Hurdles

Good morning fellow bloggers!


 

So, last week I came across something that has an impact on one of my future, bigger goals. Not an ideal situation, but I’ve had to think how I’m going to get around it.


 

What happened?

Well, as stated in a previous blog, I aspire to be a property developer and landlord. I may be a little late to the game and this new rule, but I could be affected when the time comes.

A new legislation is being phased in, beginning mid 2017 (had no idea I wanted to do this at that point so I’ll let myself off). This is all about tax relief (riveting subject I know), but if this is something you have considered too then listen up. Currently, landlords can claim back 75% of their mortgage tax through their rent. By 2021 landlords will not be able to benefit from any tax relief meaning they could be making a loss. Doesn’t make sense? Let me put it like this:

Imagine you have bought a house in 2021. Your annual turnover (money before costs) is 60K, your annual mortgage repayments of 10K and another 8K allowance for other costs. So at the moment to calculate your taxable income you would do:

60,000-10,000-8,000 = 42,000 (this is your final taxable income with 11,500 tax free)

With 75% tax relief, you receive 7,500 back.

Therefore, 49,500 – 11,500 = 38,000 (this is how much you will be taxed on)

In 2021 you would do:

60,000-8,000 = 52,000 (this is your new final taxable income with 11,500 tax free)

Therefore, 52,000 – 11,500 = 40,500 (this is how much you’ll be taxed on)

So, it looks like you’re making more money right? However, the more money you make, the more taxable income you have to be taken. For landlords who have multiple houses and may end up earning more than before will have to pay more than 20% tax. Not only does this mean more tax, but if you have an outstanding student loan or any type of loan, you will have to pay more because you are earning more, even though you haven’t upped your prices.

All things considered, this may only affect a small percentage of landlords, but will mean that the affected can end up making a loss (something none of us want).


 

Consequences for people who rent (in my opinion):

  • Landlords may push up their prices meaning people who rent cannot afford to any longer.
  • If people cannot afford to rent or buy a house then what other option is there? (homelessness?)
  • If people who rent cannot afford to anymore, houses will be put on the market which is a more expensive option leaving less properties to rent.

Consequences for landlords (in my opinion):

  • Landlords can get stuck if they end up making a loss across multiple houses possibly resulting in something worse (bankruptcy).
  • Pushing rental prices up could mean people will not be willing to pay lowering demand.

 

How do we get round this?

For landlords this can be simple, put prices up as I stated above, but with high risk. Some other options that require a bit more time could be to either sell up, or apply to become a LTD company (I don’t know much about this, but would like to find out). As for people who rent, it’s all about location, the more popular and upcoming an area is, the higher the rent prices will be. To avoid that I believe the safest way to do so is to relocate to an affordable area and generate some savings for a house deposit. Even though I want to become a landlord I wouldn’t advise young working people to rent because It’s dead money. If you’ve bought a house this can generate more money because property is one of the safest growing investments you can make.

How am I going to go about my dream?

I do research on this everyday. I’m so passionate about it and I WILL make it a reality. It’s important to consider location. Go for something small, affordable and up and coming (too good to be true?), trust me it exists. Decide what your audience is, students, working professionals, families, etc. This also affects your location, you decide which comes first. Look at other houses in the area for growth in prices and look at houses you would consider buying (whether it’s a forever home, or a doer upper). Do you see how you could improve the property? How much would it cost? Is it worth it? Can you afford it?


 

Sorry for the long post I just had to put it out there. I may have got some of my facts or figures wrong, but I’ve tried to educate as best I can, please correct me if I’m wrong. Also I think it shows how much I really want my dream and how things are possible for everyone from all angles so don’t give up.


 

Moral: We will hit bumps in the road on our journey to success, but we can always go round, go over and climb them…there is a way!

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