Ask us – Got a Commercial Property checklist? What will the property market do in 2021? And more Qs…
We answer your questions on:
- “What checklist would you put together before buying a commercial property?”
- “What do you think will happen in the property market?”
- “How to evaluate if a property strategy works in that area?”
- “Am I better of buying property in a Ltd company, or not?”
- “What are lease options?”
- “What advice would you give your younger self?”
- Download the 25 point Commercial Property Checklist
- If you would like real-world, step-by-step training on property investing that requires little of your time, then check out the Passive Property Masterclass
- What could be your tax liability due to Section 24 if you don’t put your Buy To Let properties in a Ltd co. Try the Section 24 calculator
- Land Registry UK House Price Index for the last 50 years
In this episode we will be answering a number of questions that have been sent to us:
1. So what what checklist would you put together before buying a commercial property?
2. What do you think will happen in the property market?
3. How to evaluate if a property strategy is going to work in
4. Am i better off buying in a Limited company? This is a lot of questions! I know.
and 5. What are lease options?
So we’re going to cover all of this.
So hi everyone I’m George Choy and I’m Sarah Choy and welcome to the Sarah and George Choy Property Podcast.
The show that helps you to become Financially Free so you can spend time with your Family Traveling and pursuing your Passions.
So what do you think what do you think of our new plant wall? Yep it’s awesome isn’t it seriously working on it and i just want to thank give thanks to Upul who inspired this idea this idea for us. Because we were we were on a video call with him and we saw he had some plants there and we thought we could get we could get a few more plants we’re doing so much Zooming and stuff so it would be nice for you guys to look at so much relaxing. Definitely yeah definitely.
So let’s start with a Upul’s question.
One of the questions I would like to ask from you both is that if you’re starting today based on the experience you have so far in your property investment journey looking to invest on a Commercial Property. What would be the absolute checklist you would put together to carry out your due diligence before you go ahead with an offer?
So what we’ve got here is we’ve got a Commercial Property Checklist download and I’ll put a link to the show notes where you can download this and I’ll just pick out a few things because there’s loads of stuff so we we didn’t want to spend three hours going through it yeah exactly so you know you can divide it basically into into four areas.
So we’ve got you know the financials to check that you’re happy with the financials. And you know one thing that Upul mentioned was putting it into his SSAS, so one of the questions you have to ask yourself is is this property appropriate to go into the SSAS?
And you should check with your provider as to whether it’s appropriate. They’ve all got slightly different opinions haven’t they asked what they have and what you might consider “Commercial” could could be borderline and they might not consider commercial property. So the best thing is to ask for that you know obviously calculate all your all your costs.
So point two is on the leases so looking at the details of the lease and checking that you are happy with what is being offered there and you understand it you understand that things things like you know the lease length and break clauses and so on and you know making sure things are Amazon proof and COVID proof. So this is a new a new thing a new thing that we perhaps didn’t have to consider in the past.
Point three is property you know is it in good condition so go and see it you know is it going to flood is what’s the EPC rating right. So a number of things there and then the fourth part is basically a power team. Make sure you’ve got all your power team together in order to go for you to go through with the purchase.
So I’ll put that Commercial Property Checklist as available for download. You just click on the show notes and then you can download that as yourself.
If you want if you want to learn more about how to actually buy and invest in commercial property then you know this is all covered in the Passive Property Masterclass and I’ll include a link to that as well.
Yeah so that’ll get you started. That would definitely get you started.
Hi Sarah and George, it’s Elenid and Damien. We were just wondering what your thoughts were on the future property investment at the moment given the current situation. What do you think will happen in the property markets over the next few months? Whether things are going to stabilise or perhaps keep augmenting as they are at the moment. What what are your thoughts on that even COVID and Brexit? Look forward to hearing from you. Thanks. Bye.
Now that’s the ultimate question isn’t it? Yes, yes, yes.
What is going to happen? So let me just get my magic eight ball. I’m gonna shake it up. Is the market gonna go up, or down? Let’s find out. So you know I think there are there are two main primary drivers which determine house prices and the first one is kind of you know over the long term which is:
there there will always be a shortage of housing. There will always more demand than the housing supplied so that’s the first thing. And you know it’s been made worse due to COVID, because self-isolation – all the self-isolation is taking people to breaking point.
Families are splitting up. So therefore there is even more demand for housing.
So you know that that that’s gonna cont the demand for housing will continue but it’s there is a blip at the moment where it’s perhaps been made worse and if you know if you look at it look at the charts if you you just go over to the land registry just put in uk house price index the last 50 years and you’ll see the graph is like this (steep incline) and you’ll see two little little blips – they look tiny, honestly, where there were house price crashes.
So what you can what you can think is that you know over the long term, provided you are holding these for 10, 20, 30 or 50 years, then the house prices will continue going up. So it gives you a lot of confidence that there is no really no bad time to buy if you’re holding for the long term.
Better times, there are better times, yes, but if you’re if you’re flipping then obviously it then becomes more relevant because you need you need to know what’s the market going to be like by the time you’ve flipped property and ultimately you don’t know. So that that’s one of the key problem drivers.
The other one is low interest rates and the availability of lending so they’re different they are different so if lenders start restricting and you know removing mortgages from the market and tightening up the criteria and changing their affordability ratios then it becomes more difficult to get a mortgage, even if the interest rates are low.
So that can also affect house prices because if people can’t can’t get a mortgage and therefore then can’t buy a house their demand drops and house prices drop.
Something that’s happened lately, a lot of people have been furloughed have not been able to get mortgages that thought they could.
Yes, so that you know quite a few house sales have actually fallen through around our area, where you know more than the normal levels because i think people are thinking they can get a mortgage, not getting a mortgage in principal, say going and offering on a house, completing their chain and then finding they can’t actually finance it at all.
So we’ve had a few you know come back on the market where we are. So that’s something else to bear in mind. Definitely.
And then looking looking to say more over the short term you know what’s going to happen into next year.
So you know over Christmas there there will be a dip and this is normal. So this is seasonal. There’s normally a dip over Christmas,
because you know people people aren’t aren’t working anymore. They just they don’t want to think about houses and they’re just relaxing down and they’re locked down, and they’re just spending time with family. And so normally not a lot happens.
But when January hits, there’s normally a spike in house prices, because families break up again. This is one of the key periods where Estate Agents rub their hands with glee because families split up over Christmas and therefore there’s more demand for houses.
So that that that will happen it’s been made worse during COVID obviously because people have been stuck together.
But I expect it to happen again in January.
Then what will happen past that? You know you’ve got Rightmove saying it’s going to increase. You’ve got RICS saying it’s going to decrease, and the answer is you know, who knows? It could go either way and partly I’d say it’s due to government intervention as to what happens how much they’re willing to intervene.
And so far we’ve seen them intervene a lot. So we’ve seen them we’ve seen them stimulating the market through to not you know not needing to pay stamp duty up to £500k.
We’ve seen them extend help to buy, so that’s that’s extended now.
We’ve seen them have the the green homes grant and that’s been extended as well.
Then you know even though unemployment is anticipated to increase substantially you know maybe another million people going unemployed.
Then you know the government has introduced Universal Credit and have been boosting that up.
And then you know companies are being able to furlough staff and get money from them. That it’s been extended and then there
are grants as well, that have been given out for people on small business rates.
So the government is investing a lot in order to keep the economy up and keep property up and not being repossessed.
So you know I think a lot of it comes down to how far is the government willing to go and continue pumping out so much money. Yeah.
I mean ultimately house prices come down to people’s opinion – that’s all it is it’s sentiment. It’s are people willing to buy and if at the moment people are but at some point if there’s a tipping point and people decide it’s not such a sensible time to buy.
You know, but we don’t know where that is. But the proof as I said, that’s the proof and that’s the same.
Check it out. It’s like oh my god oh my god 20% drop doesn’t make any difference, doesn’t make any difference if you are buying for cash flow. It makes no difference and you’re holding for the long term.
So let’s say you’re buying property. You’re going to keep it for 20 years and you’ve bought it based on cash flow.
Provided you know you’ve worked out all your figures properly, you don’t care okay it blips down 20% this year.
It’s a bit annoying if you’re trying to remortgage. It it would be very annoying if you bake that into your numbers. But if you hadn’t baked that into your numbers, then just go. I mean we’ve personally been through one. So we went through the 2008, 2009 drop in house prices and you know, look where we are today.
So exactly. Yeah, the house price drops don’t bother us at all. Yeah.
It depends on your strategy, but if you’re literally flipping and you’re going to be selling it again in six months then yeah it’s quite relevant but that’s not generally what we advocate people do.
Hi George, it’s Ganesh Practoor. I have one question.
I would like to understand how to evaluate if a property strategy works in that area?
For example if I am, if I want to do a say residential Buy To Let, or if you’re doing Serviced Accommodation, or something like that.
I just want to know how to find that area is the right right place to invest?
So that’s my question. Thank you so much.
Okay Ganesh. It depends on your objectives really. You know we advocate trying to do it in a reasonable area to get to.
So you need to be basically looking at the kind of strategies that appeal to you and which work for your kind of objectives in the next few years and what you ultimately want to be holding long-term as well.
You need to investigate the demand for that service or product in your area. So is there a rental demand?
Is there an SA demand?
Is there an HMO demand?
Depending on whatever you’re doing.
Is there a commercial demand? You know that’s quite variable at the moment.
And bear in mind that obviously you’re only going to be making money from these properties if there’s a tenant in them.
It’s all well and good going “okay if I do this I’m going to be making this much money a month” and it all looks rosy. But if there just aren’t people that want to rent in that area, or if it’s a student let and nobody’s being a student anymore, you know you’re going to be losing money.
So you know, investigate – is what you’re providing is needed, basically.
And then ultimately it comes down to doing the numbers. Looking at what you can buy. Running through all the spreadsheets
and seeing what works in your area.
I mean not everything works everywhere and you know different strategies don’t suit everybody.
So you want to be just you know running what could work in the area that you’re interested in and obviously we go through this in our Passive Property Masterclass as well. Yeah, you know we go through all different strategies and then we teach you how to do all the different analysis. That’s your best bet.
Just be systematic. Try not to be emotional about it because if you’ve you know really set your heart on a particular strategy in a particular area it just may not work.
You might have to if you’re really keen on that strategy you might have to move to a different town, as your patch for that to work. In which case that’s fine.
But don’t try and flog a dead horse. You know if you’re really keen on a particular area and just think well I can only go half an hour then you may have to you know change what you’re doing for that particular area.
But there you go. So that’s that one. Yeah.
Hi George and Sarah. It’s Karin here. So I have a question about becoming a limited company to buy a Buy To Let property in. So i’ve looked at the mortgage rates and the mortgage rates for me doing personally about 1.9%, but the mortgage rates for doing it in limited company are about with the big buttons, what I work out is that basically I’m not really saving much money in being able to tax deduct the interest payments on my mortgage in a limited company.
So actually from a financial point of view I’m better off buying this particular Rent To Buy in my own name. But you know the one thing you guys go on about quite a lot is doing it as a limited company.
So i just wondered if you had anything more to say on the pros and cons of that and whether I’m am I taking a short-term view here?
Or from a long term view is it better to actually be in that limited company.
Any thoughts you’ve got would be great Thanks very much. Bye.
Okay Karin this is a an interesting question and we want to caveat it with disclaimer – speak to your Accountant, because everybody’s tax situation is a little bit different and it is very complicated. But we’ll give you kind of an idea.
So why would you want to buy a property in a limited company?
Partly it limits your liability. So by putting a house in a limited company – if you’re getting sued personally it has a level of protection. So that is a great thing.
Or if you have different companies and one of them goes down terribly – if your houses are in a different company, they’re safe, so that’s a good, good reason, a safety reason to have properties in a particular company.
Because it just protects it, you know. If you’re buying these properties you want to you want to not have to lose them. So you know that’s a good plan.
So the government has now introduced something called Section 24 which if you’re a landlord you know all about.
Basically they’ve decided that you can’t claim your mortgages against your rent, even though it’s still a cost.
So basically, if you’re earning money, it looks like you’re earning a lot more money than you are, and you can be pushed quite easily into 40% tax bracket, even if you don’t think you should be.
So what we’ll do is we’ll put a link to a calculator below and you can work that out. If you’ve got a property portfolio already because you need to know you know what your tax liability is.
But just to say that if you’re in a Limited company you don’t have this problem. Because mortgages are now expensable, so that’s one big reason not to do it and rents go up over time yeah.
They do. You can be pushed further in.
Slowly going further and further to the 40% tax bracket without realising it.
So that’s that’s one reason to buy within a Limited company.
Other advantages for being a Director in a Limited company is that you can expense £300 gift allowance per year, per Director, which is
You can do a little bit of entertaining say £150 per Director, per year.
You can expense mobiles and things – you can do that in a normal company as well if you’re just owning them privately.
If you want a SSAS Pension, you’ve got to link it to some kind of Limited company, so it’s quite a good one to link to a property company.
So we’ve got a couple of modules that cover this in a bit more detail, because it is very complicated.
Just there’s one caveat in this – if you’re if you’re a very low earner and you’re looking to have you know, if you if you’re happy to earn say £20,000 completely as a person, it can be an advantage to say by one or two properties and if that’s all you’re ever gonna do and you have no intention and you’ve got no intention to earn more money or ramp it up, yeah it can be a lot cheaper to have them privately, because there’s less expenses with say accounting and stuff.
But if you’re planning on kind of maxing it out or kind of getting anywhere near the 40% tax bracket it can be a good idea to find a Limited company so but speak to your accountant.
Yeah, because they’ll be able to give you that. And by near you know you could quite easily be paying £20,000 a year in mortgages, so you don’t need to be that close.
You can just be on £31,000 a year of in you know income after you take any costs out.
And then once you put that £20,000 mortgages in now you’re 40% taxpayer, but you haven’t really got that money.
Have a look at the calculator and it can you can show you that.
“Okay so I was just wondering if you could tell me what are Lease Options? I’ve heard of Lease Options for a pound, or something. I think sounds a bit strange. I haven’t had a chance to look into what they are and I wondered if you could tell me. Okay thanks Jane.”
So what is the Lease Option? It is a right to buy, but not an obligation to buy. So it’s an option. That’s in it’s title, isn’t it. You generally can either have an option option which is just you buy it. A lease option is where you’re renting it in the meantime.
So you’re leasing it whilst you’re doing it.
It always has a term – so a certain number of years the agreement says it will run. You always have to pay at least a pound consideration to make a legal document, otherwise it’s not enforceable.
And generally you’ll need to pay a monthly rent for it during the option period, and you may have to pay an upfront fee depending on you know if they want a certain amount say £10,000 for the lease option.
You know it’s all negotiable because it’s a contract.
Rent To Buy is part of the lease option kind of area. We’ve got a couple of Rent To Buy properties.
That is where you have a property but the tenant actually takes the option on your property so it’s kind of reverse.
You can either do it yourself and get an option on a property, or you can lease option your property out. But as the landlord then you are obligated to sell, if they want to buy it. That’s how a Rent To Buy works and again we cover in the course.
Yeah and Rent To Buy you know is a great strategy, because what you’re doing is you can also feel good about yourself.
The fact that you’re helping people to get onto the property ladder who perhaps couldn’t have afforded to go out and buy a house. Yeah, because they’re kind of buying it in chunks.
“Hi everyone my name is Nanise. And the question that I’d have for George and Sarah would be, what advice would you give your younger self?“
Great question. Only we had a time machine I’d love to get one, or “time turner” like they have in Harry Potter. Yeah, I know.
I want one of those for Christmas. Santa, if you’re listening, that’s what i want.
I think 20 years, yeah exactly.
I think about this all the time, that’s bizarre.
First thing – don’t buy that BMW George.
Don’t do it. Step away. Yeah, my first car was a BMW. Brand new.
It’s the most stupid thing I ever did.
Okay, maybe you loved that car.
I loved that car. It was one of his…
Yeah, it was one of my favourite, one of my favourite cars. Definitely, because I had you know real bond with my car. But anyway anyway.
You know I’m more sensible now.
You know, if I’d have instead taken that money and bought a house with it, yeah, or as an investment property – bought an investment property I could have used the income from that to go and lease myself a car.
Yeah so it’s like we just didn’t know we didn’t know at the time.
So I ended up with a car which was a depreciating asset, whereas I could have ended up with a house appreciating, going up in value
and it paid for my car. Yeah, I could have had both.
Yeah I was dumb, so that would definitely be the first thing that I’d tell my former self.
The other thing I’d tell myself is stop spending money!
I was blowing money like water. You would not believe it. And if i’d have you know, thought seriously about my future, yeah.
You know, so we became financially free when Sarah was 39. You know we could have done it in our 20s if we’d have set our minds to it and think right we’re gonna crack down – we’re just gonna go go for it.
Scale up the portfolio as fast as possible, and then that’s it. Relax, yeah, for the rest of our life, to do whatever we want.
But we didn’t have that mindset at the time. That’s why we’re trying to help people.
The other thing I would have said is Buy Refurbish Refinance (BRR).
Now actually we were doing this, we just didn’t know that it was called that. Yeah. There wasn’t there wasn’t a term for it in those days.
We were just buying properties you know, doing them up, refurbishing them doing a “fluff and buff” as it’s known these days. But again we didn’t call it fluff and buff, and you know remortgaging them later, so we were already doing this.
But we didn’t know, that’s what it was. So that’s something I definitely recommend, because it enables you to make some money, make some money and increase a bit of the equity, and it can make your real cash go a little bit further.
And again it’s covered in the Passive Property Masterclass. There’s loads of modules on there. So it’s great all these questions are covered.
So I hope you enjoyed those questions.
So thanks for listening to the Sarah and George Choy Property Podcast.
I hope you found this useful. If you did then send it to one of your friends, so they can they can use it too. And we’ll see you next week.
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Best wishes, George Choy & Sarah Choy
Property Investors & Financial Freedom Experts