In this episode of WealthTalk, we explore the far-reaching impacts of the recent budget on property investment, drawing on insights from leading residential and commercial property experts.
Topics covered include changes to capital gains tax and stamp duty, the challenges now facing residential landlords, and the growing opportunities in commercial property.
Creativity in property acquisition is more important than ever, and pensions can serve as a powerful tool for investing in commercial properties. High streets, often overlooked, may hold untapped potential.
Additionally, we dive into the Renters Reform Bill and highlight emerging trends such as high-end HMOs and commercial-to-residential conversions.
If you’re serious about building wealth through smart property strategies, don’t miss this invaluable episode!
Resources Mentioned In This Episode:
>> WT266: ‘Pensions and Inheritance Tax – Post-bduget Q&A w/ Kevin Whelan’
>> The 2024 Autumn Budget Breakdown Report [Free Download]
>> The 2024 Autumn Budget Breakdown [Webinar Replays]
>> Co-Living Revolution – Stuart Scott [Website]
>> AA Accountants – Shaz Nawaz [Website]
Next Steps On Your Wealth Building Journey:
>> Join the WealthBuilders Facebook Community
>> Schedule a 1:1 call with one of our team
>> Become a member of WealthBuilders
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Christian Rodwell (00:02.019)
purpose of Wealth Talk is to educate, inform and hopefully entertain you on the subject of building your wealth. Wealth Builders recommends you should always take independent financial, tax or legal advice before making any decisions around your finances. Today's episode is brought to you by Wealth Builders Membership, a proven step-by-step process that helps you achieve financial security within two to three years. find out more, head to wealthbuilders.co.uk forward slash membership.
Hello and welcome to this week's episode of Wealth Talk. My name is Christian Rodwell, the membership director for Wealth Builders. Now, last week, we brought you the first of our post-budget live Q &A sessions, and we were focusing on some of the burning questions that our members had around the impact of the budget announcement, and especially around the topic of pensions and the inheritance tax. So if you missed that episode, then don't worry, you can find the link in today's show notes. And today, we turn our focus to property.
bring you the highlights from our sessions with commercial property experts, Kirsty Darkins and Susie Carter, as well as residential talk from the co-founder of Co-Living Revolution, Stuart Scott, and accountant and tax expert, Shaz Nawaz, joined of course by wealth builders founder, Kevin Whelan. So if you didn't catch the full live sessions that we did over the last few weeks, then don't worry, we've recorded them.
and they're available for free right now, along with our very own budget guides, which you can download. And to get your hands on these, head to www.wealthbuilders.co.uk forward slash budget hyphen breakdowns. And again, click on the show notes and you'll see the link there as well. So if you have any questions or are feeling uncertain on what actions you should be taking to create, build and protect your wealth following the autumn budget announcement,
then please book a free discovery call with our team. You can do that by heading to wealthbuilders.co.uk forward slash discovery call and simply pick a time that works best for you. Okay, let's head over to Kevin and second of our budget breakdown sessions. Let's dive straight into it. mean, really quite a spectacular budget. The biggest brunt of course falling on the business owners, but some
Christian Rodwell (02:25.336)
Property changes too. Kirsty, was the highlight for you just in terms of the impact on property owners? The highlight? Well, the highlight in commercial property was capital gains tax because it's coming to parity with residential, which is a bit of a boo from us, but then we have had it easy for quite a long time. So I guess, you know, that was one of the highlights. But I think really the highlight is the impact on businesses because for commercial property,
businesses are your tenants and they are your capital value. So we've really got to watch the impact of what came through the budget in terms of elevated costs for businesses, what that does to their decision making. Good call. And Susie, you'd mentioned you've been involved in residential properties. So, you know, a few residential landlords would have thrown their arms up in dismay about CGT or stamp duty for them. Do you want to just comment on that? Yeah. So obviously the
the second home or buy-to-let rate for stamp duty has gone up to 5%. And I think we have to put that in context. I never like to be too dramatic about these things. But obviously, it's going to have a big impact, especially when people are buying second homes or buy-to-lets in high house price areas. And that's not easy to say. Because obviously, the higher the house price is, the higher that stamp duty is going to be. And so...
I suspect if you're buying up north, it will still have an impact for sure, but it's going to be lower than if you're in a high price area. And I guess kind of some things that we can perhaps talk about coming off that in terms of what's the best way to achieve residential property? Is it going to be going forward, maybe even buying commercial and doing conversions? Because obviously, commercial has got a very different stamp duty regime.
more of a stepped sound duty regime. And the rate eventually does end up at 5%, but you've got a few stages to get through before you get there. So, yeah, I think that I know a lot of residential investors are looking at diversifying portfolios and moving into commercial as well, but this might be a little nudge in that direction, I suspect. I think one of the biggest areas of concern in the budget
Christian Rodwell (04:44.32)
was around the stamp duty changes that were there. That was a bit of a shock. However, it depends how you're buying and it depends what you're buying. Now, if you're just buying going straight in on standard residential HMO conversions, then yes, absolutely, that might be a bit of a shock and there are ways to mitigate some of that. However, if you're broadening your search and you're looking beyond into commercial conversions, or you're buying buildings that are not in habitable form,
or for example, they are eligible for a stamp duty reliefs, then again, there are some nuances to allow you to mitigate some of that, some of the costs there. again, depends. I think this all comes back, Kevin, to being in an environment where you have to be more creative. Getting this low hanging fruit obviously gets more expensive. Maybe you'll negotiate the price down. That's great. But I still think that as long as you're being creative in where you're acquiring and how you're negotiating these deals, there's plenty of deals to be done.
The important thing to comment on is that in commercial property, a tenant has fixed costs. So that's business rates, energy costs, staff costs, costs of stock, etc. And the rent they're able to pay is kind of residual of all that. So they obviously can't change their fixed costs, but they can potentially negotiate a better rent. So it's quite challenging as a commercial landlord if there's very high fixed costs to get a really great rent. So in the retail sector, in particular, leisure hospitality, I think that, you know,
rents will be in some locations and not everywhere. This is where kind of the devil's in the detail. I think that rents will be under some pressure just because fixed costs are going up. Kirsty, any thoughts on where you're seeing the growth in this sort of either the tenant type or the type of property that will kind of benefit from the reaction to the changes? I think, you know, ultimately we always want to mitigate risk and where I always go with the high street is multi-legged.
properties. So not your single lets, but your multi-let where you've got multiple businesses and also your tenant type. So we're seeing the types of businesses occupying high streets change. It's been changing for years. It's always been changing. Actually, I don't know about you, Susie, but it seems to be changing for 25 years, the full time that I've been in commercial property. And that's how it works. So a bit like buy to let isn't dead. But is it worth it? Is the question. I always think that's the question for investing in particular high streets.
Christian Rodwell (07:12.846)
Is it worthwhile investing in this high street? Is this high street dead? Is it thriving? And actually the ones that are thriving have the tenant mix, which is very varied. So brands and independents, you've got professionals and healthcare mixed in there using what used to be real retail space as offices. You know, that's a really strong mix. So I think it will help multi-let properties. I think it will help businesses make decisions because their costs will be fixed. So rather than having
the change coming around every few years for business rates, they'll have a bit more certainty of those total occupancy costs, which helps businesses to plan and to invest and to make decisions. So I guess that's one of the upsides. A few people are asking if there are any sectors that either of you feel in terms of commercial property that there might be a glimmer of light, anything on that, There's always glimmers of light everywhere.
An example of a glimmer of light. I'm not saying, look, I'm an optimist person. I always live on that side of the fence. But in all seriousness, high streets are the most misunderstood opportunity we have in commercial. So many people believe the rhetoric. High streets are dying. High streets are dead. High streets are, no, they aren't. And we should always be greedy where others are fearful.
And so for me, the focus on fixing those costs for retail hospitality, leisure, RHL properties only strengthens the strong high streets further and helps those businesses. So I'm just going, well, I was going to invest in even more high street because I tell you, industrial is often seen as the star.
of commercial. Now I invest in industrial myself, but I'm telling you the cost base for industrial is becoming ridiculous because rents have been going up and up and up and up for five years and the business rates have increased with the rents. And now the bigger logistics, the manufacturing operators are going to end up paying even more business rates with the new system that's coming in. for me, the sweet spot is knowing how
Christian Rodwell (09:30.946)
to find investable high streets and investing in the right properties within them. Yeah, good point. Anything you want to add, Susie, in terms of that? Yeah, I I agree with the cost base of industrial. I really love industrial. It's one of my faves. And I think that there is a direction of travel where, you know, now with a big push on housing, you know, the Labour Party, you know, going to build a 1.5 million.
being by the end of the parliament. Let's see how that goes, shall we? But what we're going to see is local plans now, virtually every available site is going to be allocated for housing because there's housing targets being put in. And we all know that there's a growing demand for industrial. It serves a lot of the trends happening in our economy right now. And there's just not going to be enough of it. So there's not going to be enough planning granted. There's not going to be enough land allocated to it.
And so therefore, not in every location, again, this is a skill in investing. In some locations, supply and demand is going to be, so no matter how high the cost base, there's going to be opportunities. And of course, we've got all these big announcements of investment. You've got your infrastructure investments that are going to improve certain towns across the UK.
you've got your free ports. I mean, I have to say I'm slightly cynical about free ports. I'm old enough to remember enterprise zones and we know how they ended. We take all of this with a big pinch of salt, but there are definitely going to be localized opportunities where savvy investors will be able to make a reasonably large amount of money from some of these opportunities that being announced. are a few people asking questions about the likelihood of any changes or your own thoughts on
the commercial to residential opportunity. where residential is being hit by highest amp duty and so on. But the commercial to residential affords an opportunity to increase the value because the pounds per square foot of a commercial premises is less than the pounds per foot of a resi one. So what are you seeing in that way, Kirsten?
Christian Rodwell (11:44.03)
I focus mostly on commercial investment rather than commercial to ready because I find commercial to ready a very competitive crowded space. If I'm honest and bill costs have increased so substantially that actually in my investment patch, I feel in the Southeast, it's different matter. But in my investment patch in the Midlands, it's very difficult to get the numbers to stack, to be honest. And also there are lots of ways in commercial property to add value without doing any physical development work.
which as I get older is my preference because I like more holidays and have more freedom. So, you know, my own reason for investing is time freedom and commercial to Rezzi doesn't do that for me. Now, undoubtedly there are buildings, particularly office buildings, which need a repurpose and edges of high streets. so undoubtedly there are opportunities for everything I hear from clients who are in that space or who are
diversifying out of that space is there's such high competition for deals that it's hard to get the numbers to stack. And so I've really stayed away from it for the last couple of years. And my focus and my tip actually is to look at commercial to commercial development because not many people are doing that. And what do I mean by that? I mean, for example, the property I've just converted from one industrial warehouse into five separate units and tenanted and intensified the use and
uplifted the value substantially. mean, a high street unit where I've got Greggs on the ground floor who are now extending all the way back into the rear of the ground floor, new 10-year lease, refurbishing the first floor, letting that to a commercial tenant and keeping it all commercial. And that blows some people's brains. They go, don't even know you could do that. Are you seeing anything different, Susie, on that? Yeah, I mean, I definitely agree with Kirsty. I've literally lost.
track of the number of clients that have come to me with a commercial to residential conversion. And the very first thing I say to them is, right, let's look at the commercial base case. And actually I would say nine times out of 10, the commercial stacks better than the commercial to resi conversion, not everywhere, granted, but in a lot of locations it does. And it's so much easier, you know, doing a lease renewal, having a tenant there, being hands off on a full repairing, insuring lease, what's not to like, I've done it myself.
Christian Rodwell (14:08.43)
And for me, that's a much easier way of making money than getting your hands dirty and doing And don't you explain what an FRI lease is to those people who are uninitiated on it? Absolutely. So it's one of the wonders of the modern world, is and insuring lease in commercial property. So a full repairing and insuring lease is basically where you hand the property to the tenant at the beginning of the lease.
They have a responsibility for repairing the inside and the outside of the property and ensuring it all. And when they hand it back to you, they have to hand it back in the same condition that you gave it to them. Same condition. I assume, or better. Yeah, well, yeah. A bit of wear and tear allowed, but that's about it. And so, I I definitely never advocate passive income. There's no such thing as passive income, right? You always have to check in on tenants and stuff. But in property,
It's about as close as you're going to get because, you know, if you think about what you have to take off your residential income, know, you avoid your maintenance, et cetera. You're not going to have to do that with a full repairing, assuringly. So it's a really, really good thing. And I definitely think that a multi-let is absolutely the way to go. You know, when I have, again, when I have a lot of clients coming to me looking at office buildings to convert, multi-let.
multiple occupation, lots of different uses, storage, beauty salons, et cetera, in an office block and work super well. One of my clients has just doubled the value of a property by doing that particular strategy. And if I may, Kevin, just one more thing on that, I think, is one thing that obviously the Chancellor didn't talk about permitted development rights. And obviously that's one thing that's really fueled the commercial residential market in the UK. Well, sorry, in England, rather. I suspect, and I've kind of put a small wager on it, I might be wrong.
But I suspect that I think probably January time, beginning of the new year, there will probably be some announcements on permitted development. don't think that the Labour Party, I might be wrong, but I don't think the Labour Party is going to necessarily get rid of permitted development. But I suspect there might be an element of affordable housing come into permitted development. Previously, the Labour Party has been talking about, you know, we're going to get rid of it. But it provides 20,000 homes a year.
Christian Rodwell (16:27.712)
So are they really going to if they've got this big housing target? I don't know. But they're very hot on social housing, affordable housing. So I suspect that that might be introduced into public development, in which case, obviously, that's going to potentially make those conversions more challenging. One of the things which was kind of connected to the budget but was in the background was the renters reform bill. obviously, one
There's actually one thing in that bill that I'm a little bit concerned by as a developer and a landlord. And it's not the removal of Section 21 because I think we all expected that to go. OK, so I don't think any of us expected that to stay. But the one part that is a little bit ambiguity to it is this ability to contend rent increases. What do you mean by contend? So, for example, you have a rent, OK, £750 a month rent. Yeah, Kevin, on one of your
HMO rooms, okay? And you decide to put it up to £850. Okay, someone could rightly come back and say, Kevin, that's a bit excessive. I think that that should be going up £50, not £100. Okay. So again, nothing particularly wrong with that. I don't think any of us have that much of an issue with that as a concept, because you could argue, okay, is that inflation based? Is that in market line? You're just wanting to put it up from the £750 that you had at Kevin to an £850 that you want to go to. But
The one part that I was concerned by is I heard a lawyer looking at it saying there was an area of ambiguity that the same claim, so they could claim and say, actually, no, I think that's unjust. But actually, I think that the original rent I was paying was too high from market rent, like market, not defining high end, low end, but market rent. So there was a little bit in there that I'm sure it may not be anything, but that's one area that I want to
I want to really focus on when that detail comes out. I want to see how we navigate that. Because obviously, from my perspective, my view on rents is with a labor government, you've got to make sure proactively that your rents are all up at the high level. You do not want to be one of those landlords goes, do know what? I haven't put my rents up for five years. They're too low. You've got to make sure every year
Christian Rodwell (18:54.348)
you are adjusting and moving your rent to that top tier so that if anything does come in with regards to being able to put it up at a certain percentage, you are not trying to catch up. You are already at the top of where you need to be.
We're already at the bottom of the market in commercial, probably at the start of an upturn, although this might make the upturn a bit slower, I think, while people work out the detail of exactly what is happening come April 25 and before for some of the changes that are happening. So I don't actually feel this is going to change play. I feel very much keep calm and carry on and that there were already
many investors looking to diversify into commercial for reasons other than those that have come through the budget. And that is likely to continue. do think one area where people have got a lot of questions, the area that where I've had the most questions in the last week, are SaaS pension investors trying to work out what does it mean for how I invest my pension funds. And of course, because you can invest
pension funds directly into commercial property and many of our clients do, I invest my own pension in commercial property as well. People's roadmap has suddenly become a bit blurry and everybody's feeling like, is this the right thing to be doing? I don't know. Now I've taken some advice from a couple of IFAs that I work with and I have some, you know, which has given me things to think about and have my own view. But I think there are a lot of questions around that and I can see some popping up.
in the group as well.
Christian Rodwell (20:42.7)
I think the market is at the moment and finding those kind of deals that are going to stack. Now we've had the high interest rates for a while. So that has kind of led us, Kevin, into this environment where you can't just do the standard deals you would have done years ago. You've got to get smarter as a developer. That means that you've got to be looking at high cash flowing alternatives. So for example, if you were looking at biter lets before, you want to be looking at HMOs now. If you were looking at vanilla HMOs before, you want to be looking at high end HMOs now.
You also want to be creative with the kinds of buildings you're looking at. we touched on it. think Shaz touched on it as well. So for example, rather than just buying a traditional residential house, there are many different types of buildings that you can convert into HMOs that then become high-end. So for example, you're buying buildings where you're buying well, you're adding value, you're creating a high-end product which is going to drive the higher valuations.
and also drive the higher cash flow as well. So we're having to, as developers, enhance our toolkit. So for everyone that's kind of listening, primarily, if you're looking to diversify, you're looking to mitigate some of these costs, I think it's important as a developer to basically improve your toolkit of skills so that you know how to get better deals that kick off much better cash flow and leave less money in the deal as well.
So everybody, you when you talk about business, everything is downstream from lead generation, from building a list of people to potentially talk to. When it comes to property, everything's downstream from finding property. So are you saying that if you can put as much energy into the creativity of being able to look at every property that comes across your field of vision and identify
multiple ways of turning that into an opportunity rather than saying, do this strategy, I do that strategy, I do this strategy only and pigeonhole yourself or box yourself into a corner, which therefore means you could be spending loads of time looking at deals that don't stack for you, but could stack for somebody else. Yeah, just take just take HMOs as one one strategy. You've got student HMOs, professional HMOs.
Christian Rodwell (23:06.518)
You've got residential houses into HMOs. You've got sui generis, larger HMOs. You've got probect properties to convert into HMOs. And of course, you've got commercial conversions that can be converted into HMOs through a use class change and potentially with the backup of some committed development as a fallback position as well. So there's lots of, even in the world of just HMOs, once you basically increase your toolkit of skills, you realize that there are lots of ways
to get to the same end goal. Because remember, if the end goal is to create a high-end HMO product, it doesn't really matter what the building was before we started. We, Kevin, just have to be more creative on the kind of buildings that we're looking at. And like I say, residential, commercial, I think it's important that... I mean, the way I see most people transitioning through their property journey is that most people start with a five, six bed HMO. They cut their teeth on something like that.
And then they build the portfolio slightly and inevitably, and Shaz may have seen this as well, people will inevitably at some point see something on the high street. And at that point, they're going to want to understand how do I stack and analyze stuff that is effectively commercial in nature. So really everybody goes through a kind of evolution from small HMO to sui generis HMO, the commercial version and all the creativity in between. So really all of that is just.
us as developers improving our toolkit of skills. So I would say commercial to commercial development is a niche that I don't find many people focusing on. Yeah, it's a good point. We've definitely seen some of our SaaS clients see that niche for themselves and using their pensions to buy property then converted into almost a multi-let or smaller tenants so that it
know separating the utilities making it really easy to do and creating a high yield for that so that's a that's definitely a good chat. I'm just going to pick on a couple of pension questions because as usual pensions are a little confusing. Somebody's saying where is it does that mean the money purchase allowance is no more? Well the the money purchase annual allowance has got nothing to do with inheritance tax.
Christian Rodwell (25:29.998)
The money purchase annual allowances how much you can pay into your pension essentially which is still 60,000. So you've still got the 60,000 contribution. You've still got the ability to mop up previous tax years up to three years as well. You've also got within SAS what's known as the general unallocated fund which allows you to put in half a million pounds in one single year and get the corporation tax back.
in one year. So there's still some incredible opportunities. And one of the things that's sometimes worth restating for people is, when you're looking at your pension part, you're getting corporation tax relief for 25%. Then instead of paying the dividend tax, which is now pushing 40, isn't it? 39 % give or take, you you add those two together to get money out of your pension, out of your company, I'm sorry, it's going to cost you 60 % of your money. Whereas
If you pay the money into the pension, you get your corporation tax back. You don't pay the dividend tax, but you've still got a loan of up to 50 % to your company to do more interesting things. And you're still growing your pension fund completely CGT free. So lots and lots of real good benefits. Why, you know, a SaaS pension in particular, or any pension really, a SIP can buy commercial property all day long as well. Or certainly most SIPs can. But the, the issue with
Somebody's asked a question which is an interesting one, which is if I've got a commercial property which is there inside my SIP or SAS, let's say, and I die, is the inheritance tax only in the cash that's left over? Nice try, but no cigar on that one. I'm afraid what would happen is your whole pension would be revalued, including the value of your commercial property in that. So you can't really avoid the tax just by...
holding properties opposed to holding other assets. All assets get caught into the same trap. also as a SaaS can't own a company, some people think it can, it can't, because it can't be sued. It's a separate trust fund. So it can't own a family investment company. It can't go into alphabet structures because there's no shares. So it just doesn't work. In order to build wealth, you're always going to have to learn new things.
Christian Rodwell (27:56.556)
And that means learning new words, learning new tactics, learning new strategies, new things. Stuart, somebody said, could you please explain, because I think people get mixed up with Airbnb as a strategy, which it isn't, it's a channel to market, isn't it? Could you please tell us what actually is an apartheid hotel and why is it different from anything else that's possibly on the progression towards that?
just to give the clarity of the language. Yeah, cool. Okay. So previously, many, many years ago, when I started building my portfolio, I had some of my vitalettes that I use, C3 residential vitalettes that I used as service accommodation. Okay. That's part of what the legislation is coming in for to sort that problem out. So I was using some of them as, as SA. Okay. And I realized quite early on, this is back in 2016, I realized that I was having problems with neighbors. It was a bit of a problem anyway.
So at that point, I identified that there was an opportunity to look into guest houses, B &Bs and hotels. Okay, they are C1 classification. And so what I actually did back in 2016 was I became a hotelier, a C1 hotelier. Okay, so I basically mastered the new use class, understood funding and everything else. And really what I did with hotels, C1 hotels, is that I adapted the buildings
reconfigured the buildings to get multiple letting units in the buildings. Okay. So although I refer to them as studios, they are not residential studios. They do not adhere to any residential space standards and they do not have to. I'm not going through a change of use. I'm not going through a planning application. They are all within the C1 use class. So apart hotels, depending on what you're doing on level of self-containment, the apart hotels that we have
have different levels of self-containment within them, which is taking the learnings from service accommodation. And that, the hotel world, we're taking the density. Okay, so when you go to a hotel, it's got like 20 rooms, 30 rooms, 40 rooms, 50 rooms, that's density. So we're taking the density and the systemization of a hotel, and we're taking the self-containment from the world of service departments. And so my first department I launched in 2016 has got 12 units in it.
Christian Rodwell (30:19.756)
And each of those units sleep between two people up to six people. Okay. So, but we've got that density in there. So we've got the density in the building and then we bought our second site a couple of years after. So apart hotels, it depends how you convert them. But generally speaking, they will be under the C1 use class, which is very, very important. They're not residential. We're not talking about a block of apartments that happen to be used as service accommodation, because if a block of apartments are C3,
That is a C3 block of apartments. And when the government drops their legislation in next year, you will have to go through checking whether they will go through to C5, the new planning class. But apart hotels, if you are dealing with the larger ones that are converted out of guesthouse B &Bs hotels, or commercial conversion into a party, so generally speaking, they're under the C1 use class. What I would say to everyone is that there are areas of opportunity here.
If you're already in Byte-a-let, I would say that if you want to upskill into the world of HMOs and high-end HMOs and obviously get in contact with me, if you also want to learn more about how to do commercial into HMO, which of course is on lower stamp duty. So again, that is a niche, is that. you're combining two strategies there, commercial to residential and commercial to HMO. And that's high-end HMO. So again, there's opportunities there.
I think that's going to be an emerging market where a lot of people who are thinking about commercial go, actually, think commercial is looking more interesting. also, the other thing about commercial is you don't have to do a huge, huge commercial building. There are lots of buildings on the high street, which are in small to medium scale, which most people who've done buy-to-lets are more than capable of doing those kinds of projects. Okay, so there's a lot of opportunity there.
Christian Rodwell (32:14.69)
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