Hi I’m Peter Jones, chartered surveyor, author and property investor.
I was asked recently ‘Peter, how do I make sure that I get the best return on my property?’ and on the face of it that’s a very simple question with a very simple answer. Let’s just dig a little bit deeper into it, because the simple answer would be if you can buy the property at the right price, which is probably going to be a bargain price, then that will increase the return on the rent as rent is a function of purchase price, your yield or return would increase the cheaper the property is. It is actually not as simple as that, because there is more than one return in property.
Yes, there is the rent but we can look at the rent as a gross or a net so we need to understand exactly what our costs are. We could have two identical properties with the same rent, but if there is different cost implications of holding those properties then the net return from those properties are going to be different, so we need to understand our figures and we need to understand the costs of holding the property.
Another return which often gets overlooked when we start comparing properties is return from equity, particularly equity which we can create when we buy the property. If you’ve watched my videos, then you will know that my favourite model in property is to buy a property which I can buy cheap but it’s a property which I can also add value to.
Usually the value is added by doing a refurb, a simple refurb, adding a new kitchen, a new bathroom, perhaps new windows, redecorating, carpets, something like that. Something which adds more value to the property than the cost of undertaking the refurb. If you can add equity, either by buying the property cheap, or by adding value through a refurb, or adding value through some other way as there are other ways you can add value to the property but in my mind that’s the simplest way of adding value.
Then you can create equity. The best way of all is to buy the property cheap and then do a refurb and add value then you will create even more equity. And that equity is essentially money which you have created out of thin air.
Then there is a third type of return that we can think about in property, and that is the return that you are going to get from the tax advantages of holding property or owning property. Things have changed recently with the way that property is taxed.
Section 24, I have covered this in many other videos so I am not going to go into it all again, but the very short explanation is that the government have decided that going forward investors/ landlords will not be able to offset mortgage interest against the rent when they are calculating income tax, so that applies to properties which are owned in you own name. That means that there is a distinct tax advantage now between owning properties in your own name and owning properties in a limited company because a limited company still can offset mortgage interest when calculating corporation tax.
There is a hidden return there in the way that you actually hold the property. Other returns which you may be able to create through the tax system are, again, if you own the property through a limited company there will be legitimate costs, and I use the word quite strongly there, anybody from HMRC watching I do mean legitimate things that you can actually offset through a limited company to reduce your profits which in reducing your profits you’re essentially increasing the return from the profit on the properties you actually own. So, all of these are returns so its not just as simple answer as saying ‘how do I increase the return by increasing the rent?’. There is a lot more we can do within property and there is a lot more that we need to be aware of.
Well I hope you found that informative and inspirational. Until next time here’s to successful property investing.
Peter
Peter Jones
(ex) Chartered Surveyor, author and property investor
https://thepropertyteacher.co.uk
PS. By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same.
For more details please go to:
https://thepropertyteacher.co.uk/the-successful-property-investors-strategy-workshop
