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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

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.

Interest rate rises, and what they mean for you?

When interest rates start to go up, individuals who like to save their money are going to benefit. Banks and building societies often raise their interest rates based on the Bank of England doing so, meaning the amount you have in your savings account will go up.  On the other hand, having a mortgage, loan or credit card debt means that any interest rate rises means the amount you’re borrowing rises depending on the conditions of the loan. This is where fixed-rate mortgages have an advantage: if rates increase then your mortgage repayments won’t fluctuate with the interest rates unless you plan to remortgage.

Though small interest rate rises don’t seem significant, they can have a big effect on the amount you’re paying. For example, if we take a £150,000 mortgage repayment, a 2.5% interest rate rise on the base rate would result in an extra £230 a month to be paid. Instances like this would require the mortgage holder to raise additional funds or cut spending or to switch to a new fixed-rate offer before the base rate changes. With this being said, there are ways in which we, as investors can turn these potential issues into opportunities. 

1. Fixed-Rate Mortgages

Five and ten-year mortgages are available depending on the current market, meaning home-owners can rest assured their mortgage payments won’t go up for the duration of the loan. This method is a sure-fire way of protecting yourself against interest rate rises and will allow you to take any variables out of your mortgage repayments. The flip side to having this peace of mind is that you will often overpay for fixed-rate mortgages compared to a variable rate mortgage (also known as a tracker mortgage). Banks use fixed-rate mortgages as a form of insurance that they won’t vary your payments, but will charge you more, and tie you into them for longer as a result. This being said, if rates don’t increase, then you may well have spent much more on a fixed-rate mortgage that could have been utilised elsewhere. 

If a borrower with a 30% mortgage took out a five-year fixed rate over a tracker, they would pay a 2.3% premium. Comparing an average 2.49% tracker with the 4.79% five-year fixed rate shows that by going with the fixed-rate, you add £181 a month to your monthly repayments on a £150,000 mortgage.

2. Tracker mortgages 

If possible, it is best to vary your mortgage products between a tracker and fixed-rate mortgage so that you spread the risk. You may be restricted to whatever mortgage products are available at the time but to be safe, it is best to have a balance of fixed and tracker mortgages within your portfolio and to ‘self-insure’.

3. Self-insure approach 

One approach is to compare the tracker and fixed-rate mortgage options, take the tracker but pay the difference amount each month into a savings account.

Essentially, you are creating your own insurance policy against rate rises as you are paying the fixed term rate at the same time as covering yourself for any potential increases. If the rate rises, you have the same level of cover as if you had been paying the fixed-rate. If the long-term tracker ends up costing less, then you will have a nice pot of cash in your savings account.

4. Equalise

The last option is to use all three of the strategies mentioned above across different markets to limit against the effects of any major market shifts and average out the profits/losses from each option.

We hope you’ve found this article useful in explaining interest rates and how they can affect your investments. If you would like to know more about Nichol Smith Investments, click on the link below to book a call.

How to flip a property for profit

‘Flipping’, ‘Trading’ and ‘Buy-to-Sell’ are all terms commonly used when describing a specific property investment strategy. The terminology we prefer is ‘Buy-to-Sell’ as it does exactly what it says on the tin. It is the strategy of buying a property to sell it on for a profit, usually involving some form of property refurbishment first. It can be a very lucrative property investment strategy.

Why would I want to flip property?

Tens of thousands can be made on a single successful flip if appropriately done, and this can then be reinvested into creating a rental portfolio for yourself. If possible, it is worth considering selling the property through a Limited Company as you may find paying corporation tax more tax-efficient than paying income tax. It is important to remember that we are not attempting to provide financial advice in this article. Always make sure you engage with a qualified professional when making an investment decision.

How do you give yourself the best chance of success with property flipping? 

Use our guide below to identify the critical considerations before making any big decisions. Buy-to-Sell can be a highly profitable and relatively straight-forward strategy to replicate, but only if you take the time to do your research.

The top three things to consider before deciding on whether to purchase are property type, area, and situation.

1. Property type

Think about whom the property will appeal to. For example, a three-bedroom house will be more desirable to a broader range of prospective buyers than a top floor flat in a high-rise building. The desirability of the property could affect how long it takes to sell, which will ultimately have an impact on your profit margins. You will need to factor in general bills such as utilities and council tax, and six months of mortgage payments if a mortgage was required to secure the property. Sometimes bungalows can be a good investment provided you can add real value through renovation or extensions. Move-in ready properties often appeal to more buyers than properties that will require refurbishment. 

2. The area

When considering potential locations to flip properties, it is essential to think about your potential customers. What are the factors that will appeal to them? The property may tick all their boxes, for example, it may have a garage, garden and en-suite, but if the property is in an area with a high crime rate, then you need to consider if are buyers still going to be interested. If you are selling slightly bigger properties to interest first or second-time buyers, then the facilities and infrastructure are going to be as valuable as the property. Think about ease of access to the area; can you travel there by road, local bus or on train service. A less desirable house in a good street may be a better investment than a lovely property in a rougher neighbourhood as properties can always be refurbished, but you can’t pick them up and move them to a better area.

3. Seller’s Situation

The ideal situation for property flipping is when you are in a strong financial position and able to act quickly, and you find someone that needs to sell fast. Quick sales benefit you as a trader as you avoid properties that are tied into a chain of transactions but also helps the seller by allowing them to move on and reduce their expenditures. Often there is value to be added to properties that have been in long tenancies or when the owner has lived there without updating for an extended period. These types of properties are extremely sought after and can sometimes attract strong competition. Do not be lulled into a bidding war with someone that is willing to pay over the odds as they will often be less experienced or seeking less profit. Other bidders could genuinely be interested in living in the property, or they haven’t worked out their costings properly and are making a stupid decision. If the property can be updated or refurbished, generally speaking, the profits you see will be good provided you buy at the appropriate price, manage renovation costs effectively, and secure a good sale price. If you don’t believe you can do this, it is better to walk away and find a different property to invest in.

How to flip the property

Before fully committing to a sale you must double-check all of your figures, making sure you have an educated projected sale price as well as being realistic about the amount you will sell on for. It is reckless to say you will achieve £25k over the sales of comparable properties in the area just because of your personality. You must compare like for like in the area, and that’s where online resources are your friend. Websites like Zoopla will show you the recent sale prices of property in the neighbourhood and the current trends in that area. Price check your property with properties that match what you are trying to achieve to establish a realistic sale price. Once you determine your end goal price, you should work on getting quotes for the renovation costs. Make sure you get at least three quotes to ensure you are getting value for money. It can be cheaper to hire individual tradespeople and project manage the project yourself. However, it may be easier to hire one contractor to manage the whole project, allow you the freedom to source your next project. Sometimes traders will require a minimum return on investment (ROI) when contemplating taking on a buy-to-sell project. Don’t forget to factor in the appropriate stamp duty, buying and selling costs, and general utilities as well as professional fees. You will also need to take into account the interest you will pay on any finance you need to fund the project.

It is also wise to consider the implications of proceeding with one property sale over another. You would be surprised by the number of traders that will buy-to-sell, do the work themselves and then expect a high profit only to be disappointed because they didn’t do their research or know their top line figures. To minimise risk in your investments, you need to take the time work your numbers, find tradespeople you trust and respect, and remove the emotion from your decision-making process. When you have your figures, it will be easier for you to work backwards to decide an offer price, which will allow you to meet your ROI expectations.

Although every property flip is different, the fundamentals for property flipping remain the same:

– Add value to the property without over-stretching your budget.

– Sell for the best possible price without being over-ambitious.

– Pay a sensible and well thought out purchase price.

The list above is very simplistic, but it shows you the key areas for consideration. People often think anyone can flip property, and they probably could, but to flip a property effectively, you need to be strategic with your decision making. The reality is most people won’t ever give property flipping a thought, but you are reading this article so you are obviously interested and we want to provide you with the tools for success. Good luck and please let us know of your success.

If you are interested in property and would like to discuss working together in your property journey, please click the link below to book a call.

Buying your first property investment: 10 things to keep in mind

When you’re new to property investment, you want to make your first investment count to give yourself the best possible start. No matter how much experience you have, success is not 100% guaranteed. We have put together some simple steps to help you make sure you are on the right path. It can be used as a framework for making the right decisions.

1. Make a checklist and stick to it

Creating a step-by-step checklist for yourself will ensure you don’t miss out any crucial steps when buying a property. A simple list of activities including everything from filing paperwork to arranging surveys, mapping it out on a piece of paper means nothing is overlooked. This will give you peace-of-mind knowing you haven’t forgotten anything essential. 

2. Keep your business head on 

Remember that buying a home for you to live in personally is not the same as looking for a property to invest in, and you should approach the situation from a business perspective. When it comes to property investment, you need to take your emotions out of the situation to avoid overpaying and focus on the purpose of the investment – making money.

3. Research, research, research

Not to state the obvious but make sure you know the area you want to buy in inside out, and this will help you make smarter decisions. There are thousands of resources available to you both online and offline. Use these resources to your advantage, arm yourself with all the information available, and you will be giving yourself the best possible starting point.

4. Set clear goals

When starting out , it is a good idea to set some clear goals for yourself around what you are trying to achieve financially. Having a target wealth figure and timeframe will influence the property investment strategy you choose. If you choose the wrong investment strategy for your goals, you could end up disheartened by your returns.

5. Think about everything long term

Property investment should not be thought of as a ‘get rich quick’ scheme. It should be done in a careful and thought-out manner, taking the time to consider the best course of action at every stage of the process. That being said, it’s still very achievable to see substantial returns within five to ten years, bear in mind that rushing into things too quickly increases the possibility of failure due to overstretching yourself. 

6. Make sure you know the area

As we’ve said before, there is a wealth of information available to you. Make sure you use this to your advantage and research the area before making any investments. Statistics on previous sale prices or the growth in the population should give you a good indication on whether investing in the area is a smart decision. It’s better to take the time to do your research than risk your capital by investing too quickly.

7. Include the relevant professionals 

When starting out, it’s useful to identify professionals that can help you on your journey. Having trusted local estate agents and a mortgage broker can benefit you when you need to make difficult decisions. There is no point trying to do everything yourself when there are people whose job it is to help, make sure you utilise the experience of other professionals.

8. Make smart investments

To be profitable in your property investments, it’s important to buy properties that match the current market needs. Look out for properties in an area that are let quickly or on the market for short periods. This is when being in contact with your local estate agent is useful – they can guide you on what is happening in your area and let you know the best places to invest.

9. Cash Flow is King 

Having an understanding of cash flow is vital to property investment as there will continuously be  payments and expenses to track. There will be a mixture of monthly fees and one-off payments to be made, sometimes quarterly and sometimes annually, so ensuring there is enough money in your account to cover this is crucial. Additionally, you may want to have contingency cash in your account in case of emergencies or unexpected property maintenance.

10. Choose an investment strategy and stick to it

Sticking to one approach with your property investment will help you get the best returns. Over-complicating matters when you are first starting out can make your journey unnecessarily tricky. By having one strategy and sticking to it, you will become an expert over time and make you a successful property investor. 

We hope our ten tips for first-time property investment have been helpful. By following this guide, you could stand to make a lot of money. If you ignore the advice, you might find yourself in a difficult situation with a bad investment that you can’t get out of. If you would like to hear more about the services we provide at Nichol Smith Investments, click the link on our homepage to book a call.

Paying off your mortgage early – is it financially sensible?

Most homeowners dream of paying off their mortgage early and dream of the day they can be mortgage free. The fantasy of being mortgage free is easy to get caught up in. However, it is essential to take some time to think it through and consider if it is the most financially sensible decision long term.

This applies to your mortgage, whether it is for residential properties or buy-to-let. The financial implications of paying off your mortgage early will vary depending on your personal and business circumstances, and therefore, it requires careful and deliberate consideration.

Below we have provided you with questions you can ask yourself should you ever find yourself in this position. It’s a pretty comprehensive list, and it may even help you to think of your own questions depending on your personal situation.

Question 1 – What is happening with interest rates?

Current and predicted mortgage rates for the upcoming year will guide you on whether or not it’s the right time to pay it off. This is especially true for the buy-to-let market as there are some excellent fixed interest rate mortgages available at the moment. Interest rates remain low, but how long these rates will be available is hard to predict. It may be more advantageous to spend the money that could pay off your mortgage in further investments for a higher long-term return.

Question 2 – What is happening with inflation?

Realistically, what you can buy with £200K now will change drastically in the next twenty years. The longer you can hold onto a property, the more you will make when you decide to sell it. With this in mind, it makes sense to invest in property sooner rather than later to benefit from capital growth. If you rent the property straight away, then this income should cover your mortgage payments, meaning there will be less outlay for you.

Question 3 – Can your mortgage be paid off early?

Not all mortgages allow you to pay them off early. Unless stated in your mortgage terms that you intend to settle early, you may incur penalty charges for doing so. Generally, there’s a maximum amount of the loan that can be repaid within a fixed timeframe, usually around 10%. However, it is equally possible to have a mortgage without any repayment restrictions, particularly if you’ve been repaying the mortgage for a long time. We would always recommend checking your mortgage terms before attempting to settle early.

Question 4 – Are there smarter investment options?

Leveraging the equity in your property to invest in other properties with a good return is a viable option depending on finance rates. If you’re someone who views owning property as a career, rather than as a consequence of needing somewhere to live, then the cost of borrowing is going to be important to maximise your earnings.

Question 5 – What is your reason for settling your mortgage early?

Despite seeming like something to aim for, paying off your mortgage early shouldn’t be seen as the be all and end all. There is a common misconception that paying off your mortgage early will be the most beneficial for your next of kin should anything happen to you. However, most life insurance policies will cover mortgage repayments, which reduces the need to repay early. If the cost of repaying early is going to have a detrimental effect on your personal circumstances, it may not be worth the trade-off. Of course, an early settlement can be beneficial, but try not to get caught up in the notion that it’s a must.

Question 6 – Are you close to retirement?

If you are approaching retirement age, it might be worth considering an early repayment of your mortgage as your financial situation is likely to change when you stop working. As we get closer to retirement age, the less you want to have in the way of liabilities, which makes paying things off a much more attractive proposition. On the other hand, have you thought about cash flow from a property portfolio for retirement income?

Question 7 – Do you need your capital to be fluid?

When faced with the decision of paying off your mortgage or reinvesting, it is important to consider how you could be affected in a worst-case scenario such as sudden unemployment, serious illness, or unexpected repairs on properties. Repaying the maximum amount allowable could be a better long-term plan than paying off your mortgage entirely as this gives you wiggle room on your mortgage, as you will be ahead of your minimum payments.

In Summary 

The purpose of this post is not to tell you what to do one way or another, but to get you to stop and consider all of your options before making a decision. If you decide to go ahead with your mortgage repayments, you should have peace-of-mind that this is the right option for you. If you decide to invest your money in other ways, we hope this has helped you identify how to make your money work harder.

The property market is ever-changing, and life can be unpredictable, so taking the time to re-evaluate the best course of action for you is essential.

If you would like to know how Nichol Smith Investments could make your money work harder for you, book a call with us via the link on our homepage.

Five ways to reduce risk when investing in property

Risk in property investment is always relative to the current economic climate. Before the 2008 financial crisis, property investment wasn’t considered to be particularly risky. However, even with property prices currently on the rise, there are many individuals who would question investing in property in the current market. Your property investment strategy will make a big difference to the amount of risk involved. Even though there will always be an element of risk with any investment, you can mitigate this by adopting a low-risk strategy.

1. Take a long-term view

Throughout your property investment journey, the fluctuation in the property market as well as interest rates will influence your decision making. Despite these variables, it is relatively safe to say that house prices will continue to rise. The cost of property has risen substantially over the last twenty years, and the chances of this continuing are almost guaranteed. Our advice would be to buy smart, invest without overcommitting yourself financially, be prepared for some potentially tricky times, and persevere, you will see good returns.

2.Don’t be hasty

Carrying out thorough research on the area you are investing in is vital to ensure you pay a fair price for the property. In the beginning, it is easy to get excited and make rash decisions which could lead to you overpaying, thus making your investment less profitable. It’s important to remember that for every pound you spend, you will need to recuperate this at the point of selling the property. Researching the area you intend to invest in will stand you in good stead when it comes to agreeing on the initial purchase. This is particularly true for buy-to-let investments as this research will give you an understanding of the current rental demand and how long it typically takes to let a property.

3. Get the right insurance

Making sure you have the right buy-to-let insurance cover will save you a lot of sleepless nights if your tenants stop paying rent or damage your property. Some letting agents will offer to find you the right level of cover as an additional service (for a small fee). Typically, your protection will start when your tenant stops paying rent and will continue until the issue is resolved. However, all insurance policies are different, so it pays to read the fine print to make sure you know exactly what is and isn’t covered.

4. Check your tenants

Make sure you complete background checks your tenants before agreeing to let. Requesting references and having them verified is a crucial step in any buy-to-let investment strategy. It is much more difficult to remove bad tenants, so taking time to go through proper processes and procedures will save you any hassle in the long run. You may also wish to show any potential tenants around the property before entering an agreement as this will give you a chance to get to know the type of people they are. By following these simple steps, you will lower your chances of letting to bad tenants considerably.

5. Make allowances for rate increases

Paying close attention to interest rates is important for budgeting before you buy, which should help you avoid over-committing yourself financially. If you borrow the maximum amount available to you and interest rates go up, you could find yourself with mortgage payments higher than the rent for the are. If long term fixed rate mortgages aren’t available to you, we would always recommend giving yourself some wiggle room to account for potential interest rate changes. 

In summary, there are sometimes things that happen in the property market that are entirely out of your control and they can be stressful. However, some factors are under your control, so avoid costly mistakes by following the advice above. Planning ways to minimise risk for yourself may seem tedious in the beginning, but the long-term benefits far outweigh the extra time it takes. Don’t leave things to chance, do the necessary preparation work, and make sure you set yourself up for the best possible outcome.

If you would like to know more about how Nichol Smith Investments could help you on your property journey, please book a call with us through the link on our homepage.

Property investment can be a tricky process, with lots of benefits, but also lots of pitfalls to avoid. Unless you really know your stuff, it can be a bit daunting. For this reason, many people turn to property investment companies like Nichol Smith Investments, to help guide them through their journey to becoming a successful investor.

The fact is that most people don’t have the luxury of being able to commit full time to property investment, which leaves precious little time for the extensive legwork that really does need to be done. Property investment companies make it their business to secure their clients with safe investments that provide them with a regular flow of income.

The Advantages:

• Identify property locations with a good market for rentals or renovations
• Source below market value properties
• Access to off-market properties
• Take care of all paperwork involved in buying & selling a property
• Use of their extensive team: builders, accountants, lawyers, estate agents and letting agents
• Extensive experience of the market
• Reinvest your money to build a portfolio
• Agreed return on investment for short term or long term investments

The Disadvantages

• Small fee involved for sourcing below market value properties
• Not getting hands-on during the renovation process (although many of our client’s see this as a positive)

As you can see there are many advantages of using a Property Investment Company to build your wealth through Property. Nichol Smith Investments offer a guaranteed return on investment to fit your criteria, and we will take care of the rest.

We hope you are excited about the possibilities for growing your wealth. It’s what we are passionate about and we can’t wait to hear how we could help you build your property portfolio. If you would like to know more information about how we can grow your wealth through property, please book a call with us, we’d love to hear from you.

In this article, we are going to give away our top tips for investing in property. The comprehensive list below details our key principles to ensure any property investment is going to be secure and provide great long term returns.

Always buy at below market value. This means you’re securing equity at the point of purchase, which helps protect your investment against the market falling. This also means we can recycle your deposit & create infinite ROI (return on investment).

Add value. Increase the value of the property through renovation or extension. We aim to get £3 back for every £1 spent.

Invest for cashflow. We ensure any property purchased for you is cashflow positive after all costs including letting agent fees and buildings insurance (and not just rent vs mortgage payments). A property must produce a good cashflow to allow for essentials repairs and maintenance.

Put 10% aside for unexpected costs. We all know what problems can arise in rental properties… boilers break, washing machines leak, so we always recommend our clients put 10% aside every month into a rainy day fund or a cash buffer.

Buy for Yield/Cashflow, not capital appreciation. Many investors base their entire business model on the capital appreciation and underestimate funding the shortfall in running their property portfolio. This is a very big mistake and a very high-risk strategy to be avoided at all cost. We purchase property on the basis that property prices will never rise, meaning your model is based on instant profitability: income from rent NOT just growth.

Due Diligence (aka doing your homework). At Nichol Smith Investments we carry out thorough due diligence on any property we are considering for our client’s portfolio. This covers due diligence on:

1. The property: Is it worth as much as it has been valued? How does it compare to other properties sold nearby? How much would it rent for? Get a builders report for renovation costs.
2. The numbers:  What are the renovation and acquisitions costs? How much will the property be worth once renovated? Do the numbers work as a buy to let property or buy to flip property?
3. The deal: Fit the deal to a strategy. Be prepared to walk away if it does not fit our agreed criteria.

Invest for the Long Term. The mistake we often see is investors not investing for the long term. If we go by past property cycles, and property prices increasing in value over time, then continually selling your properties reduces your asset base and long term wealth

Buy Existing, older properties. The right type of property can make you thousands every year for the rest of your life.  Existing property older properties are safer to buy because: have established values over a period of years; no immediate depreciation (as you would get with the ‘new car from the forecourt’); limited availability (ie 1000 more not being built down the street); often more robust and less likely to have snagging issues.

Invest in what you know. We buy properties for our own portfolio and our client’s portfolios in local areas where we know property prices, know the market and know we can make good profits. We would not recommend buying overseas (unless you know the area and the market very well), off plan & out of area. These deals tend to carry more risk.

Buying on Emotion. We only buy properties that fit our investment criteria. Do not make the mistake of getting drawn into looking at big, colourful, lifestyle brochures, new build, and dreamy holiday homes. While these places may look nice, we are not investing in properties for their aesthetics.

We hope you have found this article useful in highlighting some important investment principles. We would love to hear from you if you have any questions regarding this article book a call, we’d love to chat.