way to work, but it may not be possible. This is where we need to remove emotion from the property buying process. If the seller is not happy with an offer, and we cannot secure the property for a price that works with our budget, a deal is not made.

If you’re interested in investing in property but don’t have the time, knowledge or know-how, click the link below to book a call with me. 


Property Type: Which Property Type is the Best Investment?

Property Type: Which Property Type is the Best Investment?

 

Most investors will have different opinions on the ‘house vs flats’ debate.

Often the group that prefers to invest in houses believe this as they don’t want to pay service charges and they feel they don’t have control negotiating maintenance costs. Additionally, they may not like the proximity of the other tenants in the building. 

Then you have the other side of the argument, the group that assumes flats are superior investments as they often offer higher profit margins due to lower sale prices and they have less upkeep to organise as a factor takes care of all external works.

Having invested in both types of properties, we have created the lists below to outline some of the pros and cons of each as investment opportunities. As ever, you will have your requirements to consider in addition to these. We have created this as a guide to help you get started.

Pros when investing in flats:

  • Traditionally flats have lower sale prices than comparable houses
  • Different lifestyle trends may show that renting flats is a popular option for younger people or people without children
  • Often they deliver higher cash returns and yields
  • Maintenance fees are split between all the tenants, and usually, the managing agent or factor will undertake organising the works
  • Quality flats can sometimes be secured for around two-thirds of the price of a house
  • As flats are often cheaper, you can buy more of them, and it can be quicker to increase your property portfolio
  • It is possible to spread your risk across more properties which will reduce the effect of a property being untenanted (if the rent is not guaranteed through a letting agent)
  • Buy in bulk, and you may receive higher discounts, and avoid stamp duty in Scotland (6 or more properties bought at one time)
  • Demand in urban areas can increase prices
  • Can easily add an extra bedroom if the flat has a separate kitchen by combining the kitchen and living room

Cons when investing in flats:

  • They could have high service charges
  • Sometimes they can have cramped living spaces
  • Difficult to qualify for financing on certain types of apartments and LTVs can make leaders see flats as higher risk
  • Fewer renovation opportunities – reduced ability to extend, convert the loft or add an extension
  • Flats in large blocks are very similar, and therefore there is less wow factor
  • Frequent tenant changes
  • Some maintenance costs may not be obvious, and this can result in unexpected costs cutting into your profits
  • High-rise buildings are often slower to return capital, and high-rise council buildings can sometimes be unmortgageable
  • It might not be possible to change the property to an HMO (which will help you avoid empty properties and can increase cashflow)

Pros when investing in houses for buy-to-let:

  • There are more options for development, conversion or even extensions which can add value for reselling or remortgaging
  • No additional costs for maintaining common areas
  • Buyers and tenants get a greater feeling of space and privacy
  • Tenants more likely to stay on a long term basis as families tend to commit to properties and will often maintain them
  • The potential for capital growth is much higher
  • There’s scope to convert a more substantial house into multiple flats which can be leased, remortgaged or sold
  • Houses have a broader target market as they attract property investors, developers, first-time buyers and families

 Cons when investing in houses for buy-to-let:

  • Initial costs are normally higher
  • Could have a garden area to maintain
  • Interest and stamp duty rates will be greater
  • Families with children can result in more damage to the property
  • Maintenance can be pricey given the extra size of such properties
  • Cash flow is more of a potential risk with the yield of the property being lower
  • Vandalism and theft are more likely with houses if left empty

The pros and cons of purchasing flats or houses are clear to see.

Which type of investment is right for you?

No answer is correct in this scenario. The question that investors should ask themselves is “What return on investment am I trying to achieve and which property type will help me to do this?”. So long as they have a high yield, both flats and houses are reliable investment options, and neither should be ruled out when making the decision to invest.

If you would like to find out more about how Nichol Smith Investments could help you reach your property goals, click the button below to book a call with us.


Which Location Should I Invest in Property?

Which Location Should I Invest in Property?

Location, location, location: Which location should I invest in property?

When getting started in property investment, you may find yourself asking, ‘where should I invest?’ and we always recommend the best place to start is your local area. While I still advise you speak with local Estate Agents to find out about the property market in a specific area, we have to remember that estate agents will likely try and convince you their area is great, as you are looking to buy a property and they are trying to sell a property. We advise when starting out to stick with the area local to you that you know well. That way, you know how quickly homes are selling and the areas to potentially avoid.

We would advise you to buy a map of your local area and start looking online at homes for sale. You will find that similar properties come on the market regularly in specific areas, for roughly the same price and the same condition. You can then use the same mortgage provider, solicitors etc. to secure the properties. This creates a predictable and scalable system for you.

It is easy to get caught up in the hype of locations and be tempted into buying in a nicer area at a higher price because it seems like a sensible approach, but in practice, this is the opposite of what works when you are trying to create a sustainable and cash flowing investment portfolio. If you bought properties all around the UK, then you’d need more hours than are in a day to be able to make this work, not to mention your social life would be non-existent. We would recommend investing in a small area locally and grow this area slowly over time.

Apart from living in a rural sparsely populated area or an expensive city, the answer to “where should I invest?” should always be in your “local area” albeit in the slightly lower-end suburban area. This will increase your chances of success over time which will keep the cash flowing.

Every location has its advantages and disadvantages. So long as you understand the pro’s and con’s of an area and develop a level of knowledge other investors don’t have, you will make money where they haven’t been able to.


Finding Trustworthy Tradespeople

Finding Trustworthy Tradespeople

We all need to relay on tradespeople from time to time, but not all tradespeople provide the same level of service as others. Finding trustworthy tradespeople is possible, but spotting cowboy builders or plumbers can be tricky. Follow our top tips to find the best tradespeople and protect yourself from a costly mistake.

 

Word of mouth

A personal recommendation is always preferable to a written reference. Ideally, a tradesperson that has been recommended by a friend or a neighbour should be trustworthy, particularly if you can ask the individual about the work ethic of the tradesperson and satisfaction of the finished product. 

 

Quotations

We always recommend getting at least three quotes for works required, which should be detailed to ensure each tradesperson quoting knows precisely what the job entails and finish needed. Usually, we would not recommend going with the tradesperson who has quoted the lowest price, as this can occasionally indicate a lower quality job or finish. If the quotes seem very high, trust your gut feeling and get another quote. If you get a bad feeling about a tradesperson, chances are you should trust your instinct, even if the price seems competitive.

 

Traceability 

Ensure any quote received is written formally with a proper business address. Some cowboys like to hide their traces, whereas reputable tradespeople are open and above board.

 

Bigger projects

When it comes to choosing a company to carry out larger scale building works, companies with more than ten years of experience will tend to charge a premium. Bear in mind a younger company may need to outsource specific tasks to other professionals such as gas/electricity, which can sometimes impact the quality of work. 

 

Specialist works

Some homes require additional experience when it comes to renovations. Buildings that are listed or period homes, or homes in Conservation areas, will require a builder with more experience. Check that the company you are considering for your project have the necessary experience or examples of previous work on these types of properties if your home falls into one of these specialised areas. 

 

Local vs national

We always consider time when choosing a company to carry out work. If a tradesperson is local, this can be an advantage over another tradesperson who needs to travel miles to get to you. They will likely inflate your price to cover time and fuel required to get to you for the duration of the project. 

 

Requests for cash

Always be wary of tradespeople offering a discount if you pay in cash. Occasionally these individuals may cut corners with other vital things like guarantees and insurance. If the tradesperson asks for cash, count this as a warning flag. 

 

Contracts

For larger projects, it is very important to have a signed contract that includes full details of all work involved, but also a start and finish date. Unforeseen delays can occur at any point throughout the project, so having a start and finish date can help keep tradespeople on track and when necessary, be used to protect you from a never-ending project. Also, confirm with the tradespeople where they will dispose of builders waste and the standard you expect the property to be left once work is completed. 

 

Payment schedule

Always have a clear outline in your signed contract with your tradesperson detailing payment. We often advise a system of paying in thirds. Ideally, pay a third of the total cost upfront and agree on a date or mid-way point during the project to pay the second third of the total cost of the job. The final third of payment should only be paid once the job is completed, any snagging issues sorted, and the work has been carried out to your satisfaction. Put any changes to the payment plan in an email to the tradesperson detailing why a payment has not been made, to ensure there is a legal paper trail in case of disputes.

 

Insurance

Check both your home insurance and the insurance of the tradesperson chosen to complete the work to ensure you are covered in case of any unforeseen problems. 

 

We hope you have found this blog helpful when considering tradespeople for your next project. Here at Nichol Smith Investments, we offer hands-free investing in property. We oversee all work involved in property, from full refurbs, extensions to small renovations, on behalf of our clients. If you’re interested in investing in property but don’t have the time, knowledge or know-how, click the button below to book a call with us.


Sell or Let Your Home Fast: Our Top Tips

Sell or Let Your Home Fast: Our Top Tips

Anyone looking to sell or let their home knows it can be a lengthy process. From our experience in property, certain things can get you an offer on your house quickly.  

 

Selling or letting a property can seem like a daunting task, but it doesn’t have to be this way if thought is given to the simple things.

 

First impressions

First impressions are crucial and could potentially make or break getting an offer on your property. Take a step back and think about what you, as a buyer, would be looking for when viewing a property.  Viewers will look at everything, top to bottom, side to side. If possible, allow viewers to start in a welcome hallway or feature room, to make that all-important first impression. 

 

Tidy and declutter

It might seem a little obvious, but make sure you have thoroughly tidied your home before photos are taken and viewings commenced. Give it a deep clean and declutter where possible, as a neat and tidy room appears more spacious and therefore more appealing to viewers. A home that needs a good clean can often turn potential buyers away, as your home will not homely to the masses. Gardens, garages and communal hallways (where applicable) should not be overlooked when tidying. 

 

Small but important touches

Have you ever walked into a home and been hit with a wonderful aroma. Coffee brewing, bread baking, and fresh flowers are ideal. These can all appeal subliminally to potential buyers and make them feel at ease. It may seem obvious to mention that odours from pets or laundry will impact potential buyers, so ensure your home is well ventilated and any unwanted aromas dealt with before viewings. During winter months it’s always a great idea to keep your home warm, and even light a candle or two. Allow viewers to get a feel for the peaceful surroundings, keep background noise to a minimum.

 

Be as flexible as possible with viewings

While selling or letting your home can be a lengthy process, try to accommodate viewings where possible. Your property will only sell or let to individuals who have managed to view your property, therefore the more people who come to see your home, the more likely you are to receive offers. Some estate agents and letting agents can help with viewings if you are unavailable to show a viewer round your home, which is a huge benefit of using local agents rather than online agents.

You may be asked some difficult questions during the viewings, remember to be honest and polite no matter the question. You will know your home and local area better than anyone else, so don’t forget to drop in things you love about your home and neighbourhood, to help viewers in their decision making. 

‘For Sale’ or ‘To Let’ signs must always be displayed prominently and checked regularly, to ensure they are upright and facing the correct direction for maximum impact. 

 

Experience is invaluable

We always advise our clients to consider using an experienced local estate or letting agent. The years of experience they have with handling potential buyers is invaluable and can make this process far less stressful, particularly if you are struggling to organise viewings and dealing with a high level of interest. Using a local expert can make all the difference in achieving the successful sale/letting of your home.

 

If you would like assistance in selling your home, please get in touch with Nichol Smith Investments on 0131 322 1442. We have a team of experts who can guide you through the process of selling or letting your home.


Are You Thinking of Downsizing?

Are you thinking of downsizing? We have put together some tips to help make the process easier.

Clear vision – We always advise clients who are downsizing to be clear in their mind why they are downsizing. It can be easy to get sidetracked or lose momentum when you’ve decided to downsize, so having a clear vision of why you are downsizing can help keep you on track. People downsize for many reasons: children have left home, and the property is now too big; release equity for retirement; the passing of a loved one; or moving to the dream location. Whatever your reason for downsizing, you’ve made the decision, and it’s now time to take action.

Planning is vital – Planning is essential when it comes to downsizing. Even the smallest of tasks will take you longer than you think. Getting all your possessions packed into boxes can be a real chore, but if started in advance, can be a much more manageable task. We advise our clients to picture where each item of furniture will go in their new home and pack boxes with their new rooms in mind. Even if you don’t have the time to think of each room in your new home and where each piece of furniture or picture will go, clearly labelled boxes go a long way to help unpack at the other end. Some removal companies can help you with this task if you are not able to pack items yourself. 

Be realistic – Too many clients pack up and take everything with them with the false illusion they will sift and sort through items at the other end. Think of downsizing as your chance to have a spring clean.  Focus on precisely what you need in your new home, and this will make the process easier. Some of your favourite pieces of furniture may look out of place in your new home, particularly larger items, so think carefully about which items you take with you. The more sorting and clearing you do now, the easier it will be to settle into your new home.

Maximise space available – Although you are downsizing, it is still advisable to think about each room in your new home and ensure it is being used to its best potential. Often if a house has been occupied for some time, the owners may have used a bedroom for storage or a study. Making the best use of each room in your home will help you settle in.

Set up your utilities – Utilities such as phone and broadband can take a few weeks to come through when you move into a new home. Check with your estate agent or the property questionnaire (Scotland) to find out which providers were used by the previous owners. Giving previous providers a call may be the easiest and quickest way to have utilities set up at your new home. Don’t forget to let your current utility providers know that you are moving home.

Seek help from professionals – A local professional is usually the best person to contact to get the most up-to-date information on moving home. A professional agent can be invaluable during the moving process. Removal companies can be worth their weight in gold for packing your belongings, freeing you up to deal with other tasks.

We hope you have found this guide helpful when considering downsizing. We currently offer a bespoke service for downsizing in Edinburgh. If you would like to hear more, please call us on 0131 322 1442.


Five Tips for Success at a Property Auction

Five tips for success at a property auction

In this article, we are going to give you five tips for being successful when buying a property at auction.

How to buy a property at auction?

Auctions are one of the few places that offer the opportunity to find profitable commercial or residential bargains. They come with a considerable amount of benefits for a property investor – they provide quick sales, a relatively simple buying process and the certainty of your purchase.

Traditionally, bidders at property auctions were regular investors, whereas now there are more and more first-time buyers and entrepreneurs contemplating buying properties at auction, with many individuals keen to find out more about the process. The atmosphere at an auction is unmistakable and not just because of the property investment opportunities. There is the excitement of bidding, the unknown of whether or not you’ll be successful, and the buzz of competing with other investors.

However, it’s not all fun and games, mainly if you are underprepared, because there is a good chance you could overspend, buy a property not worthy of investment or feel rushed into a decision you aren’t comfortable with. Before diving in headfirst to a bidding war, we recommend following our five top tips for success at property auctions below.

1. Set a maximum bid amount and stick to it

This may seem like an obvious one, but when you get caught up in the excitement of a bidding war, it can be easy to lose sight of your top-line budget. Make sure you stick to your maximum at all times, even if you get caught in a head-to-head bidding war. It is better to lose the bid than overpay for a property that could cost you in the long-run. Generally, properties sell above their guide price. These prices are there to indicate the minimum expected price at the end of the action.  With that being said, if you are drawn into a bidding war, this can be the difference between making thousands on a sensible purchase compared with spending more than you ever intended on a property which will impact your profits, sometimes causing them to go into the negative.

To avoid this as much as possible we recommend you research each property lot, do some simple budget plans and then set a maximum budget for each property, so you are not tempted to go over-budget.

What’s the advantage of doing this? A lot of the other attendees will not have the foresight to set a maximum for each property lot. By establishing yourself clear limits, you almost guarantee profits from any purchase you make.

2. Check out the property before bidding

Low auction property prices are always tempting, but generally speaking, there is always a good reason for the lower price point. Huge renovations are often required to make these cheaper properties habitable – sometimes involving structural alterations or reinforcements. For this reason, visiting the property in advance, and getting quotes and advice from experts is essential.

Going to see the property will give you an insight into the area and the types of people that may want to rent or buy the property from you. It happens far too often; people buy a property only to find it had a low price point because there is a lack of buyer/renter interest or it is in an unfavourable location.

Organising a surveyor or knowledgeable builder to accompany you to a viewing will give you a better idea of the work required to make the property rentable or sellable. A lot of the available properties will be in poor condition and will require time and effort to bring back to a liveable state. If you are looking to move in, rent or sell quickly, then you may wish to reconsider buying a property from an auction. By bringing a builder or surveyor, you will be able to compare what is being said about the property in the auction materials with the reality, giving you peace of mind that what is being officially reported is legitimate. Additionally, you should be able to get an idea of the costs involved to renovate. 

If the appropriate documentation is not available for the property before the auction takes place, you may consider contacting the vendor’s solicitor. It is important to remember that you, as the prospective buyer, are expected to have full knowledge of the documentation and the facts. Neither the seller or the auctioneer will be liable for any subsequent problems. 

What’s the advantage? Some people will go to an auction having never looked at the catalogue of lots while others may have put in the bare minimum amount of research. This can turn bidding on well-researched properties into a game of roulette with hundreds or thousands of pounds being at stake.

3. Make sure you have the money

Again, this may seem like another obvious one, but you need to consider how quickly an auction sale will complete and make sure you have the funds in place. Inexperienced investors can sometimes be shocked at the speed everything goes through and will occasionally find themselves short, trying desperately to pull their funds together in time.

When you successfully win an auction property, you are legally obliged to pay for it and usually you will have to pay 10% of the sale price as a deposit. Then within 14-28 days, you will typically be expected to complete your financing. If for any reason you miss the closing date you risk losing your deposit. It is worth checking with the auctioneer beforehand about how property can be paid for. Make sure you bring your ID along on the day.

Remember the guide price is only there as a reference point. It shows the lowest expected sale price and can change any time before the auction day takes place.

What’s the advantage? You can anticipate how much you can pay for a property which will stop you from wasting time researching a property that you won’t be able to pay for in time. It will also safeguard you against losing thousands if you only put down a deposit for the properties you can afford.

4. Check the legal pack

Don’t get stuck. Do your research and read up on the technicalities of any purchase. Once the hammer drops, there is no going back, so make sure you know the facts. A legal pack will give you all the relevant information for why the property is up for auction, why it might not be possible to go on the general market and any legal issues affecting the building or any reason the property may not be insurable or un-mortgageable etc. The legal pack helps you to understand precisely what you are buying and enables you to ensure the reality doesn’t differ from what may appear to be a bargain. They can also assure you that there are no current tenants and that the property size is what you expect.

The pack should also confirm whether there is a buyer’s premium payable to the auctioneer as well as any survey fees, conveyancing fees and the cost of stamp and duty land tax.

What’s the advantage? Carefully examining the legal packs means you know exactly what you are signing up for if you purchase the property. It may be worth letting a professional look over the legal pack on your behalf, which they may charge you for. If you are serious about buying a particular property, then we advise you factor this into your upfront costs.

5. Don’t forget about Stamp Duty & VAT

Another pitfall for inexperienced investors at property auctions is getting lulled into thinking the bid price is the only payment required. This is not the case!

Make sure you are aware of your responsibilities in terms of Stamp Duty and any potential VAT that will require payment. Understanding this beforehand can work in your favour as being aware of these costs allows you to add it to the list of fees before committing to a purchase. It also means you won’t be caught off guard by unexpected expenses.

Some impressive incentives and tax breaks are available when converting commercial property for residential usage, so it is worth knowing about them. Looking into the flat conversion allowance, it may also be worth checking if you can claim the VAT back for the conversion costs.

Buying a property with a “Transfer of a Going Concern” (a property being sold with a current tenant) may also reduce your VAT costs. As the buyer, you would need to contact HRMC before the date of transfer. This can be slightly complicated by the fact you don’t know if you will be the highest bidder, but if it is possible, then you can save yourself a considerable amount of money.

What’s the advantage? Being prepared for all the finer details when spending at an auction will help you and your bank balance in the long term when you do make a purchase.

As with most things, there are definite advantages and disadvantages when buying property from an auction. It is essential to weigh up the risks and to investigate the property thoroughly, whether it is residential or commercial, before committing to the sale. Research is crucial before making a serious bid as you need to make sure you have the money ready to go within a short time frame; the property is worth the price advertised, and you can make the kind of profit you are looking for on the property. As with all property investment, research is vital.

If you would like to know more about how Nichol Smith Investments could help you with investing in property, click the link below to book a call with us.


Tax-Free Wealth

Tax-Free Weath

By SSAS Expert Paul Barry

 

Sophie: Today we have Paul Berry joining us from his company SSAS consultant to tell us a little bit about the financial service that his company provides. Thanks for joining us today, Paul, it’s great to have you.

Paul: Thank you.

Sophie: For people who may not met you before it. Would you be able to tell us a bit about your background?

Paul: Yeah, I have worked in financial services for 30 plus years and had the pleasure of working for the bank of Scotland when I first started work. I became a financial advisor at the bank and dealt with a whole range of high net worth clients over the years. I specialised in SSAS pensions and more complex pension structures hence my specialism now in SSAS.

Sophie: So Paul, can you tell me about what a SSAS is?

Paul: I can so I SSAS stands for Small Self-Administered Scheme, and it’s a pension scheme that HMRC designed for business owners many years ago. For SME owners, so businesses up to a certain scale. And it’s designed to give those business owners ability to do more than an individual to advance their business and to help a pension all at the same time.

Sophie: So Who would have a SSAS suit?

Paul: SSAS is for someone who runs a business of a certain scale, so someone who has a business, a limited company or a limited liability partnership who has been trading as an active trading business who is keen to do more with that business and their pension and try to fit the two together, and that’s my job, to try and understand where those points are. So essentially is for people with their own business, be it a limited company or a partnership.

Sophie: So can you tell us a little bit about your role with SSAS consultant?

Paul: So I am self-employed with SSAS consultants, SSAS consultants is my own business. The focus of what I do with that is to work one-to-one with business owners and to be a business owner myself is the natural thing to relate to other people. The role I undertake there is really quite simple. I engage with people such as yourself and understand just your circumstances. Relate that to SSAS and how it might work with you and then guide you through the process and to hold your hand right through the process to make sure that the SSAS is right, we set it up, and you start to use it effectively after that.

Sophie: What would people typically use a SSAS for?

Paul: So a whole variety of things. The most typical uses I see are people who have a profitable business, and they’re trying to mitigate some tax in a tax-efficient manner, and SSAS is a brilliant tool for that. It can accommodate much more contribution from a business than say a personal pension can. It can help people who are wanting to raise capital to assist a business. It might be an active trading business to acquire stock or employ people or to buy an asset. It could be if you’re a property business, to help you buy more properties, deposits or to do flips. Whatever that may be, and it can be used to protect assets, so if you already own an asset, you can transfer that into the SSAS. If you have a lot of cash in your business, you can transfer it into the SSAS. The reason you might want to do that is that if there’s value transferred from the business to the SSAS, then if it ends up in the SSAS there’s no risk that someone can sue you or litigate against you and the value is protected within it. People can also use SSAS for a family trust. So if you want to cascade wealth for your family, which most people do, then a SSAS in a brilliant tool for that. It can be used for a real wide variety of purposes, and my role really is to work with business owners to understand what that might mean for them, and then plug in the benefits where they’re best suited.

Sophie: So how does a SSAS differ from pensions that people would typically be familiar with?

Paul: Yes, that’s a good question and a good point actually. Most people don’t really understand the differences between different pension types. So a SSAS as what is regarded as an occupational pension scheme which is governed by a whole set of different rules, a different regulator from a personal pension most people would be familiar with. What that essentially means is that the SSAS has got more flexibility more capability and that the definition of it from a users perspective is that it’s described as a member-directed pension scheme, which really means that you as a member or the trustee have full control of that pension. No one is telling you what you must do with it or how it will be invested or how it’s to be structured. That is entirely down to you, and that’s why people particularly business owners love the concept of a SSAS because you can do what you want to do according to your objectives and circumstances and really get to that point in a much more structured way.

Sophie: So, why have many people not heard of a SSAS?

Paul: I hear that every day of every working week, where people usually say to me, “oh it sounds too good to be true” or “why haven’t I heard of it before?” and people are sceptical because they don’t know about something, and I totally understand that. The main reasons or the main reason is that SSAS is not a retail product, so people will not have seen that in a financial services office or an insurance company. It’s not something that’s typically made available to the general public, because it isn’t for the general public. SSAS is specifically for small business owners.

Where people should have heard of it, is from their financial adviser or from their accountant. There are reasons why even in those circumstances, financial advisers aren’t massively familiar with SSAS because it’s a little bit different from what they’re normally used to. Accountants should definitely know about SSAS, but to be fair to accountants, it’s not really in their realm to provide what they think is financial advice. My view of SSAS is that from the accountants’ point of view there’s a massive tax planning tool within it that accountants should have an awareness of, but it’s not really in their realm to be talking about that sort of thing with our clients. There’s a large knowledge gap there for sure, and I have a job to do to fill that gap. It’s certainly enlightening for people when they discover what a SSAS can do, and they haven’t heard about it. There can be a bit of frustration there: I keep people calm and explain the benefits, and let them access it.

Sophie: So you mentioned being able to access capital from the SSAS. How would that work, and how could people use that?

Paul: So SSAS has the ability for the pension to lend money to what’s called a sponsoring employer. Essentially, if it’s my SSAS my pension money lending to my business, HMRC have provided a facility that allows SSAS to lend of the 50% of its value. So for simplicity, if you have a hundred thousand pounds, you could lend fifty thousand pounds back to your business, and that can be used for any commercial purpose that you want that money for. For example, to buy more stock for business, to buy an asset for the business, or to buy property (a deposit for a buy to let property). Anything that would help your business to grow and to succeed. In addition, while you are doing that, it gives your pension a return, because you in that context are the lender from your pension and the borrow from your business, so you set the rules and returns around that. It’s a fantastic tool if people understand how you can really benefit from using that.

Sophie: So people can loan 50% of the value of their SSAS to their own business. What can they do with the other 50%?

Paul: That is a common question. People get excited about loaning 50% to their own business and not forget, but they sort of discover that there’s another 50% sitting there that they should be using or engaging. There’s a variety of things you can do with it, principally you can do anything you want to do with it provided it fits with HMRC regulations, which is to invest in anything that is HMRC approved. Most commonly though people have used the ability for the SSAS to lend money to a third party business, so a very similar process to lending it to your own company you can lend it to somebody else’s. In the context of a property business that might mean lending it to someone who’s like-minded who’s doing another project that you can’t do, but your SSAS and yourself get all benefit from that process. You’re lending money to their project, so you set the returns, you manage the process (or the SSAS trustee will do all that work for you), so it’s a great way to access other opportunities that you couldn’t or wouldn’t have the ability to do with your own SSAS.

Sophie: So, you talked a little bit about the tax benefits of a SSAS. What would be involved with the tax benefits of a SSAS?

Paul: Loads of things. That is a huge thing, but I will cover it briefly. Primarily or principally the SSAS is a pension so that that gives it essentially a tax-free status. HMRC allow that structure to have no tax payable within it, and the allowances to get money into it. So for a business, if you’re making a profit and want to contribute money to the SSAS, then any contribution and every contribution you make to it is tax allowable, which means that you’ll save corporation tax on every pound that you pay into it. For simplicity, for £100,000 you pay in you’ll save £19,000 of tax by doing that, so you’ve initially made a 19 % return over and above what you would have done if the money was just sitting in the company. The pension is tax-free, so any investment you make within that structure will pay no capital gains tax or corporation tax within the structure, so if you loan money to your business (or a third party business) as we just mentioned, the return you make they will have no tax people on it. And if you had borrowed money for your own business and were paying it back that payment is also tax allowable back to the SSAS, which is an interesting little quirk over in the structure. And then within the structure beyond that, the SSAS allows for essentially a long-term enduring family trust, there’s a brilliant ability for the SSAS to pass wealth. You can cascade that wealth your family in a very very tax-efficient manner so that an event of one person’s death the value will cascade to the remaining people within the SSAS, which means there is no inheritance tax to be paid at that time. For some people, this is a huge thing, and the ability to cascade that wealth is powerful for most people.

Sophie: So – How much can a business pay into a SSAS?

Paul: Most people are unfamiliar with SSAS, and as I mentioned, accountants’ and financial advisors not being familiar really of a SSAS and all the abilities and regulations. So most people are professionals included, assume that the maximum you can pay into a SSAS or any pension is £40,000 per annum. That in its-self, to be fair, is a decent amount of money and from a business that’s lucrative and productive to do that, however, a SSAS very differently to other structures allows you to pay up to £500,000 per annum, which for a business which is making a profit of more than £40,000 is hugely significant. Say you’re making a proof of £200,000 a year, and you wanted to pay that into the SSAS, then that contribution will go from the business directly into the SSAS with no tax to pay, so immediately saving that business £38,000 in tax. And they can do that every year. For most businesses, that is a revelation and for pretty much all accountants’ that is breaking news. Most don’t actually understand that or believe it, which is always a challenge. I can assure you that these are HMRC rules: it’s not something that I’ve created or somebody else thought was a great idea. Half a million pounds is the annual contribution, but in actual fact, you can put up to two million pounds into it at one point and have the tax relief spread over up to 3 years. That would be if you had a particular project or a particularly good year you can do up to that value. The ability for the SSAS to have contributions of that level is significant and is usually a bit of a ground-breaking moment for most business owners.

Sophie: Are there any risks associated with a SSAS?

Paul: Good question. The SSAS its-self by design doesn’t bring risk to the equation if you like because the SSAS structure is different to most pension structures people are familiar with, whereby traditionally you would put money into a pension and the pension provider would take that money from you (like Standard Life) and invest it on your behalf within their own structures. SSAS does not have that investment part as the inherent part of the design of it. So what that means is if you pay money into the SSAS, you will determine where that is invested. SSAS itself doesn’t bring investment risk beyond what you choose to invest within, and that is entirely your own decision and your own time. The structure itself has no risk associated with it. It’s an HMRC approved structure. Each SSAS is singularly and individually approved by HMRC before it exists, so it’s been given the green light. Each SSAS is given its own pension scheme tax reference number, so it exists as it’s own entity in its own right. There is no risk that SSAS brings that you can’t control or manage for yourself.

Sophie: What are the costs involved with setting up and running a SSAS?

Paul: The SSAS has an initial fee be able to essentially get the structure initially set up, for the time it takes to consult on it until understand the best uses and objectives for it. It’s a one-off fee, and it varies depending on how many people are in the SSAS and what your plans are, and the time taken and all sorts of other factors. Thereafter there’s a charge to run the SSAS on an annual basis. Those challenges are payable for the administration and trustee work that’s carried out for every SSAS, and that work is typically compliance in HMRC reporting and all the sort of complex boring bits that people really don’t want to get involved with and that’s all handled on behalf of the SSAS members for the SSAS. There are ad-hoc fees that will come along, so for example if you’re buying commercial property there will be fees involved in that process as it would be anyway if you’re buying a property, or if you were taking a loan back for example in the SSAS that are admin fees that will come into that process. These are not exorbitant fees at all; they’re just part and parcel of the process of running a pension scheme.

Sophie: Are all SSAS providers the same?

Paul: No, short answer. There are a variety of SSAS providers in the UK: probably 30-35 providers, I have not counted them, but I know there is not a lot of them. SSAS, as a market, is quite restricted so there’s probably something like 40,000 SSASs in the UK which is really a tiny market compared to some other pension structures such as SIPP. There are about six or seven million SIPP pensions in the UK, which is a massive scale of operation, but SSAS isn’t quite the same. SSAS providers tend to be more niche and work in very different ways. A SSAS has a variety of service types ranging from practitioner to administrator to trustee, and each of those offers of varying level of service and each of those has a varying level of responsibility for the person who’s SSAS that is. Our view of that as a consultancy business is that as a business owner, you really don’t want to become a pension scheme owner or an administrator. That’s not why you started a business. Our view of it is we provide you with the highest levels of protection and service so that you engage with the SSAS and the people involved with it; to do what you want to do with it rather than worry about not to complying with regulation or reporting to HMRC. There are some risks in the process if you don’t understand what the level of service is. We talked about risk a little bit earlier: this isn’t a risk in terms of losing money or investments, it’s more about the risk you could embark upon if you don’t know what you’re doing with it, and if you don’t understand what level of service that the provider has given to you. It’s a very misunderstood point, and I’d be happy to discuss that with anybody, but I can summarize that in more detail, but we do need to be aware of the different level of service that are available.

Sophie: That’s one thing I probably one thing I wasn’t aware of – what your service is offering is actually kind of a hands-free service and that you would take care of your clients to make sure that they are aware of the exact rules of HMRC, and provide the guidance to make sure that no rules are broken, because I guess when rules of a SSAS are broken HMRC are very quick to chase up what’s going on and obviously there will be tax implications there for rule-breaking.

Paul: Absolutely. That is the bit people need to be aware of and need to understand the service that they have embarked upon will mitigate those risks. I have had clients in the past who have used other services that didn’t know that. If people embark upon that course of choosing the wrong service, they can change that structure; it’s not terminal. It’s not something that they can’t alter to get a better place, but it’s important before you start that process you understand what the service is. I often make a comparison to people that if you are familiar with property, if you own for example a buy-to-let property you may engage with a letting agent to find you a tenant, but not manage your property, so in this context it’s like that to an extent where our service is a fully managed tenant find, all documentation/all compliance/all engagement/all rent collection is what we do. We engage the full process to take that risk out of it for the SSAS and trustee members. You could, however, just use that business just to find your tenant and then you have all the work and all the rest to do thereafter, that’s the sort of differences that can be around in the market if you’re not familiar with what you’re actually buying into.

Sophie: That’s a really good comparison actually because I think a lot of people that would be looking into a SSAS would look for SSAS services nearby them, and there an overwhelming amount of information when they first find out about SSAS. It’d be very easy to jump at the first opportunity to take on a SSAS, but without fully investigating what services are provided by each a SSAS company, you could find yourself doing a lot of legwork for trying to get the benefits of a SSAS.

Paul: Yeah, absolutely. I had a client recently actually with that sort of comparison. He had embarked upon a certain course with a big national provider, and he discovered that they offered the very lowest level of service when the annual charges were incredibly over four times the charges we would apply to provide the very highest level of service.
I think that is unpalatable, as a polite way of putting it. I think that’s shocking, but he didn’t know the difference because how would you know the difference quite frankly. It’s something really to be aware of, and my job really is to consult with you to understand your circumstances, so you really do know what you’re doing before we start down that road. It’s an important point actually, and I’ll mention it now: SSAS is not for everybody, and it’s not a one-size-fits-all, it’s not a ‘turn up, and you’ll get one’. That’s not how it works at all. My feeling on that is that I will rather tell you not to go for a SSAS than to go for it, if you just aren’t in the place to make it work for you, because quite frankly it’ll cost you money and time, and me, and that’s not how this process work. It’s not a sales process, its a consultative advisory process and it must be right for the people who are engaged in it.

Sophie: I think that’s important as a professional if you are providing a service you are able to see where it’s going to work for someone and where it’s not going to work for someone and be able to guide them to make that decision ‘is SSAS right for me or actually a SSAS maybe not the perfect outcome for me’, and then people can be referred on for other services that may be more appropriate for them like a SIPP for example might be more appropriate for some people. So it’s good to have that reassurance that it’s not a sales process, it’s finding something that’s going to work perfectly for a business and an individual.

Paul: And that’s exactly it. I’d rather have the credibility of working with someone who believed that what they were getting was good advice, which is what they will get naturally, but even in that process I’ve done that in a few cases recently where that individual or business has figured that it’s not right for them and we figure put together that it’s not right for them, but I’ve still managed to find ways to make it work for other people that they know. That can have great value in the world even just from a karma perspective, feel like they’ve done a good deed for someone else, and it’ll come back at some point in time, and that works really well and that’s how I prefer to work with people, that’s the best way to be.

Sophie: Where do you fit into the process, Paul?

Paul: My role is to directly engage with people who could have a business, who are interested in SSAS and relate their circumstances currently to what the SSAS might be able to do for them and to work out a strategy that is going to benefit them. Primarily to figure out if it will benefit them, it usually does, but we mentioned this two seconds ago, and then to engage with them to set the SSAS up: go through the process of all the boring paperwork and engagement with the trustees and/or professional trustees, then HMRC in the approval process. When the SSAS has been approved by HMRC, we then take the machinery so to speak to actually engage it in a process that then actually does things for them as opposed to the theory of doing it; it’s actually getting the SSAS working and moving for them.

Sophie: Thank you very much for joining us today, Paul! It’s been really informative, and it’s been great to hear a bit more about SSAS and how it can benefit business owners.

Paul: Thank you very much. I appreciate your time.

Sophie: If you’d like to find out more about a SSAS and how it could benefit you, there’s going to be a link below this video that you can click to book a call with Paul through Calendly to find out more.

 

*SSAS is an Occupational Pension Scheme type, intended for UK Business Owners. SSAS is regulated by The Pension Regulator (TPR). SSAS Rules are determined by HMRC. Each SSAS is individually approved by HMRC. SSAS Pension is not a product that is regulated by The Financial Conduct Authority (FCA). Investments within a SSAS may be regulated by the FCA depending on the SSAS Members / member Trustees own investment choices. Neither SSAS Consultants nor the SSAS Administrators and Trustees that we work with are regulated to provide FCA regulated Investment or Pension Transfer Financial Advice and do not imply that we can. We have no mandate, influence, control, ownership or interest in the choice of investments within any SSAS. This video is intended for information only and is in no way intended to confers or imply any financial advice.


Investing in Property: The Pro’s and Con’s of Long Term or Short Term Investing 

Investing in property: the pro’s and con’s of long term or short term investing

The value of UK property has consistently stayed ahead of inflation by a large amount for the past thousand years. Even in the last fifty years, growth is still over the level of 10% on average per year. This makes the decision to hold onto a property for as long as possible seem like a no brainer. However, it can still be challenging to know the amount of profit that you can expect year on year. 

Timing is a crucial factor in the amount of success for shorter-term investments, so the longer you can hold onto a property, the less timing plays a part. This isn’t to say there won’t be individuals telling you to do otherwise, due to the potential of a dramatic property market crash, but most are wrong with their predictions. As we have seen in the past, property prices tend to follow cycles. What we mean by this is even if a market crash comes, if we are investing for the long term and hold on to investment properties, we should not be negatively effected. By buying properties at below market value and adding value through renovation, we can protect our investments from most market fluctuations. 

The population of the UK is on the rise and while our government is incentivizing the development of new housing, it cannot keep up with the demand for homes. This allows both short term and long term property strategies to work well for investors. Short term strategies like buy to sell can be useful to make quick profits, while keeping properties for years on buy to let mortgages can also have potential to earn some big gains in property. 

When considering holding a property long term, not only can we see the benefit of capital growth over time but we can benefit from cash flow in the short term. If a property investment is sourced well, ie below market value, we should aim to achieve an income of at least five percent net after expenses, which we can put into our pockets for short term cashflow or save and use for a deposit for our next property purchase. 

While many of us can see the benefits of buying, renovating, and selling properties quickly, we need to remember this comes with relatively high expenditure. We need to account for thousands of pounds worth of legal fees, estate agent fees, council tax and possible mortgage payments for each property we buy and sell, before we consider renovation costs. Another cost that often gets overlooked is stamp duty. In addition to this, the UK government will take as much as a third of your profit through capital gains tax or corporation tax. 

Knowing what you plan to do with any potential profit from a property investment should be essential in your decision whether to hold or sell quickly. If investing in more property is the answer, then holding onto the current property makes the most sense due to the potential of capital losses by buying to sell. On the other hand, if money is being released because of a desirable investment opportunity that will gain higher profits than that of other property investments in the long-term, then a quick sell may be preferable. In most cases, however, the amount of profit is key when making this decision. Having strict investment criteria is useful from the outset, and can be crucial in deciding to hold a property long term.

We hope you’ve gained some insight into the benefits of investing in property in the long term. If you would like to discuss investing in property through Nichol Smith Investments, please click the link below to book a call.