Buy-to-let landlords who are deterred from expanding their property portfolios due to recent legislative and tax changes, but still wanting greater exposure to property, should consider investing via platforms, particularly crowdfunding platforms, according to Shojin Property Partners.
The crowdfunding property investment and development company is keen to point out that as an alternative to direct investment, buy-to-let crowdfunding is increasingly becoming more attractive for landlords, as it helps avoid greater regulation and higher taxes, such as the 3% stamp duty surcharge and the phasing out of mortgage interest relief.
“The rental market in the UK is growing and still presents a fantastic investment, if done correctly,” said Jatin Ondhia, CEO of Shojin Property Partners. “The Brits have always loved buy-to-let investing.”
Shojin Property Partners recently launched a new crowdfunding product for the BTL market, which enables landlords and investors to come together and buy into a small portfolio of residential property for rental purposes, sharing the income and capital growth.
Ondhia explained: “Our crowdfunding model is unique, as it enables landlords and investors the opportunity to invest in accordance with their own preferences, requirements and tax position.
“Rather than the traditional structure with a bank and an equity investor, we have placed a mezzanine tranche in the middle. However, if landlords and investors prefer to take a traditional BTL position, they can buy an equal amount of both mezzanine and equity.”
Ondhia believes that the attraction of this type of investment is that it is familiar to investors, but at the same time completely hands free. But the tax position of landlords and investors often has a big part to play in whether BTL is a sensible investment.
He continued: “A higher rate taxpayer, for example, may not care for the income due to the higher taxation, hoping instead to make a decent capital gain. While a lower rate taxpayer may prefer the income, being able to fully utilise the interest deduction and also live off the income. Why not, therefore, break this investment up into two pieces – one for those that want regular income and another for those that prefer capital gains.
“Most people in the UK do not utilise their capital gains tax allowance, so our structure enables higher rate tax payers to take a leveraged position in equity, while giving up the income. The mezzanine investor meanwhile benefits from a fixed return, regular income and higher security.
“The cherry on the cake is that, because building this type of portfolio involves purchasing several units at a time, there will be an upfront discount, which the equity investor instantly benefits from. This discount is usually 5%-10% off the market value of the properties, based on a third party valuation.”