UK PROPERTY INVESTMENT  | Money Matters | Touchstone Education
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UK PROPERTY INVESTMENT | Money Matters | Touchstone Education


– Welcome! But I really should be saying konnichiwa instead of welcome because by the time you watch this I’m gonna be in Japan. So by the time I get back, hopefully, a few more words of Japanese. Now, as you may recollect, we said that the first
edition of every month would be a Q&A. So we’ve selected three
of the more interesting, challenging, deep, insightful
questions for me to answer. My apologies if I’m not
using your correct name, ’cause we don’t
necessarily know your name, we just know what comes
up on YouTube, okay? So I’m gonna do my very
best to read it out but if it isn’t your name, sorry up front. If you want me to use your right name, well, use you right name on YouTube. So the first one is Vivienne, Vivienne To, or Vivienne Too, I’m not quite sure which. But anyway, definitely Vivienne. So the question is this,
and it’s a great question, well done Vivienne. Will HMO strategy work in
cities in the south and the west where house prices are a lot higher? Great question. So let’s just make sure everybody’s in the same place, first, make sure everybody understands what an HMO strategy is. HMO is, or used to be,
potentially still is a regular house or a flat and it’s had some modifications, such that individual rooms are let out, typically by the week instead of by the property by the month. So up here in Doncaster, and that’s why I think
Vivienne’s asking the question, up here in Doncaster we can buy a three-bed terraced or a three-bed semi or something like that. We can comfortably still do it from £100,000 and have change. We’ll then spend another 30, £40,000 on it to convert it in to, say, a five-bed HMO. I think Vivienne’s asking the question because you can’t go and
buy a house in St Albans or wherever, Exeter,
necessarily for £100,000 that you can then turn
in to a five-bed HMO. But just stay with me
and, just for a second, just let me explain the Doncaster number. So, the property that
we might buy for, say £100,000 in Doncaster as a family let, as in one family or a group of
people rent it for the month, might be £550, £600, maybe £700 a month in a really nice are of town, but that same property, once you’ve spent the money on it and you’ve turned it to five bedrooms with five en suites, suddenly you’re at £100 per room per week and if you multiple that up by the average number of weeks in a month the same property that would only give you £600, £700 as a single let you’re getting more than £2000 as an HMO. That’s a really attractive strategy. So, do HMOs work in more expensive areas? The short answer to that is yes. Here’s the key to unlock
that particular door. HMOs can be valued either on investment yield, which is what we tend to do up here, so how much money are they generating, then take off a factor for the deductions that you need to make for voids, and electric,
and gas, you know, and all the other things. Typically a lender would say round about 70% of the gross is NET, which is fine, but what that’s gonna do is it’s gonna lead to an investment yield that’s smaller than the bricks and mortar value of the property. So here’s what you can do
in more expensive areas. Rather than do a yield-based valuation you can do a bricks and
mortar-based valuation. The very fact that it’s now an HMO means it’s more valuable because it’s not any longer a simple house. So it could be a five, £600,000 house that you buy, convert it in to an HMO, but the yield is never gonna, the investment yield is never gonna carry an investment yield-based mortgage but they still will on bricks and mortar. So do things like we do up here. Buy a property and then,
using permitted development, put an extension on the back. You can go half the width of the property, up to six meters deep. If it’s a semi, the way
the rules are written, you can put an extension
on the whole width of the property, six meters deep, using permitted development. So add value to the property. Do something to add extra rooms, make it physically bigger,
convert the garage, use other strategies. It’s not the will-or-won’t way, property works every way. But, depending on your
local market conditions, you need to adapt and adopt those models to suit your area. So fantastic question, Vivienne, well done, love it. If property prices are a lot higher how else could you do it? How about shops and uppers? How about you buy a shop with three or four flats above it, and
how about you go and see how cheap that is, even
in an expensive area. ‘Cause I did one of these
in Bristol recently. I think it was a newsagent
on the ground floor and then it had what was gonna become a seven-bed HMO above it. It wasn’t one of mine, it
was one of our students but I helped him with it. The purchase price for
the commercial property, the shop and uppers, by the time you’d separated them out, put the shop on one title,
put the HMO on another title, what became the HMO on another title, that as a no money in deal, sorry, it was an all money out deal. It was money in, but it was all money out. So I hope that’s useful, Vivienne, and I’m gonna move on
to the next question. Before I do, Vivienne, it does and in our group, in the Touchstone family we’ve got many people doing HMOs in the most expensive city in the UK and one of the most
expensive cities in Europe, London. So there is no reason why this can’t work. Okay, next. We have got Barry Page. Barry is asking the question, what’s the most tax-efficient way to pay yourself via an
LLP limited company setup? I love it. To give you a proper
answer to this question will probably take me half a day, or a full answer to this question. So here we go, Barry,
here’s the highlights. The way we operate is we have limited liability
partnerships that own assets and then we have limited company that manage and operate the assets for the property-owning company. So this is called an
op-co, operating company, this is called a prop-co,
property company. Between the two we’ve got agreements that specify how much money moves from which entity to which entity. This limited company is
governed by corporation tax and all the rules that
govern limited companies, the LLP is governed by
a completely different set of rules. Essentially the difference is this, this is corporation tax,
this is personal tax. So how can you tax efficiently, take money out of a limited company? Well, the first £12,500 a year of income is obviously tax-free. Dividend income is
extremely tax efficient too. The first £2000 is nothing, the next 30-odd thousand pounds is 7.5%. So you could pull out,
say, £12,500 as a salary, £2000, as dividend, tax-free, another £33,000, say, as
dividend, that’s 7.5%. So now you’re approaching £50,000 and on half of that you’re
paying no tax at all and on the other half you’re paying 7%. That’s a really, really
tax-efficient way to pull it out. And, don’t forget, claim your expenses. Don’t forget you can make
pension contributions, up to £40,000 a year. Think about this, your limited company pays you a pension contribution. That’s a cost to the limited company. No tax. Goes in to your pension
fund, let’s say it’s a SSAS, so you’ve paid no tax, you personally pay no tax,
the company pays no tax. That’s pretty tax-efficient. What you then do is you lend the money to one of your property projects. So the money that’s in your SSAS is only in your SSAS tax free because, if you hadn’t put it in to your SSAS you would’ve paid it as
tax so you’d have lost it, so this is extra money
you wouldn’t have had. Why wouldn’t you put it in to a SSAS instead of wasting it by
giving it to the government as tax? Just for you to think about. Now, the LLP, how can you get money out of the LLP tax efficiently? Well, you can obviously do a salary if that’s what you wanna do, you can obviously do pension contributions if that’s what you wanna do, but you can only do it to the maximum that you can do it for. But, in addition, from the LLP because you’ve got both now, you’ve got personal tax and
you’ve got corporation tax, you can use something
called capital allowances, which we use a lot. The fantastic news is as of this April every single person in the UK is allowed to earn one
million pounds a year tax free, if they know what they’re doing. That’s using the LLP
and capital allowances. So I hope that’s a useful,
short answer, Barry. There’s a hell of a lot
more to it than that. Okay, the third question, which is also gonna be my last question for today because we’re running out
of time, sorry about that. You know me, I will talk all day, I’ve got a world record
for public speaking. That particular one, we
talked for six days solid, how about that? My very first slot on that
six-day solid was eight hours. Well, it was eight
hours, it’s what I took, I was supposed to take six so I over-ran by two
hours on a six-hour slot, how about that for talking? So, next up we’ve got Guy, apologies if I pronounce this wrong, I think it’s Nzuzu. Okay, Guy Nzuzu, I hope
I’ve got that roughly right. Guy says, I’m 50, how
can I grow my pension pot knowing that my pension provider doesn’t allow me to partially transfer it? Okay, now, obviously you need to take individual detailed pensions advice, so, I can give you some
general guidelines. How can I grow my pension pot knowing that my pension provider doesn’t allow me to partially transfer it? Well, I guess you’ve got
three choices then, Guy. Choice number one, you
can leave it where it is. But I would like
everybody sitting at home, or wherever you’re listening to this, to do this exercise. I would like you to just ask
yourself these questions. Number one, I sound a bit obvious, have I got a pension? Because more than 50%
of you are gonna say no. If you haven’t got a pension,
what can you do about that? Well, you can get one. That’s pretty obvious, isn’t it? And Guy said, well, he’s 50, well fine, I don’t care what age you are you can start a pension
pot at nearly any age. Why nearly? Well, legally you’ve gotta
be 16 or you can’t have one. So you’ve gotta be 16, or more, and now you can have a pension pot. Choice one, have you got one or not? If you haven’t got one, get one. Now ask yourself this question, how much money do I need to live on whenever you wanna retire? You might say, well, Paul,
I’m not gonna retire. Well, maybe you won’t have that choice. How do you know when you’re not gonna be able to work anymore? How do you know that you’re not gonna have some accident? How do you know that you’re health won’t prevent you? How do you know that
something external to you might help cause you to have to stop work? So, whatever age you are, ask yourself that question. How much money do I need to live on? And then the next part of that question is what’s my current pension
gonna provide for me? So, more than half of
you the answer’s easy. Nothing, ’cause you haven’t got one. If you do have a pension, still
ask yourself that question. How much do I need to live on? How much money is my
pension gonna provide? And, if the amount of
money you need to live on is more than what your
pension’s gonna provide here’s the next question, what are you gonna do about it? That, effectively, is
what Guy is asking me, which is why I said there’s three choices. So, Guy, here’s the
answer to your question. Number one, you could start
an additional pension fund. So, a SIPP or a SSAS. A Self Invested Personal Pension, S-I-P-P, or a SSAS, Small Self Administered Scheme. A SIPP is for one person, a
SSAS is for up to 11 people. You can do that at any age, as long as you’re 16 or more. So you could start an additional one. The next part of your question, or the next inference I’m drawing from the way you’ve asked the question, is your pension provider won’t allow you to partially transfer it. Well, they never will. It’s called a transfer value for a reason. You either transfer it or you don’t. You can’t transfer a bit of it. So here’s your two choices, and they’re really, really simple. Choice number one, as
we’ve already covered, start an additional pension fund. Choice number two, leave it where it is. Choice number three, move it. But your question is how
can I grow my pension pot? So, if you wanna take control, if you wanna take action, if you wanna be responsible
for your own destiny you need to take control. How can you take control? Well, you can either take control by starting an additional new scheme or transferring the whole lot. If this is all new to you, and especially if you don’t know anything about commercial property, please go and get yourself some education and some support. But, I’m just telling
you what you can do, Guy. Let me give you an example of a property that I found very, very recently, ’cause I set myself this
challenge twice a week, find a commercial property that is a good return on investment. So I found a shop on a brand new, 10-year, FRI lease, full
repair and insurance lease, which means you, the landlord, are responsible for nothing. The purchase price on
that shop was £115,000. Now, I didn’t negotiate it
’cause I haven’t bought it, I just found it as an example. And the lease, the rent
coming to you, the landlord, on that shop for the next 10 years is £15,000 a year. So, could you put £115,000
in to your pension fund, buy a shop with it and then enjoy £15,000 a year
for the next 10 years. Absolutely What happens in 10 years time? I don’t know. Maybe that shop is gonna
extend, maybe it’s not. Why do you care? Because you’ve already had £115,000 off it and now you’ve got a free building. So, maybe you let it to the same people, maybe you let it to a different person, maybe you turn it into a coffee shop, maybe you turn it into
flats, I don’t know. What I do know is the alternative, if you don’t do any of
that, is called an annuity. If you go and buy an annuity
with the same £115,000 you’re probably gonna get 3%. So, 3% of £100,000 is £3000. 3% of £15,000 is £450. So, you’re gonna get £3450. Now wait for it, wait for it, wait for it. That’s not per month, that’s per year. That’s not even £300 a month. And whenever you die, because we’re all gonna do it one day, that annuity, that pension, dies with you. Well, not if you’ve turned it into shops, and offices and factories. So, I hope that answers
your question, Guy. My main, strongest advice to you would be get the proper education, the proper support and the proper advice. So I hope you’ve all enjoyed this week’s edition of Money Matters. ‘Cause money does matter. If you’d like your question to be featured on a future edition of Money Matters, well just pop it below. Put the question in and we’ll select the most interesting,
the most challenging, get my little brain cells working. So I’m currently, as I said, in the land of the rising sun so I hope you enjoy
whatever it is you’re doing until I’m back again. Please make sure to tune in
to Money Matters every week and ask yourself, always, the question, ’cause ultimately the quality
of the questions we ask determines the quality of our life. So, the correct question for anything to do with
money is always this, how do I get handsomely paid
for doing what I love doing? I love traveling. So how can I get handsomely
paid to go traveling? How can I design my life
such that I can get paid from any part of the
world at any point in time doing what I love doing? I’ll just leave you with that thought. You’ve been wonderful, I’ve been Paul and I’ll see you next time. By bye.

9 Comments

  • Dean Patton

    Hi Paul I’m booked on the commercial not sure which date will you be doing a deep dive on the course? will I have handouts so I understand ssip and sap it’s all new to me Regards dean wales

  • shirjana Gurung

    Hi Paul How to open SASS? Do i need Consultant or i can do myself with help? Love to hear. Thank you. Krishna Gurung

  • Jon McClelland

    If we build up a nice portfolio of property, producing passive income that allows us to be financially free, why would we bother putting money into a SIPP? Wouldn't it always be more beneficial to put our profits into more property that builds the portfolio and passive income returns?

  • Eric Yu

    Hi Paul, Thanks a lot. It is very valuable video. What kind of strategies will be easy and quick to build up portfolio using recycle deposit starting from £70,000? How much portfolio/cashflow can we expect in one or two years? Thanks

  • guy nzanza

    Paul, I can not thank you enough for picking up my question and answered it with great insight. I am getting ready to come to you to get educated and grow my pension pot and property portfolio. Speak to you again soon…

  • paul griffin

    Thanks for that gr8 info Paul. I have a question related to the LLP/Ltd.co issue, combined with pensions

    QQQQ. My mother owns a house, but has now moved into a flat with me, as her carer (she had a lot of memories associated to the house, with relatively negative connotations). Although we have the option of simply renting as a 2 bedroom bungalow, in an area with very high demand, we intend to use it as an SA. I will be managing the property, and my mother has kindly agreed to pay me half of the profits. I understand that we should use a limited company for this 'management' of her SA property/house. As this is her house, and she will be taking half the profits, I presume that she would need to be part of the limited company. Once this up and running, I will be looking at R2RSA's and buying properties for SA usage. When I form an LLP, should I include my mother in this, so that I can include her in any possible advantages that she might have through being in the limited company? I'm referring here to advantages I/we might have, with any SSAS pension, subsequently taken out.

  • paul griffin

    Please allow me to make a suggestion Paul. In the information section, below the actual video, is it possible that you could repeat the questions, as text, so that if we want to refer back in the future, to a given question, we can simply check the information for each video, rather than going through the whole video again? Of course, we may want to do this anyway, but it's often handy just to reference a single piece of info, at speed.

  • Kyle Race

    With question 2 mate, would it be possible to pay 2 people the same high amount? As if 1.

    I have a business partner, so hopefully can get it the same.

    Also, can this kind of income be used towards getting more mortgages? As that’s the main thing keeping me in employment as I know how hard it is getting mortgages self employed. Thanks

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