Starting a property business post COVID-19

Starting a property business can be a fantastic financial opportunity, but it is not without its challenges. Over the years, property owners have faced a range of hurdles, including changes in tax relief, stricter lending criteria, and tighter regulations. More recently, the Covid-19 pandemic has also added to these challenges. However, investing in property can still be worthwhile, as it offers the potential for increased income and the opportunity to meet new people and gain insights into the property market. As a property owner, it is important to be aware of the risks involved and take steps to protect your investment with comprehensive property owner’s insurance coverage. This will give you peace of mind, knowing that your property is protected in the event of any unexpected circumstances.

If you’re looking to boost your income by starting a business property yourself post Covid-19, here’s the lowdown on how to do just this.

Types of property businesses

There are many avenues you can take to get your business up and running, and your path depends on your own personal situation and available assets at the time. You need to consider whether you have the time, money and contacts to enter the property market, although it’s entirely possible to start a property business with next to no cash, which we’ll go into later. The good news is that you don’t even need any formal qualifications, just the right mindset, an aptitude for DIY, management and organisational skills, and commitment to the business. These are just a few options you could consider.

Property sourcing

As previously mentioned, you can start a property business with very little cash if you go into property sourcing. This involves finding good deals on properties to sell to an investor for a fee. To be successful, you’ll have to seek out the best discounts and be comfortable negotiating. Even if sourcing isn’t how you envisioned entering the property business, this is a great strategy to get you started as it enables you to make contacts, raise cash flow and build skills in the housing market without denting your own bank account. However, you don’t get paid until the deal with the investor is finalised, at which point you can earn between £2,000-£5,000 per deal before tax and deductions.

Buy-to-let

Buy-to-let is where you purchase properties to let out to tenants. This is a long-term strategy that enables you to build up a portfolio over time. The market has been impacted by Covid-19 though, as the number of mortgages are increasing, and so are the rates due to properties being more in demand. Buy-to-let profits have also changed as landlords can no longer deduct mortgage expenses from rental income — they receive a 20% tax credit payment instead. However, some property owners join up to buy property together as tax rates for companies are better than for solo landlords — we’ll explain the taxes later.

Choosing to go down the buy-to-let path depends on what type of investment you’re looking for and your ultimate goal. You’ll first need to arrange your finances, spend time looking for properties to put an offer in, then once this is accepted, find tenants for the homes. Bear in mind, it may also involve redecorating and repairs.

The benefits include earning regular income and generating capital growth. However, let’s not forget the risks. Your tax bill might be higher if you decide to go it alone, capital may reduce if property prices fall, and your finances may take a hit if you need to pay for any damage or legal costs. You might also be impacted if you experience a loss in rental income. But, these risks aren’t an issue when you secure insurance for your business as it will protect you in these instances. With a policy, you’re covered even if a property is unoccupied for a period of time.

Buy-to-sell

This involves buying properties through mortgage loans to sell them to new prospective homeowners. If you’re planning to flip a property within a year, buy-to-let short term loans are preferable, while refurbishment finance allows you to buy a rundown property and do it up before selling. Another option is a flexible mortgage which enables you to sell whenever you want with no time constraints.

Like any property seeker, you’ll need a great eye for spotting a good location. Buying a property in a ‘good’ area doesn’t necessarily mean purchasing in the nicest area of town. The price is higher in the most popular spots, so you’re less likely to make a profit. It’s all about finding a place that has the potential to be the best: think proximity to schools, public transport, and green spaces.

Buy-to-selling tends to have a quick ROI, provided you can find the right seller. This role involves plenty of research as you can’t just buy any old property. You will have to spend time choosing and studying an area and identifying the optimal locations. Remember you will also have to factor in the cost of stamp duty and any other fees included in the process.

How to start your property business

Choose your business structure

Limited company

A limited company is a type of business that is legally separate from its owners and managers, responsible for its own actions, finances and liabilities as opposed to an individual person. Starting up as a limited company has tax benefits. It allows you to offset interest costs against rental or property income, and you’ll only pay corporation tax at a rate of 18% (if profits are below £30,000) and no national insurance. If you were to operate on your own you’d pay a combined 47% income tax and national insurance.

Operating as a company helps to protect your property portfolio (if you own more than four properties, you become a ‘portfolio landlord’) from the tax changes implemented in April 2020. In fact, in 2020, a record number of limited buy-to-let companies were set up — 23% more than in 2019. You’ll only pay tax on the profits you withdraw from your limited company. This enables you to retain profits rather than push yourself into a higher tax bracket. Other benefits include being able to borrow money from lenders, receive a dividend allowance, and interest payments.

Sole trader

Being a sole trader means your capital gains tax is lower and remortgaging money on property you own is tax-free compared to a limited company. The government offers private landlords a tax-free property allowance on the first £1,000 of their earnings, which is useful if you have small rental income. However, running as a sole trader makes you fully responsible for all the admin and legislation of your business.

Develop a business plan

Now you’ve got a general idea of how you can invest in property, you need a business plan. Every company starts out with one. This should include your current circumstances, such as how much money you have to invest including your savings, and the time you can put into running your property business. You’ll also need to prepare a financial forecast to help you predict potential returns on investment. We recommend speaking to a mortgage broker to determine your borrowing options during this planning process.

Next, you need to figure out a strategy depending on how you plan to buy property. It might be that you purchase a house and do it up first to increase value before selling. If so, what does that entail? Are you doing the refurb yourself, or hiring people? You’ll have to consider the additional costs of this. Or your strategy might be to buy discounted properties to try and make a greater profit. Alternatively, you may decide to turn your property into an HMO (Houses in Multiple Occupation) to generate a higher ROI.

Ensure you’re registered and protected

Before you get properly started, you need to ensure you’ve got everything in check when it comes to running a business. This includes registering your business, obtaining any relevant licences (some properties require this to prove it’s suitable for occupation), and securing insurance. The latter isn’t a legal requirement though. But property owners insurance is recommended to protect your investments, whether you own one or have a portfolio of places. This covers the costs of things like property damage by fire, storm or flood, and even any damages caused by your tenants. It’s worth considering that as your portfolio grows, you’ll need to upgrade your policy in line with the properties you own to ensure you’re fully covered at all times.

While entering the property industry requires patience, attention to detail and total dedication, the time you invest pays off in the long term. And after reading this mini guide, hopefully you understand the different property business pathways and how to go about getting your foot in the door. Whether you’re a startup or an established enterprise, Brisco Business has the business insurance solutions to meet your unique requirements.

Darragh Timlin

With over 25 years’ experience, Darragh is an expert in all things insurance. Starting his career in commercial property underwriting, Darragh has worked for a number of global insurers and is now Managing Director of Brisco Business, part of the wider Henry Seymour Group.

All articles by Darragh Timlin