Landlords face unprecedented pressures, seemingly politically induced.
Section 24 Tax changes, although announced as part of the 2015 Finance Act, are now biting, and when added to Minimum Energy Efficiency Standards, ie EPC minimum E, have anecdotally led to as many as 50% of landlords considering giving up and selling.
Agents face losing loyal landlords, with whom many have had a valuable long-term relationship. Perhaps hoping for a fee from the asset sale is the best that can be salvaged.
However, there is an option that maybe landlords should consider: selling their properties in exchange for shares to a REIT – a Real Estate Investment Trust.
A REIT is a highly regulated company that owns and manages a portfolio of properties. It enables shareholders to invest in property without directly owning or, if they wish, managing the properties themselves.
There are obvious benefits for landlords, mainly that 90% of annual rental profits must be distributed to shareholders.
There are also various tax benefits, which an authorised financial adviser can talk landlords through.
A new buy-to-let REIT has been set up and seeded with their own property portfolio by the Tennant family, headed by Peter Tennant who ran Ruck and Ruck in South Kensington for many years.
Theirs is a very expensive commitment but one they feel will offer other landlords a way to still see an income from their property assets and devolve responsibilities and concerns amid ever-tightening legislation.
Landlords can swap their properties for units in the REIT. Importantly, they or their agents can keep the management if preferred. Clearly, for agents facing a loss of revenue from landlords, this has to be good news.
The other good news about this particular REIT is that the owners will pay an agent a referral fee if one of their landlords is successfully introduced.
Currently, the REIT holds 31 properties in London and Kent worth a total of £9.2m. However, the Tenants are looking for many more landlords – ideally with properties outside London where properties have better yields – to add to the REIT’s portfolio. Their aim is to raise the overall value of the properties to £100m.
My personal view is that it is certainly something worth thinking about. However, it is clearly important that landlords take their own specialist financial advice and explore all the options carefully.