Posts

#AutumnStatement : UK Property Market

Property Highlights

  • Capital Gains Tax loophole closed

From April 2015, overseas investors will face a capital gains tax bill on any profits they make from UK property. It is only fair to make overseas investors pay capital gains tax (28%) on the profit they make when they sell their UK properties. That is what British second homeowners are required to do, so why not foreign investors too.

  • £1bn made available for property development loans

£1 billion of loan money is to be made available to councils wanting to fund new housing developments in Manchester, Leeds and elsewhere (expected to create 250,000 homes). House building is up by 29% on last year. It is a figure warmly welcomed by construction firms such as Persimmon, Barratt and Taylor Wimpey, though many large financial firms such as L&G insist house building should be a much higher and more urgent priority.

For Help to Buy, Virgin and Aldermore will be offering mortgages too.

  • Aim to keep interest rates low

The aim of many tight regulations in banking and financial industries is to encourage responsible lending and so it is possible to maintain low interest rates. This is vital to the general economy and must be fought against rising house prices. So house prices will need to be kept under control.

 What does this mean for a property investor?

Autumn Statement UK Property Capital Gains TaxFirstly if you are a foreign investor then much of the benefit you got have been diminished. However if you are not, this is great news. It will mean that foreign investors may start to put there money else where. This means there will be less competition from “Cash Oversea’s buyers” when you are after a property. Prices should also correct accordingly. Overall a good policy for UK property buyers and also the increased tax revenue will help the public too.

Funding for house building and developments will increase housing supply and keep construction jobs strong. However will this only benefit the house builders who sell at inflated prices? Possibly. The impact on the normal UK property investor will be minimal.

Low interest rates are welcome for investors, however it depends if new finance is available. Overall it will at least mean that investors’ current mortgage payments stay low.

Overall a good Autumn Statement for the UK Property investor.

 

 

How to calculate your REAL return on Investment: 5% becomes 35%

The REAL Return on Investment

Traditionally property return on investment is calculated by rental yield, especially when it is being compared to returns of other types of investments. However I believe it is a much more exact science, and can vary significantly depending on specific properties and on how the investor structured the deal when purchasing the property. A traditional yield of 5% can actually be 35% if the deal is right.

Let me start with a simple example. A two bedroom flat, bought with standard Buy-to-let 75% finance, at 5% interest only for £200,000 that is renting out for £10,000 per year. Traditional yield will be 5% (rent/value=10/200=5%). Under the way I calculate it, the rent less the mortgage interest divided by initial money in, therefore for this deal ((£10,000-£7,500)/ £50,000) so its 5%. The “real” return on investment is still the same.

But wait, what about capital gains, this is still a form of returns even though they may only be realised at a much later stage when selling and that will be liable for Capital Gains Tax. Well that is not strictly true, if the investor remortgages again after a year with similar terms, 75% of the capital gain can be realised. So if we make a very conservative and modest assumption in present gloomy market conditions of a 5% increase in value that is £10,000 and if we take 75%, and add it to the surplus cash from earlier that is a total of £10,000 return, effectively 20% return on the deposit paid. That is an amazing return, which I can’t see any other form of investment where the risks are so low and the investor has so much control over the asset.

There are certain things we have not considered like remortgage costs, legal and stamp duty, maintenance, and tenants. These will of course change calculations. Also the reason I simplify with a interest only mortgage, because if it was repayment that add to the capital or equity of the property so in effect cancels out the cost, although in realisation it will only be 75% realised when remortgaged.

Let’s be a bit more adventurous now, and add a few more clever changes to the model. We have to cap the borrowing at 75% LTV because that is the realistic maximum in the current lending condition. Let’s say the purchase price was 15% BMV (below market value) but the Mortgage was LTV, and the investor used a £10,000 personal loan at 10% compounded with capital and repayment due in two years, to part gather the deposit. So the initial investment in, is £10,000, the rest is the personal loan and the BMV saving. Assuming rent is steady; let’s look at the situation in 2 years time.

Property value in two years is now £220,500, so a refinance would raise an £15,375, less the loan that needs to be paid back (£12,100), plus £5,000 rent surplus which means £8,275 cash inflow, or 82.75% over two years on what was invested, so that is 35% return on capital invested per year.

There are incredible deals available; you can look around yourself, internet sites, auctions, personal contacts. If all else fails, contact us, info@PropVestment.com. You have to be clever with the way you invest, market condition are against us so we must beat the system and be innovative in our thinking.

Please take caution in tricky deals and do all your due diligence, the figures I use are fictional but are close to what is really possible.

How do you calculate your return on investment?

QFKUDEMEN4KX

 

How to calculate your REAL return on Investment: 5% can becomes 35%

The REAL return on Invetsment

Traditionally property return on investment is calculated by rental yield, especially when it is being compared to returns of other types of investments. However I believe it is a much more exact science, and can vary significantly depending on specific properties and on how the investor structured the deal when purchasing the property. A traditional yield of 5% can actually be 35% if the deal is right.

Let me start with a simple example. A two bedroom flat, bought with standard Buy-to-let 75% finance, at 5% interest only for £200,000 that is renting out for £10,000 per year. Traditional yield will be 5% (rent/value=10/200=5%). Under the way I calculate it, the rent less the mortgage interest divided by initial money in, therefore for this deal ((£10,000-£7,500)/ £50,000) so its 5%. The “real” return on investment is still the same.

But wait, what about capital gains, this is still a form of returns even though they may only be realised at a much later stage when selling and that will be liable for Capital Gains Tax. Well that is not strictly true, if the investor remortgages again after a year with similar terms, 75% of the capital gain can be realised. So if we make a very conservative and modest assumption in present gloomy market conditions of a 5% increase in value that is £10,000 and if we take 75%, and add it to the surplus cash from earlier that is a total of £10,000 return, effectively 20% return on the deposit paid. That is an amazing return, which I can’t see any other form of investment where the risks are so low and the investor has so much control over the asset.

There are certain things we have not considered like remortgage costs, legal and stamp duty, maintenance, and tenants. These will of course change calculations. Also the reason I simplify with a interest only mortgage, because if it was repayment that add to the capital or equity of the property so in effect cancels out the cost, although in realisation it will only be 75% realised when remortgaged.

Let’s be a bit more adventurous now, and add a few more clever changes to the model. We have to cap the borrowing at 75% LTV because that is the realistic maximum in the current lending condition. Let’s say the purchase price was 15% BMV (below market value) but the Mortgage was LTV, and the investor used a £10,000 personal loan at 10% compounded with capital and repayment due in two years, to part gather the deposit. So the initial investment in, is £10,000, the rest is the personal loan and the BMV saving. Assuming rent is steady; let’s look at the situation in 2 years time.

Property value in two years is now £220,500, so a refinance would raise an £15,375, less the loan that needs to be paid back (£12,100), plus £5,000 rent surplus which means £8,275 cash inflow, or 82.75% over two years on what was invested, so that is 35% return on capital invested per year.

There are incredible deals available; you can look around yourself, internet sites, auctions, personal contacts. If all else fails, contact us, info@PropVestment.com. You have to be clever with the way you invest, market condition are against us so we must beat the system and be innovative in our thinking.

Please take caution in tricky deals and do all your due diligence, the figures I use are fictional but are close to what is really possible.

How do you calculate your return on investment?

Two Sides of the Coin: Landlords should be the Heads

Your call, Heads or Tails?

There has been a great deal of negative press associated with the property market over recent weeks. But I believe every cloud has a silver lining, every disappointment is an opportunity and that there are always two sides of a coin. Head and Tails. I like to consider myself along with fellow investors as the heads side. Here’s a few instances where this is the case.

  • Tails: Headline says “No Buy-to-Let”

Heads: High Rental Yields. It is true that banks have been very tight on buy to let mortgages, and we haven’t seen anywhere near the 85% lending we did a few years back, moreover many deals fall through because valuators are being very pessimistic with valuations. So what does this mean, well if the number of buy-to-let properties is not increasing that means supply is not increasing. Demand in the UK continues to rise, especially in London and the South East, this is pushing up rents as there is more potential tenants for each property, this is great news for Landlords. It means properties can be let faster and rents will be higher also. In my opinion Investors should embrace this and make it a win-win situation, hold steady and enjoy the higher returns on your investment.

  • Tails: Headline says “Falling House Prices Falling- Negative Equity

Heads: BUY BUY BUY. If House prices are falling, if you have the ability and cash, you should buy, these lower prices will only be a short term phenomenon, and they will recover strongly, land is a scarce resource especially in our ever growing cities and the populations are rising, its simply economics that prices will rise. Furthermore lower house prices only affect you if you want to sell, why would an investor sell and face such high capital gains liabilities. It’s about building a strong portfolio over time that can provide a steady income stream for years to come. Negative equity is meaningless and lower prices means greater rewards in the future, so buy.

House Prices increase £91 a day

The surge in property prices will reassure landlords and investors worried by reports suggesting the housing market faces a dramatic collapse.

Figures released by the Halifax yesterday also show how prices have rocketed over the past decade, giving property owners potential returns unmatched by any other form of investment.

Semi-dethatched properties have risen 111 per cent in ten years.

Halifax says the big winners over the past year have been detached houses which soared by 13 per cent – the equivalent of £91 a day – between June 2009 and June 2010 to stand at an average of £299,295.

But bungalows, flats, semis and terraced houses all spiralled upwards too, with price gains of between eight and nine per cent. The average cost of a detached home was 63 per cent more than the average house price during the second quarter of this year.

However semi-detached properties saw the biggest gains during the past decade with values soaring from an average £81,706 to £172,196 – and by £35 a day over past 12 months alone.

The average value of a terraced property jumped by 110 per cent during the decade while the price of bungalows rose by 109 per cent. In the past 12 months the average terrace house rose by £29 a day while bungalows went up £49 a day.

The value of detached homes rose by 102 per cent during the decade. Flats were the only property type not to double in value, though prices went up by an average of 81 per cent over the ten years and rose £35 a day in the year to June 2010.

Yesterday it was reported that house prices are set to rocket by 20 per cent in five years, fuelled by a shortage of homes. This would add £30,000 to the value of the average three-bed semi.

And last week July data from the Land Registry’s official House Price Index, based on actual sale prices, showed an annual increase of 6.7 per cent, taking the average property value in England and Wales to £166,798. The monthly change from June to July was an increase of 0.4 per cent.

Article adapted from the Daily Express, information from Halifax.

What does this mean in real terms for investors, firstly the long term capital gains from property are still strong, for the active investor the appreciation means that if they were to re-mortgage every year to pull out equity in order to reinvest (£91×365 daysx75%BTLmortgage=£24911) they can raise just under £25,000 per detached property or just under £10,000 per flat.

Using this appreciation, reinvested properly in finely selected properties that result in a cash flow surplus can support a great income stream as well as sustainable organic growth or your property portfolio.

If you want any advice or discussion of your options please email me Nirav@PropVestment.com

Follow us: www.twitter.com/PropVestment

FIVE TOP TIPS FOR CUTTING YOUR TAX BILL

1. Go abroad for five years: if you are out of the UK for five complete tax years and sell the properties while you are Overseas, the capital gains will not be taxable in the UK. They may, of course, be taxable in the country that you are living in, but the rate may be significantly lower than the UK’s 18-28%.

2. Get married. You can claim two lots of annual allowance, or put the property in your spouse’s name.

3. Be really, really pernickety with your administration. Whether it is offsetting losses from other asset sales a couple of years ago, or claiming capital expenditures during ownership of a property, you may need to prove your case to the taxman.

4. Improve the property by adding a conservatory or converting the loft. But be careful: refitting a kitchen or bathroom is unlikely to count.

5. Buy holiday homes, which qualify for faster taper relief – but may require more day-to-day work and a different long-term strategy.

sourced from Mortgage Express