In this week’s article, Simon Zutshi will be talking you through how you can invest in the UK from overseas. First, is it really possible to invest remotely if you are not in a location - can you really invest there?
Is Overseas Investing Possible?
Well, I think yes, it is. I've purchased several properties which I have never personally visited. I've also never even physically met the seller. The whole deal has been done over the telephone. Now obviously I did have someone on the ground who went and looked at the properties for me, took pictures, send a report to make sure it was everything I expected it to be. But the actual deal itself and finding the seller, everything was done remotely. So, I absolutely know that it's possible.
Now you do need to know what you are doing, and you need to have a local power team on the ground who can help you. So, if you're an overseas investor, couple of people, that power team might be first of all a property tax specialist who can help you set up a company in the right way to minimise your tax.
"The whole point is you need people on the ground who you could trust and do a lot of the leg work for you, and obviously you are paying them for that.”
You also need to have a mortgage broker who understands exactly how to get finance for overseas investors. Most UK brokers probably wouldn't know how to do that. So, there are some specialist ones that we use. You might want local estate agents, you can work directly with estate agents to find deals for you, but also you might have local property sourcers.
We could talk more about sourcers later. That can be a great way to find deals, but not all sourcers know what they're doing. So just be careful there.
The whole point is you need people on the ground who you could trust and who go do a lot of the leg work for you and obviously you are paying them for that. The good news is we have a very big network which you could tap into. So how do you invest from abroad?
Setting Up a UK Limited Company
What are the mechanics of doing that? Well, first, you need to set up a UK company. You can buy property in your own name, however, it's much harder to do that.
In terms of financing and taxation, it really is better to set up a UK property company. That can be done with the help of a property tax accountant. He will set it up and structure it in the right way and it's very straightforward to do what's slightly more challenging. You do however need to also set up a business bank account for your UK company.
Sometimes if you have a local bank where you live and they have a branch in the UK, going through them might be a good solution. But there are also some online banks such as Starling and Tide, et cetera. Opening an account through them might be another solution as well.
Once you've got your business bank account set up, you can then transfer funds into that business and start using those funds to purchase property. All banks will do the anti-money laundering checks just to make sure that funds have not come from the proceeds of crime. But once your money's in the UK you can then start using that.
There are also lenders who will provide mortgages to brand new companies even if they've got no track record and if they've got overseas investors that own them, there's only a handful of them, but there are certainly companies right now that can help fund your property purchases. Then obviously you can start building your cash generating portfolio and get other people to manage your properties for you. Even my clients who are based in the UK, I encourage them not to manage properties themselves, and to get other people to do it for them, because managing properties is probably not the best use of your time.
You can pay someone else that and you can focus on the activities where you are adding the most value.
Very often people say, well, what kind of taxes am I going to pay if I'm investing in the property in the UK as an overseas investor? Assuming you have your properties within a corporate structure, a limited company profit made within that company will be subject to UK corporation tax. Currently at 19% but obviously those rates do change - go online just to check what the current rate is.
The whole idea is that if you buy and sell a property, all that profit goes into the business, and you just pay tax at a corporation rate. You have a choice on how you then get money out of the business. If you've put a loan into the UK business, you can take all that money out back to your home country, once there's profit in there. You will pay no tax on that money because you are just getting your money back.
"Even my clients who are based in the uk, I encourage them not to manage properties themselves, and to get other people to do it for them, because managing properties is probably not the best use of your time."
That was just a loan. So that's the first thing you could do. The other thing you can do is you could send an invoice to the UK company for your services from a foreign company.
Send an invoice to the UK company for your services from a foreign company
That invoice is deductible against expenses in the UK and then your foreign company would receive the money. You'll need to deal with that in the way you would do normally pay tax in your local country. Or finally you could accept dividends, which is a payment from your company that would be subject to tax in the UK and then take the money overseas and any tax you've paid in the UK.
You'd be able to deduct from the tax you paid in your home country because most countries have a dual tax treaty with the UK. So that's a little bit about understanding the tax situation. The next thing is, well where in the UK should you actually invest?
Well, this depends on several factors. How much money do you have initially to start with? In some parts of the country, you can buy a property for £80,000, you might only need a £20,000 deposit to get going. Some parts of the country you might be buying for £500,000 as a rental property. So, it depends how much money you have to start off in the first place. It also depends on what you actually want to achieve.
Certain parts of the country such as up north and in the Midlands, you might get better cash flow from your property, whereas in other parts of the country down south and around London, you might get better equity growth. You might already have some connections in a local city or town, maybe you've got some family members or relations who live there or some friends.
But having some people on the ground is always an advisable thing to do and people often say, Simon, can you tell us about the latest hotspot to invest? Well, I never recommend hotspots. The simple reason is that what's hot right now, if in six months or 12 months’ time you act on their recommendation, there might be somewhere that's a better hotspot.
So instead of doing that, I encourage people to follow the five golden rules that I talk about in Property Magic.
I think it's worth having a diversified portfolio so that it's always good to spread your risk. So rather than putting all your money into one location, you might pick two different locations in the UK, and you might have two slightly different strategies. You might have some Single Let properties, you might have some HMO properties just to spread the risk.
Is Now a Good Time to Invest?
Now you might think, well, is now a really good time to be investing in the UK? For the last 10 years, the property market's been booming and in fact, in the last six months we've actually had a mini boom in the property market. That means that prices are actually a little bit high right now.
The UK has been massively hit by the Covid 19 pandemic. We've gone into a big recession here. There's going to be lots of commercial property coming on the market because lots of businesses, shops and restaurants have shut and that's going to have a knock-on effect. Unemployment's going to go up, so we're going to see a drop in property prices in 2021. So is it a good time to buy or should we wait? Well, many amateur investors are waiting not knowing what to do, but actually the professionals were getting out with buying property right now.
People say, well hang on Simon, if the prices are going to come down, maybe we should wait.
Maybe we should wait until the market hits the bottom then we should buy. Now, whilst in theory that is a very good idea, no one knows when it's going to hit the bottom. So rather than waiting and guessing, I believe if a property stacks up now, if it gives you great cash flow right now and you're prepared to hold for the long term, then there's nothing wrong with buying it right now. When prices are on the way down, it's easier to get a discount rather than when the prices have reached the bottom and they're starting to come up again, and everyone believes they're on their way up. It's going to be harder to get a discount at that time because most sellers are going to have the expectation and hope that someone's going to come along and pay them more for their property.
So now is always a good time to invest if you know what you're doing and as long as you follow my five golden rules. Let me quickly remind you about those. Rule number one is we want to buy from a motivated seller. When the market comes down, there are always motivated sellers. Even in a rising market, there are still people who need to sell quickly. Number two is we buy in an area of strong rental demand. We want to make sure we can quickly and easily rent this property out and we can check that by going online, speaking to local, letting agents and seeing if there's real strong demand in the area in which we're looking to buy.
Rule number three, we always buy for positive cash flow. That means at the end of the month there must be some money left over. Now a lot of foreign investors park their money in the UL. They're not so bothered about the rental income, but I think that's expensive and it's a bit of a liability. It's much better if the property in the UK is generating income for you as well as the potential long term capital growth.
Rule number four is we want to buy for the long term. If you think about it, if you adhere to rule two, three, and four, it doesn't matter if short term the values come down because we're not looking to sell, we're looking to hold the property long term.
"So rather than putting all your money into one location, you might pick two different locations in the UK and you might have two slightly different strategies. You might have some Single Let properties, you might have some HMO properties just to spread the risk."
It doesn't matter if you buy a property in the next six months and in the 12 months, it's slightly lower in value because we're holding for the long term there.
It's important to make sure, rule number five, you have a cash buffer, some money put aside to cover the unexpected expenses. This could be on a credit card, it could be on a bank, could be a friend's bank. It's just some money to make sure if you have a problem with the property, you can get it fixed to make sure you can quickly get it rented out again.
There are some challenges for overseas investors. Understanding the property market might be different from where you live. You need to make sure you understand the buying process and the costs, et cetera. Many overseas investors just buy properties when developers do international roadshows and they go to Hong Kong, Singapore to buy these glossy brochures.
They hire a nice hotel, they put on some drinks and food and, and people come and buy properties and sometimes they're good deals, sometimes they're not such good deals. But I think if you go direct yourself and either work with the estate agents or property sourcers in the UK, you're probably going to get a much better deal.
As long as you educate yourself and know what you're looking for, it's going be much better for you.
Simon Zutshi
Founder, property investors network
Founder, Property Mastermind Programme
Author, Property Magic
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