Garages

[mm511]

As the title suggests I am looking at buying a garage, this is in a nice part of town, with a waiting time of almost 2 years to get a parking permit.

I'm not just looking to buy it and rent it out, as I have other uses I would have for it.

Currently listed in Brighton for £40k o.r.i.o ~

For reference
Most garages in the area rent out their spaces for £150/pm
This garage somehow has a tenant paying £1.2k a month - I'm not banking on this though!

Just wondering what people's experiences with this has been?

[Croutons]

That it's a typo given no-one in their right mind would be giving up a yield like that?

There is good news with garages, namely little to maintain, and your rental agreement does not need to be an AST, given its not living accommodation, but a commercial arrangement. So you can have a Draconian clause in it for the renter to forfeit all content if they miss rental payments. A la daytime telly.

Insurance can be costly though, especially if there's any history of fire in the vicinity. Get quotes first, you'd be surprised how bad they can be. Naturally if you buy a group of garages the longer term aim can be planning permission for an alternative, but if it's just a single unit Obvs your gain is whatever you can rent it for, plus or minus whatever the market gives you growth wise, over which save planning or a cosmetic overhaul, you'll have little to no control.

Edited by Croutons on Saturday 6th April 09:47

[mm511]

Croutons said:

That it's a typo given no-one in their right mind would be giving up a yield like that?

There is good news with garages, namely little to maintain, and your rental agreement does not need to be an AST, given its not living accommodation, but a commercial arrangement. So you can have a Draconian clause in it for the renter to forfeit all content if they miss rental payments. A la daytime telly.

Insurance can be costly though, especially if there's any history of fire in the vicinity. Get quotes first, you'd be surprised how bad they can be. Naturally if you buy a group of garages the longer term aim can be planning permission for an alternative, but if it's just a single unit Obvs your gain is whatever you can rent it for, plus or minus whatever the market gives you growth wise, over which save planning or a cosmetic overhaul, you'll have little to no control.

Edited by Croutons on Saturday 6th April 09:47

I challenged the estate agent selling this and definitely would want proof of that, I can't imagine why it would be getting sold but it is just one unit.

Is the forfeiture a real law?!

[Condi]

Even if they are getting £1.2k a month (which I agree looks unlikely), you still have to work out any rental yield against the wider market. If they move out on day 1 of your ownership and the market will only pay £100 a month you're going to have to take £100/m or have an empty garage.

[Croutons]

mm511 said:

Is the forfeiture a real law?!

What do you mean "real law"? Renting a garage is not renting a residential property, I say again it's a commercial arrangement, so the terms are up to the parties to agree. As stock you'd include a clause saying on non payment of rent the owner takes possession of, and title to all contents remaining moves to the owner, permitting them to dispose of them as they please (so they can re-let the garage and not have to worry about the non-payor coming to collect or otherwise be handstrung with "saving" the content for them elsewhere).

[JulianPH]

There is, of course, a very simple way in which you could buy the £40,000 garage for £32,000, £26,000 or even £22,000.

Put £32,000 into a SIPP. This will automatically be topped up to £40,000 and your SIPP can buy the garage for you.

If you are a higher rate taxpayer you can then reclaim a further £8,000 on your tax return. A highest rate taxpayer can reclaim a further £4,000 (so a £12,000 total reclaim).

Any future growth in the value (and any rental income received - which would go straight into your SIPP) would also be tax free.

Obviously you would need to ensure any SIPP charges did not outweigh the tax benefits, but if you already have pension/SIPP funds there is one provider that will hold commercial property at no charge. Your would need to check out the sticky at the top of this thread!

I have to say I am intrigued as to why someone living in Derby would have a use for a garage in Brighton, but that is none of my business!

[Frankthered]

JulianPH said:

There is, of course, a very simple way in which you could buy the £40,000 garage for £32,000, £26,000 or even £22,000.

Put £32,000 into a SIPP. This will automatically be topped up to £40,000 and your SIPP can buy the garage for you.

If you are a higher rate taxpayer you can then reclaim a further £8,000 on your tax return. A highest rate taxpayer can reclaim a further £4,000 (so a £12,000 total reclaim).

Any future growth in the value (and any rental income received - which would go straight into your SIPP) would also be tax free.

Obviously you would need to ensure any SIPP charges did not outweigh the tax benefits, but if you already have pension/SIPP funds there is one provider that will hold commercial property at no charge. Your would need to check out the sticky at the top of this thread!

I have to say I am intrigued as to why someone living in Derby would have a use for a garage in Brighton, but that is none of my business!

At the risk of hijacking the thread (sorry OP!).

I could really use a garage for additional storage and to free-up parking close to home. It just so happens that there is a garage that's in a block about ten minutes away from home that is for sale. It's up at £15k. I don't have £15k lying around to buy it, but I do have a pension pot that could cover it.

What Julian states above suggests I could use money from my pension pot to buy it and then I rent the garage from my pension for (going rate) per month which effectively becomes a pension contribution. As and when I no longer need the storage, I (my pension) can then rent it out to somebody else or sell up and the money goes back into pension.

Am I missing something here?

It feels like something that's a bit dubious (the bit about renting it to myself) but if it's not, I could be onto a winner here!!

[JulianPH]

Frankthered said:

JulianPH said:

There is, of course, a very simple way in which you could buy the £40,000 garage for £32,000, £26,000 or even £22,000.

Put £32,000 into a SIPP. This will automatically be topped up to £40,000 and your SIPP can buy the garage for you.

If you are a higher rate taxpayer you can then reclaim a further £8,000 on your tax return. A highest rate taxpayer can reclaim a further £4,000 (so a £12,000 total reclaim).

Any future growth in the value (and any rental income received - which would go straight into your SIPP) would also be tax free.

Obviously you would need to ensure any SIPP charges did not outweigh the tax benefits, but if you already have pension/SIPP funds there is one provider that will hold commercial property at no charge. Your would need to check out the sticky at the top of this thread!

I have to say I am intrigued as to why someone living in Derby would have a use for a garage in Brighton, but that is none of my business!

At the risk of hijacking the thread (sorry OP!).

I could really use a garage for additional storage and to free-up parking close to home. It just so happens that there is a garage that's in a block about ten minutes away from home that is for sale. It's up at £15k. I don't have £15k lying around to buy it, but I do have a pension pot that could cover it.

What Julian states above suggests I could use money from my pension pot to buy it and then I rent the garage from my pension for (going rate) per month which effectively becomes a pension contribution. As and when I no longer need the storage, I (my pension) can then rent it out to somebody else or sell up and the money goes back into pension.

Am I missing something here?

It feels like something that's a bit dubious (the bit about renting it to myself) but if it's not, I could be onto a winner here!!

A garage is simply a form of commercial property and therefore your SIPP can buy it and rent it out. It is usually the case that it is the owners of the SIPP rent it for themselves (or their business rents it). Nothing dubious and very established common practise.

The rent has to be at a fair market value though and is not a pension contribution (so wouldn't be eligible for tax relief) but is instead simply the income yield on the investment.

Other than that everything else is spot on. Don't forget, however, that any SIPP fees for holding the property (garage) need to be factored in.

It may be that much of the rental income you (or someone else) pays goes towards SIPP fees. When this is you that may not be a problem, but when it is someone else you may not like losing much of the rental income and only benefiting from any capital growth.

If you post regarding this on the Intelligent Money sticky at the top of this thread I can give further information on options you may have.

Cheers

[mm511]

JulianPH said:

There is, of course, a very simple way in which you could buy the £40,000 garage for £32,000, £26,000 or even £22,000.

Put £32,000 into a SIPP. This will automatically be topped up to £40,000 and your SIPP can buy the garage for you.

If you are a higher rate taxpayer you can then reclaim a further £8,000 on your tax return. A highest rate taxpayer can reclaim a further £4,000 (so a £12,000 total reclaim).

Any future growth in the value (and any rental income received - which would go straight into your SIPP) would also be tax free.

Obviously you would need to ensure any SIPP charges did not outweigh the tax benefits, but if you already have pension/SIPP funds there is one provider that will hold commercial property at no charge. Your would need to check out the sticky at the top of this thread!

I have to say I am intrigued as to why someone living in Derby would have a use for a garage in Brighton, but that is none of my business!

Hi Julian I actually live in Brighton now so no dodgy business here haha.

Thanks for this.

The estate agent did get back to me and it was £1200 per year not per month. So the SIPP idea does sound great. It's just there's a new building being built DIRECTLY infront of this garage and the council won't be dishing out permits in a hurry.

Just been looking at mortgages for 40k and payments seem to be £90 per month.

If I managed to rent it out for £150 could I use the extra £60 to over pay the mortgage or will I have to pay tax on that?

Or is the SIPP a better idea? (At the point of speaking I don't know what one is so I'm about to do some homework).

[mm511]

Frankthered said:

At the risk of hijacking the thread (sorry OP!).

I could really use a garage for additional storage and to free-up parking close to home. It just so happens that there is a garage that's in a block about ten minutes away from home that is for sale. It's up at £15k. I don't have £15k lying around to buy it, but I do have a pension pot that could cover it.

What Julian states above suggests I could use money from my pension pot to buy it and then I rent the garage from my pension for (going rate) per month which effectively becomes a pension contribution. As and when I no longer need the storage, I (my pension) can then rent it out to somebody else or sell up and the money goes back into pension.

Am I missing something here?

It feels like something that's a bit dubious (the bit about renting it to myself) but if it's not, I could be onto a winner here!!

All I can say is £15k is a steal. Find a way to get it. My laziness has cost me almost £10k, these garages were going for £25k last year.

[JulianPH]

To all here, I'll use round numbers and some assumptions (one for a higher rate taxpayer and one for a basic rate taxpayer, which we will start with):

Basic rate taxpayers

If you place £8,000 into a pension this is automatically increased to £10,000. Your SIPP provider is able to borrow 50% of your SIPP value (so £5,000 in this example). This would give your SIPP the £15,000 required to buy the garage at asking price, without you personally having to apply for a mortgage.

Higher rate taxpayers

If you place £32,000 into a SIPP this will automatically be increased to £40,000 and you can claim a further £8,000 back on your tax return.

This means you spent £24,000 to have £40,000 in your SIPP. Your SIPP can borrow a further £20,000 (50%) if required, but to purchase the £40,000 garage you do not need this borrowing.

Another way of looking at this is that a higher rate taxpayer can put £21,334 into a SIPP, this would become £26,667 with basic rate tax relief and then ask their SIPP provider to borrow 50% of this.

A higher rate taxpayer would also get back a further £4,266 - thereby bringing the purchase cost down to £19,734. So just under half the post tax price.

All capital gains and rental income would also be tax free. It goes without saying though, that any borrowing needs to be repaid.

SIPPs can have very useful features when they are well considered and properly applied...

[mm511]

JulianPH said:

To all here, I'll use round numbers and some assumptions (one for a higher rate taxpayer and one for a basic rate taxpayer, which we will start with):

Basic rate taxpayers

If you place £8,000 into a pension this is automatically increased to £10,000. Your SIPP provider is able to borrow 50% of your SIPP value (so £5,000 in this example). This would give your SIPP the £15,000 required to buy the garage at asking price, without you personally having to apply for a mortgage.

Higher rate taxpayers

If you place £32,000 into a SIPP this will automatically be increased to £40,000 and you can claim a further £8,000 back on your tax return.

This means you spent £24,000 to have £40,000 in your SIPP. Your SIPP can borrow a further £20,000 (50%) if required, but to purchase the £40,000 garage you do not need this borrowing.

Another way of looking at this is that a higher rate taxpayer can put £21,334 into a SIPP, this would become £26,667 with basic rate tax relief and then ask their SIPP provider to borrow 50% of this.

A higher rate taxpayer would also get back a further £4,266 - thereby bringing the purchase cost down to £19,734. So just under half the post tax price.

All capital gains and rental income would also be tax free. It goes without saying though, that any borrowing needs to be repaid.

SIPPs can have very useful features when they are well considered and properly applied...

Is this easy for contractors to get into?...

This is assuming the person has any money to begin with.

How could it work for an imaginary contractor on let's say £300/day? But with no savings.

Edited by mm511 on Wednesday 10th April 16:52

[JulianPH]

mm511 said:

Is this easy for contractors to get into?...

This is assuming the person has any money to begin with.

How could it work for an imaginary contractor on let's say £300/day? But with no savings.

Edited by mm511 on Wednesday 10th April 16:52

1. It is as easy for anyone to get into, providing you have sufficient funds to get it started.

2. It does assume the person has sufficient funds to start with (through a SIPP, where you need far less than with taxed inome).

3). The imaginary contractor would need to put aside enough earning so the when the income tax is added back (plus any SIPP borrowing is factored in from investment returns - just as with mortgage payments) then a clear profit is available.

Have a chat with Nik on the IM thread.Your imaginary contractor will need to have some money to put down though. All other factors are based upon this.

Cheers


Edited, for clarity!

Edited by JulianPH on Thursday 11th April 10:57

[benbuhagiar]

SIPP Commercial property fees will be expensive on this level of investment.

Expect an initial fee of at least £1,000 and £500 per annum for running the SIPP.

[JulianPH]

benbuhagiar said:

SIPP Commercial property fees will be expensive on this level of investment.

Expect an initial fee of at least £1,000 and £500 per annum for running the SIPP.

Yes, I did talk about the fees above.

If you have other investments it is possible to get multiple commercial properties managed for free in a SIPP though.