Are you interested in starting a property business and are hoping to make huge profits? It’s certainly a lucrative industry, but you can’t go in without a plan. Here are a few important questions to ask yourself before starting a property business.
What Kind of Property Business Should You Start?
There are several types of property business models. Here are a few:
- Single-Let: You let a house or flat to one tenant, which can either be an individual or a collective family. You can hire a letting agent to manage your property for you, usually for about 10% of your monthly rental income, but it’s possible to manage it by yourself.
- Houses in Multiple Occupancy: You let a large house, flat, or something similar, to 3 or more unrelated people. The tenants have their own rooms. In some cases, depending on your property and how you set up arrangements, they might share some facilities. It can yield a significantly higher return of investment than a single-let business.
- Serviced Accommodation: You let a property out to a client or guest for a short period, a day or a week. Similar to what a hotel does, you furnish your property, provide amenities, and offer food. Once your guest leaves, you prepare your property for the next one.
- Rent-to-Rent: You rent a property for a number of years and guarantee to pay the owner a fixed rent and possibly pay the bills as well. Typically, you improve the property, then rent it to a tenant. A rent-to-rent business can take the form of the previously mentioned business models, a rent-to-rent single-let business for example.
- Buy-Refurbish-Sell or Flipping: You buy a property at below market value, refurbish it, and make a quick sale. It doesn’t always involve refurbishment, but note that these instances are very rare. For the most part, you will find properties in bad condition.
The type of business model you should use depends on your personal situation and the assets available to you. If you have little money, you might want to try starting with something small-scale like a single-let business. You could also try property sourcing, which is negotiating and packaging property deals, or make joint venture deals, which is when two or more parties pool their resources to accomplish a task.
Set Up as an Individual Landlord or as a Limited Company?
You can buy property as an individual and pay income tax or buy them through a limited company and pay corporation tax. When operating as a limited company, landlords pay themselves their salary through the company or take rental income as dividends.
You might be able to increase your income by setting up a limited company. Corporation tax is usually lower than income tax rates. You can claim mortgage interests as business expenses. And you might be able to avoid paying other taxes when transferring property between companies.
You might also be able to better protect yourself legally since, in a limited company, you’re only liable for what you’ve invested or guaranteed to the company. You would be legally responsible for the company’s debts only to the extent of the amount of capital you have invested. Some industries might also be more willing to work with you due to this.
However, it might be harder to get a buy-to-let mortgage through a limited company than as an individual. It can potentially be more expensive as well, at least at the start. You need to pay a fee to register a limited company. If you take profits out of the company, you will have to pay income tax.
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There are also more responsibilities like preparing annual accounts, sending a confirmation statement to confirm or update company details, and filing returns. This can incur further expenses as you will need to hire a broker or accountant to manage these for you.
To summarize, it can be costly and will involve administrative work. But there are long-term benefits, especially for higher rate taxpayers that own several properties. If you operate on a small scale, you will likely profit more by setting up as an individual landlord.
What Services Do I Need to Avail of to Help Run My Business?
The services you need all depend on your type of business and its needs. For example, you will need to hire a team to manage your serviced accommodation business. In the case that you house tenants that are unwilling to pay rent, you might need to hire a court bailiff’s services, so they can act as a buffer between you and the tenant.
If you run a buy-refurbish-sell type of business, you could do it yourself if you have the experience or hire a contractor. Regardless, it’s unlikely you will be able to refurbish a whole house by yourself, and you will have to hire workers.
Size is also a factor. As stated before, it’s possible to run a single-let business consisting of just a few properties.
Ask yourself these questions, think things through, and you will be on your way towards creating a successful property question.
