Crea tin g
a
e t s g e g n
AS
parents, we are often concerned about how we
can best nurture and support our children to give them the best possible foundation for the future. Whilst much of our focus might be on education and extra-curricular activities, socialisation and developing life skills as they grow up, we might not always think about how we can give them the best financial footing for the years ahead.
for y o u
amily rf
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Whether your aim is to be in a
With a growing family and future
position to pay for your child’s
plans in mind, you might also wish
higher education costs, perhaps
to invest in property in order to
even buy a property that serves as
boost your savings pot and
a buy to let now that you intend
generate additional income for
to give to your child when they
your family to enjoy for many
leave home or are simply seeking
years to come.
to hold investments in trust as a gradually increasing savings pot
Whatever your motive for creating
until your child reaches a certain
a nest egg for your family, there
age – property investment could
are several ways to structure the
be the perfect way to accrue
purchase.
wealth for your child. 4
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AMILY IN THE EF
investment portfolio at any time. If you’re seeking to improve your
R E.
can choose to begin your property
TU FU
means, you
AR
the right
NE
WITH
TH
AN IN VE ST
HAT BENE T T FIT N E S M
family’s regular income, grow wealth and create a legacy, the sooner you take action on your intentions the better – on an upward trajectory, the property market historically favours those who ‘get in early’. 6
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Whether you choose to buy
earn additional income
an investment property in
than people believe.
your own name or within a company structure, it’s
Find an example including
prudent to take
figures to demonstrate
appropriate tax advice to
how you can get started
ensure how you buy an
and then how you might
investment property works
grow your portfolio
for your long term plans.
organically on page 35.
It’s often the case that it is more possible to buy an investment property and
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plans
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e t rm g n
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you’re planning on investing
IF
benefit your family within the
complications and additional costs
have young children this simply
on your child’s behalf for
nearer future.
that likely mean this is not the
isn’t an option.
15 years plus then your strategy
Some might assume that you can
and the structure of your portfolio
simply buy a property and put it in
It’s more straightforward to gift
property in trust is the best way
should be slightly different to
their child’s name. Whilst this is
your child money and for them to
to invest for your child.
that of an investment that will
perfectly plausible there are
buy the property, of course, if you
best way to invest for your child.
them to see the benefit in 10 or
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It is often the case that buying a
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R
P
N I GA Y U B
CHILD 14
T ST FOR YO RU
O R
T Y R E IN P
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MANY
parents
basic trusts which give everything
might wonder
to the beneficiary upon them
if they can buy a house for their
reaching a certain age to specific
child or if they can buy the
non-resident trusts where the
property and then put it in their
trustees are residents abroad,this
child’s name. The best way to buy
type of trust can provide some tax
a property for your child is usually
advantages.
to buy it in a trust. A trust can be an excellent way to A trust presents a legitimate way
reduce the tax due to be paid on
to avoid both inheritance tax and
your inheritance – it’s important
capital gains tax, ideal for those
that a trust is set up in the most
who want to invest in their
beneficial way to you and your
child’s future.
family and taking professional advice is strongly recommended in
There are several different types
order to get it right.
of trusts to be considered from
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rty
?
is a trust w se o H
pe
buy p o t p ro u t
A
professional advisor can guide you through the process of setting up a
trust to ensure it is arranged in the best possible way for your personal circumstances, we can provide an idea of how a trust is set up to buy property.
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• Either one or both of the parents would be the trustees • Instead of the parents buying the property with their money they would gift the deposit money to the trust • The trust would then buy the property using a mortgage • In most cases, the parents/trustee
The beneficiary for whom the trust is
will be asked to be a guarantor for
set up is usually too young and unable
the funds
to manage the trust assets themselves. Assets are held in trust for the benefit of the beneficiary. A trustee has a legal duty to manage and oversee the assets held in trust on the behalf of the person who will benefit from the trust in the end. It’s important to note that when you are setting up the trust you can set out the rules as to how the trust is managed to meet your preferences. It might be that you want your children to only gain access to their trust at 25 years old.
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Step GET YOUR FINANCES IN ORDER An obvious step but one that
allow you to solely focus on
needs to be taken no matter
considering the available
whether you’re planning on buying
opportunities without the
the property and owning it in your
distraction of arranging mortgages
own name, setting up a company or
and providing documentation to
buying it in trust. Being organised
create a trust or company
before you begin looking for a
structure.
suitable investment property will 25
Step
CREATE A PLAN Once you’ve established how much money you’d like to invest, whether you’re taking a mortgage or buying in cash, if mortgage then the numbers a property must achieve to meet the terms of that mortgage, it’s prudent to devise a plan. What do you hope to achieve in 5-10 years’ time? Are you hoping to grow your portfolio and acquire further properties or would do you plan to sell the property after making a certain amount of money? Having a plan allows you to more clearly devise where and what you should buy and also track the success of your purchase. 27
Step CONSIDER THE AVAILABLE OPPORTUNITIES Only once you’ve gotten your
Not just about location, the
finances in order and have put
property you buy will also
together a plan should you then
dictate your level of success.
begin to consider the options
Finding a property that is being
available at that time.
built by a reputable developer with a strong track record will
At this stage, you’ll need to dive
provide you with the necessary
into some research in order to
assurance. Especially if you’re
understand where truly offers the
buying off plan. Buying off plan
best potential at that time and
will often open up the
not just potential but as you’re
opportunity to grow the largest
investing to create future security
amount of wealth possible so
– an area needs to also be
should be seriously considered.
established. 29
Step PROPERTY OWNERSHIP Depending on the stage at
your investment hands off
which you invest it might be
– at this stage you’ll want to
that once you’ve invested in a
work with a managing agent.
property it might be that the first year or so is during the
A managing agent will oversee
build period. Once the
the property on your behalf,
property is completed it’ll be
ensure you’re meeting all the
time to find tenants. If you’re
landlord requirements and
time poor and want to keep
find and vet new tenants.
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SCALE YOUR PORTFOLIO
Step
After several years it’s likely your
£100,000 property is now worth
initial investment will be worth
£120,000 meaning the investor who
considerably more than it was when
purchased in cash would pocket the
you bought it. At this point, you have
entire £20,000 profit themselves,
the opportunity to release some of the
making profit from both their cash
equity in order to buy another
and the loan amount – making money
property and grow your portfolio.
from the bank loan. The investor who purchased in cash will also make
By leveraging on a purchase, making
£20,000 profit, but the difference is
use of a mortgage, an investor can
the mortgage investor only invested
make considerably more money than
£25,000 to make a £20,000 profit
one who buys a property with cash. A
whereas the cash investor invested
property that is purchased for
£100,000 in order to make a £20,000
£100,000 using £25,000 cash and the
profit. This is the reason why
remaining £75,000 in the form of a
leveraging is so popular amongst
loan/mortgage might experience 20%
investors, especially when interest
growth over several years. Should they
rates are so low.
decide to sell at this stage, the 33
Growing a po rt
o i l org o f anic ally F
or ease, here we’re going to provide a rough idea of how
you can get started in property investment including the funds you’ll need to buy a property and the associated costs. We’ll then set out how you can organically grow your portfolio in order to create further wealth and maximise your nest egg.
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n i g y u the B
r o p p e t s r r t i y f
T
he figures on the following pages are intended to provide
potential investors with an idea of the total sum of money they’ll need to buy an investment property in 2021. For the sake of this demonstration, we’re proposing an investor buys a city centre property off plan for a purchase price of £150,000 that achieves a rental yield of 8% per annum.
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O ng
Star
ng fi i o
re gu s
st co s
u p t
To demonstrate: ITEM
ITEM
APPROXIMATE COST
APPROXIMATE AMOUNT £1,000
25% Deposit (due on exchange)
£37,500
Rental income
Stamp Duty Land Tax
£5,000
Mortgage payment (3.5% Interest Rate)
£328
Legal Fees
£1,000
Management Fees
£80
Furnishing
£3,600
Service Charges
£48.50
Mortgage Broker and Valuation Fees
£1,000
Ground Rent
£12.50
TOTAL REQUIRED TO BUY PROPERTY
£48,100
BALANCE AT MONTH END
£531
This monthly NET income of
Total cash invested £48,100
£531 will equate to £6,372 a
Total Annual NET Income: £6,331
year… Annual Return on investment: 13.16% plus
SUMMARY: 38
any growth in the value of the property 39
Scaling your portfolio
W
ith a 5, 10 or even 15 year plan, with targets set from
the outset an investor can track their success and better evaluate their position to reach their goals at the ideal time. After 5 years, an investment bought for £150,000 in a prime location with annual growth of 4%, we would expect to see a value of around £182,500. On this basis, using the same example property investment as before we can demonstrate how an investor can organically grow their portfolio over time.
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Property 1 Value at purchase
£150,000
Loan
£112,500
Cash input
£48,100
Property value at year 5
£182,500
Equity released
£24,375
Property 2
Applying this method of buying investment property might be a route you feel most comfortable with. Of course, those who wish Value at purchase
£125,000
to make use of a bigger cash pot from the outset might buy three
Loan
£93,750
properties and be able to significantly grow their portfolio
Cash input
£40,500*
from the amassed equity. Equally, after several years, an investor might wish to inject additional cash input into the portfolio and perhaps purchase further assets using a combination
*Only £16,125 additional funds required after the remortgage of property
of equity release and their
number 1
own funds.
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y
r ou portfo l i o
r t o f o p l i o r u o
i s f y r i e ng v i D
W
e continue to recommend
onward investments is to find a
that our investors diversify
similar opportunity, ideally in
ersifying Div y
their portfolio as they grow the
another location.
numbers of properties they hold. Diversifying a portfolio reduces an Whilst you may have had success
investors exposure to risk from
with property 1 in that location,
having ‘all their eggs in one
that opportunity was present at
basket’.
the time when you initially purchased – the key to any
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REASONS NOT TO INVEST IN PROPERTY
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I don’t have the time
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We’ve heard it many times, “I
professional management
don’t have the time to look for a
company that can oversee
property let alone manage
everything on your behalf to
property or find tenants.” We
ensure the property is looked
strive to make the information we
after and vet new tenants.
share as simple as possible so that
Maintenance might be another
it’s easy to digest and helps you
concern - the beauty of buying a
make a decisive and well-informed
newly built property is that it will
decision. When it comes to the
usually come with a building work
management of the property we
warranty and typically will be in
strongly recommend using a
good condition for several years. 49
It’s too risky Every type of investment comes
off-plan, look into the developer.
with a certain level of risk and
And when growing your portfolio
with property investment there
and therefore exposure –
are a number of ways to mitigate
diversify, spread the risk by
exposure. Firstly, due diligence
buying in different locations.
and thorough research into where and what you’re buying. If it’s
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I don’t have enough money
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Investors are often surprised at
Start small – grow organically.
how little the initial costs to get
Furthermore, an investment
started as a property investor
property should be self-sufficient
might be – we’re not suggesting
and pay for itself, with the right
your first investment is a
planning and investment it’s very
penthouse in Central London.
possible.
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It’s too complicated “ I don’t know what I’m doing”
direction of other sources of
All too often fear prevents people
information that might help ease
from taking action. We arm you
your mind and of course trusted
with all the information to help
advisors who are specialists in
you make well-informed decisions
their field that might help you.
and happily point you in the
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w Thirl o H
can hel p ?
W
n
m
Deac e r o e
e understand you’re busy and adding another item to your mental load, let
alone your actual day to day is something quite unappealing and perhaps even impossible. Creating a nest egg for your family and your children’s future is something that is worth making the time to do. We’re here to help you find a way to support your children and better their lives.
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Thirlmere Deacon London info@thirlmeredeacon.com + 44 (0) 2039507939 Lansdowne House, Berkeley Square, Mayfair, London, W1J 6ER
Thirlmere Deacon Dubai dubai@thirlmeredeacon.com +971 (0) 4 818 7277 Floor 30, Oberoi Business Centre, Business Bay, Dubai, United Arab Emirates