Yet time and time again, we’ve seen how those that acted in the ‘bad times’ went on to make a killing. Later, others would look back and say, ‘if only I’d invested back then…’. Yet here we are again, on the brink of a recession, and many of those same people are once more glued to the sidelines.
It’s been a seller’s market lately and so tricky to pick up bargains. Yet I believe one of the biggest opportunities over the next year will be from landlords looking to divest themselves of their portfolios. Landlords have had a rough time of it these last few years, and many want to retire early and sell up now rather than wait to incur further costs and onerous regulations down the line, or maybe face another 2008 ‘crash’. Many have already exited; witness the shortage of available rental properties that has pushed rents skyward. That presents an excellent opportunity for investors, as many of these landlords will be prepared to sell at a discount, and that’s where you can lock in some significant value.
A key challenge for many such established portfolio landlords who are selling up will be capital gains tax. The personal allowance for CGT is currently just £12,300 per year. So, if they’ve got a lot of profit tied up in their portfolio and don’t have these assets in a limited company, they’re going to face a chunky CGT bill unless they offload properties over several years. One tool that enterprising investors can use to alleviate this problem for these divesting landlords is something called a purchase lease option (PLO). These must be just about the most misunderstood tools in the entire property universe, yet when you know how to use them effectively, they can unlock many different types of property deal. In the above example, a PLO would allow you to offer the landlord the ability to exit the market immediately, sell their units over time so as not to trigger additional CGT, and get a guaranteed income from units that aren’t yet sold, all without them having to worry about tenants or day-to-day repairs. And for your part, you can control the property without needing to own it or have a mortgage against it, plus you’ve got the option (but not the obligation) to buy the portfolio down the line. Like so many angles in property, you need to know what you don’t know – and I consider PLOs an essential tool in the investor’s toolbox in the current market. They work with all sorts of strategies, from buy-to-lets to development.
As recession looms, it’s natural to look for recession-proof property strategies, and for me, there are two that fit the bill. Serviced Accommodation (SA), where properties are let out in the short-term to holidaymakers or businesspeople on portals like Airbnb, is an area that has boomed recently. The pandemic understandably led many people to opt for staycations; however the current cost-of-living crisis is likely to have the same effect and will continue to make holidaying in the UK an attractive proposition. SA requires robust systems and reliable logistics, but it maximises yields and, as a ‘commercial’ property, units may also be purchased within a SSAS pension if you have one. The second recession-proof strategy I’d consider is high-end HMOs; however, I strongly suggest you avoid the lower end of the highly-saturated HMO market. I’m talking about ‘co-living’ units with a premium finish and a real community vibe. The big advantage for co-living tenants is that they get top-notch accommodation, with more space (albeit some is communal) for less than renting a one-bed flat. Demand for this type of accommodation will increase significantly over the next few years, particularly in our city centres.