What is it?

To quote Dr Jitendra M. Mishra

Ignored by some, feared by some and used by many. It is the grapevine.

That nebulous, all-seeing, all-knowing network of "truth".

If you want to know the real story or the "kernel of truth" tune into the grapevine.

What is the “Buy to Let” Grapevine?

• A series of conversations with national experts about current national market conditions.
• A series of conversations with local experts about their current local markets conditions.
• Some Rumours & Hearsay about the buy to let industry.

To quote Marvin Gaye “I heard it through the Grapevine”

To quote Dr Jitendra M. Mishra again:

• The grapevine is flexible and personal and can spread information faster than the formal communication channels.
• The grapevine is also capable of penetrating even the tightest security because it cuts across organizational lines and deals directly with people in the know.
• The grapevine is the informal and unsanctioned information network within every organization.
• Of all the things that the grapevine has been called, it is foremost--a communications network.
• Since the grapevine arises from social interactions, it is as fickle, dynamic, and varied as people are. It is the expression of their natural motivation to communicate. It is the exercise of their freedom of speech and is a natural, normal activity.

If you want to understand more about the why’s & wherefores of Grapevines click on this link to Managing the grapevine by Dr Jitendra M. Mishra . Makes fascinating reading.

Each conversation includes:

• A brief bio.
• A conversation with the expert about their area of expertise but focusing on today’s market with a look into the future.
• If they are speaking or lecturing, their when & where diary for the next month or so.

To listen to these conversations you need to register following which we will advise you weekly who is on the Grapevine next week.

The 1st Grapevine conversation is with Lindsay Hopkins, a well known and very experienced mortgage broker with Trafalgar Square Financial Planning Consultants talking about the current mortgage market and what we can expect through this year.

Every investor should spend the 10 minutes that the conversation lasts listening to Lindsay’s views on the current market.

Hi and, if this is your first visit, welcome to buy-to-let.com, if you have visited before then welcome back.

I am the Editor of buy-to-let.com and have written most of the content on this site which is either my take on the buy-to-let market or the result of very useful input from other experts featured on the site.

I am also an Investor, Lecturer, Author and an all round Buy To Let Geek or Guru, Your Choice!

My experience not only comes from my own investments but from buying property for Armchair Investors and regularly delivering lectures on the many aspects that make up buy-to-let.

I regularly add to the content of this site so please register, which is free.

Why do I want you to register?

Well, you are a potential customer of mine, and that is why virtually every site exhorts you to register.

I have registered with dozens of sites and every day I get emails from these sites, some good, some indifferent, but is saves me having to click and go, it comes to me in my inbox.

Also when I find a special deal or I am advised of one then an email is sent to all my registered users/customers.

This may be a good/fantastic property deal (BMV or Lease Option at the moment) or a discounted product deal such as a special on fridges or building materials, either way you have nothing to lose and everything to gain and last but not least I can keep you up to date on new content as it is published such as Free Online Education see below, a new feature started Dec 2009 .

Over the past few years I have specialised in developing portfolios that include distressed property internally redesigned & then refitted to a high standard resulting in a tax free rental income.

My aim is to help investors produce quality homes that will meet their expectations at the same time ensuring that the risks inherent in buy to let are mitigated as far as is possible.

To that end I have now posted our Pre Auction Research Webinar on the site just click here to go.

It’s all free by the way and includes screenshots off the Internet.

This is the how the why and the where I buy properties for myself and clients that need refurbishing for a tax free rental income which is covered in the next article.

A new feature is Free Online Education where you will find a list of free audio & video webinars by others such as Rob Moore of Progressive Properties, Glen Armstrong & Simon Zutshi.

Preface

From your rental income you are allowed to deduct a number of costs or overheads before arriving at the “profit” on which you will have to pay tax at your highest marginal rate and this tax applies whether you are resident in the UK for tax purposes or live and are resident overseas.

The tax that is avoidable if you are not resident in the UK for tax purposes is Capital Gains Tax.

Typically you can deduct from the rental income of your portfolio, not on a property by property basis, but by adding up all your rents and adding up all your allowable costs to arrive at a single profit or loss.

On the profit you pay tax, on the loss you don’t pay any tax even if you have received positive cash flow.

You can carry forward your losses year on year until you have collected enough rents to pay off or eliminate your losses.

Now how can you receive positive cash flow, that is cash in your bank, to spend but not have to pay any tax on that money.

Let’s take an example:

Say you collect £5,000 in rent.

You then deduct your mortgage interest say £2,500

You deduct your letting & management fees @ 11.75% £587

You deduct Insurance, Statutory Checks & Maintenance say 13% of the rent £ 625

Taxable Profit £ 1,287

Deprecation Allowance

If you furnish then you can deduct a Depreciation Allowance of 10% of the rent regardless of the value of the furniture, a point that will be covered under Furnishing for the Deprecation Allowance.

Assuming that you do not need to spend the Deprecation Allowance on replacing worn out furniture then your Taxable Profit reduce by £500, 10% of the rent of 5,000, to £787.50 and you have received £500 positive cash flow on which no tax is payable.

Minor Repairs

Now if, following buying the property, you spent some money fixing it up and replacing some worn out fixtures and fitting plus redecorating and carrying out some minor repairs, all or most of these costs can be set against the rental income before tax is calculated.

Let’s say you spent £5,000 on these repairs, they included a new bathroom, kitchen, replacement boiler, full redec & £1,000 of repairs to the electrics, roof & fencing, all or which should be deemed to be “revenue” repairs as against “capital” improvements.

Further Advance

Also let’s say that the result of all this work was to increase the value of the property by £6,700 because you were able to negotiate a very good buy price.

You should be able to take up a Further Advance of 75% of the increased value of £6,700, £5,025, and repay yourself the costs of the refit.

Now when you come to work out your tax on your profit rent you now introduce the total cost of the repairs even though you have borrowed the money to pay for them.

By the way the interest on this borrowed money is added to the interest on your original mortgage to arrive at the total interest that you can now deduct but we will leave this cost out for the moment.

The new figures are.

Taxable profit £787.50

Repairs -£5,000

Taxable profit -£4,212.50

Note the minus, even though you have positive cash flow of £787.50 in your bank, plus the depreciation allowance, a total of £ 1,287, you have made a loss and you can carry forward that loss to the following year and set it off against your rental income before assessing your tax liability if any.

So you have now received positive cash flow of £1,287 and no tax is payable and won’t be payable next year either.

But if you can go from this:

The rear ground floor room of a 3 bed terraced house leading into the kitchen.

The property was in this condition when bought and had been lived in up to the completion of the purchase

To this:

The front and rear rooms on the ground floor have been knocked into one large room, the door to the kitchen has been relocated for easier access and the window has been replaced with patio doors leading out into the garden.

Under the stairs there is a cloakroom plus a computer alcove and understairs cupboard and the bathroom has been moved up to the 1st floor without sacrificing a bedroom.

Then the numbers get a lot more interesting and you can look to generate a tax free rental income for life.

If you want to know how to do this, the approximate cost, how to cost it and control the works email me david@buy-to-let.com

The cost by the way is not £5,000. It is closer to £30,000 and requires a lot of experience in all phases of the process from the initial search through buying to refitting.

Planning Consent is most cases is not required but Building Regulations are. The resultant conversion or refit can achieve a “B” EPC Rating

Every week we receive emails and publications from a variety of sources all of which include articles that are often of interest to our visitors.

So whether you are an investor, would be investor, or looking to give up the day job to earn your crust from property, these emails & articles may prove interesting and useful.

You can always read the current week here but to look at previous inboxes in the Archive you will need to register first. There is no cost involved and we don’t pass your email address onto anyone else.