Learn about investment structures and the tax implications of earning rental income, as well as financing the property, capital growth and cash-flow.
Structure first, transactions later
It is a mistake to just start buying property in your personal capacity, without first questioning whether there are any tax or other benefits. Have you considered using another vehicle, like a company or a trust?
Determine up-front what strategies you will be deploying and
for how long. Nowhere is it more important to have a good
structural foundation, than in property – no pun intended!
Finding finance
Shop around for the best bond. Getting the very best deal on your bond facility will save you thousands in the long term.
Using the offer from one bank to re-negotiate the offer from your preferred provider is encouraged as is building a relationship with a reputable bond originator to do this on your behalf.
!! TIP : A bond originator’s service to you
doesn’t cost you anything extra. They get paid by
the bank with the successful bond grant.
Rental income & tax
Any rental income received becomes part of your personal or business income. This means that you will be liable to pay tax on profits realised. Certain expenses can be written off against the income you derived from the rental. Keep proper record of all expenses related to the property.
Speak to a professional tax advisor on the best entities for
buying a property and how you can save tax on your rental
income. Be extremely cognisant of how Estate Duties, Capital
Gains Tax and Income Tax will affect you and your business
going forward.
Cash-flow vs capital gain
ALWAYS evaluate buy-to-let propositions for cash-flow first. The capital gain means very little if the core strategy is not to sell the property. It means even less, if the cash flow does not actually allow your business to survive and grow over time.
You can make as much money as you want, but if you’re not making any profit, you are going backwards.
Your cash flow is largely determined by the size of your deposit. The larger the deposit, the larger the cash flow.
The health of the investment is also largely determined by the size of the deposit, but inversely so – the smaller the deposit required in order to be cash flow positive, the more lucrative the investment.
If you are unable to achieve a cash flow positive position on your rental investment initially, you will need to pay in money on top of the rental income you receive, to cover the bond repayments and other monthly expenses.
This is called being geared negatively. As your rental income increases annually, you should gradually move closer to achieving a positive cash flow. Be very aware of how long you would need to fund the property before you break even.
Now that you know where to start...
and you understand some of the financial aspects of investing...
The next step in your Buy-to-Let Investor Guide is "The metrics used for evaluating property investments":
- Where to start?
- The financial aspects of investing in property
- The metrics used for evaluating property investments
- Costs to take into account when running the numbers
- Managing tenant relationships professionally
- Education, team and exit strategy