James: Hey, what is up everybody? Welcome back to the Dentists Who Invest podcast. Today we are here to talk about property investing, which we haven’t actually given enough air time so far on the Dentists Who Invest, the Dentists Who Invest Invest podcast. We haven’t given enough air time to property invest in, and we need to rectify that. We need to do something about it because it is something that most, at this.
Most dentists have a property portfolio, and of course, the better we can make that, the more efficient we can make that, and the more understanding we have, the more profitable our properties are. I have sat opposite me, Paula Cadey. Paula is going to explain to us how we Dentists can execute what I’ve just mentioned.
Paula, how are you today?
Paula: Hi, I’m, I’m good, thank you. Thanks for having me on the podcast.
James: Hmm. My pleasure, Paula. So for those in the audience who have yet to meet you, might you be able to do a little bit of an intro about who you are and what you do before we go further?
Paula: Yeah, yeah, of course. So, yeah, I’m, I’m Paula Cadey.
I head up Mantra Dental Finance. We are a. Boutique finance brokerage that help dentists acquire practices set up Scott practices, help their growth. So the intermediary between the client and the bank, but as well as on the dental side we within Mantra group. We also have a property arm.
So yeah, that’s what I’m gonna be talking on today is how we’ve helped some of our dental clients invest in property for the first time and what that could, could look like. Or on the flip side, you might be looking to buy practice and have some property, but not sure how you can release some, some cash from it.
So yeah, hopefully I can give some good advice and, and help out some, some dentists that are, are looking to invest in property.
James: I’m sure you can. So let’s start from the start, which seems sensible. Where would we begin when we are wishing to invest in our first property.
Paula: I would say a key, and I guess it’s a bit of an odd saying, is, is location, location, location.
Knowing where you’re gonna invest and, and what you’re gonna invest in. So whether that’s on the residential side or whether you’re looking at actually investing in, in a commercial property, that may well be in. Other dental practices that you’ve got the opportunity by the freeholder, it could be something completely different that you’ve got, got no experience in.
So yeah, I’d say especially for your first one, location is key. If you’re buying a single asset, I guess you don’t wanna be buying an asset that you’ve got no idea of your location, what the type of tenant is around that. So for example, on residential what your tenant might look like. And also if you’re managing it yourself and you’re working as a dentist full-time, you don’t wanna buy a property that say, A hundred or 150 miles away because it’s cheap.
And it looks like a good property. And then you’ve gotta spend your time going there. You could be become liable for things if they break. So you don’t wanna be spending your time kind of traveling across the country to go and see the property. Or if you’ve got travel with your tenants, you don’t wanna have to go there.
So, yeah. So really no, I’d say the keys are location. Know the type of property that you wanna invest in, the area, your type of tenants. For commercial, what’s particularly important is, is the, your tenant’s covenant strength. And that’s something that the lenders will look at. So if you are a dentist you would be deemed as a, a strong covenant for the bank versus something that might be, I don’t know, a fad retail spot that might be here today and, and gone within a week or two. So yeah, the stronger the tenant the better, the better investment for you. And obviously that’s on the residential side as well. So if you’re looking at maybe having professionals in or a family in, that would be maybe a stronger tenant that someone’s maybe like, On, on, on benefits and you might not get as much.
Also understanding the costs of something. So you may have just brought. Say, your own property in the past where you’ve kind of walked in, fell in love with it, it’s your family home, it’s got everything you want. You’ve maybe got some spare money to invest in it and you’re gonna kind of chuck everything at it.
Obviously when you are looking at an investment property, it’s very different. Don’t buy on emotion because it could end up costing you more. You might wanna. Spend kind of, I dunno, say 20, 30,000 pound on it, doing it out when actually it needs a, it needs a bit more. So really look at it as a business, as a business transaction rather than something emotionally.
And if everything then kind of ticks the box and it’s something that actually you can get a return on because it’s a long time in long term investment. It’s not like having some cash in the bank and you might get a bit of interest and if you’re fortunate enough to get some interest at the moment, but it really is something that’s long term.
So make sure. Where you’re investing in is right, and you’re gonna get out of it what you want to get out of it at, at the end. Whether that’s that you’re gonna sell it or look to raise some more money against it. So yeah, I’d say those are kind of like the key, the key bits to look at. And also as you would in your business Get good people around you.
So get a good solicitor that knows property. Get a good accountant that can advise you on the best way to buy the property. So whether that’s you buying it personally, or maybe, for a limited company in some cases it’s best to separate out the two. So if you’ve got a dental practice already that’s maybe operating for a limited company, you might wanna do your property through something different.
But yeah, speak with your accountant cuz they can advise you on kind of. The best ways to do it from a tax point of view as well.
James: Well that was actually, you took the words right outta my mind. Cause that was the next thing we were gonna talk on. Because the big concern is when you buy it in your personal name.
Yeah. Your tax just flipping obliterates your profit margins. What would rental income being income tax now if you’re a dentist already. Depending on your limited company structure, of course you might. Or even if you have a limited company. Yeah. Chances are you could be over the a hundred K threshold depend a lot of tax already.
And that just abso, I mean, off the top of my head, when you get over a hundred K red somewhere, because of you, because obviously you, you lose your personal allowance. When you actually crunch the numbers behind that, that 100 K to 125 K, you get 30 pence in the pond for every pound that you earn over that. So you’ve lost, you’ve lost 70% of your income before you’re even paying the mortgage as well.
And as we know, interest rates actually going up. So I know that you explain, you said speak to your account and feel free to tell me if it’s not your forte. Paula, but if you can give us any advice whatsoever on not tax avoidance, but tax efficiency, that would be much appreciated.
Paula: Yeah, I mean, that, that’s not our fault. I guess my advice would be is that, look at the various ways of doing it, because you may be an associate that’s you are operating as a sole trader, or you might be an associate that’s operating for a limited company as you might be a principal that’s operating for a limited company. So I would say look at the options of, of separating the two because you.
In a way you kind of don’t wanna mix your, your business and your, your, your property stuff together. There’s also other ways that you could look at it from a tax efficient way. It may be that actually you are earning a big income, but you might have a spouse that’s maybe not. So actually looking at buying that together.
That could be, that could be more tax efficient. So yeah, I couldn’t sit here and give you any advice. We know some good accountants that can, so we are more than happy to refer you to people. But yeah, that, that’s the biggest thing is actually understanding from a tax point, how will that affect you?
And, not just now, but if you are looking at say, buy in one, one property to invest in, but actually over the time you wanna buy kind of 4, 5, 6, whatever, or on the commercial side kind of have. Have that conversation now because it’s easier to set up a structure now than start buying properties and have all different limited companies or buying it personally and then you wanna kind of restructure it.
I would say just, just decide what you wanna do at the start. And look, there’s nothing wrong if you wanna have a little dabble in it and buy one property and never buy another. But yeah, just, just kind of decide on where you wanna go to, to now and where you wanna get to.
James: Completely fair. We’re gonna delve into properly in more detail in just a minute, like way, way, way more detail. But just before we do that, before we go deep, let’s talk about it from a high level. What are the different categories of properties that we can invest in? So say for example, residential, commercial, I know that those are two.
Yeah, you’ll do a much better job of expanding it.
Paula: Yeah. So if I start with residential, I guess that’s the easiest one. So you could have a, a, a single bitler asset where you may have, it could be like a family home. So you could have a family in there, or you could have Individuals in there.
Within that, you could also have a number of tenants which is cast as a HMO. Now you do would need a license to operate that, but that allows, so it would be one property where you’ve got mul, multiple occupants in it. And in, in some cases you could have someone into to kind of manage that, manage that for you.
And, with the vitals it’s anything as from as simple. A flat house apartment. You’ve also got student accommodation, which could be more profitable but could, could be more costly. And then you’ve got commercial assets so such as your dental practice or it could be, it could be retail, it could be office, it could be industrial unit.
And then you’ve got the development side, which is, it is always an interesting one and, and one that maybe people might decide to, to dabble in a bit more. If you’ve got some, some property background and kind of you’ve got get a bit bored or, or it feels a bit stale, kind of just buying some, some properties and, and, and getting the investment from it.
So the development side is a lot more complex. . And that can be a development from buying a single unit and building up or building out or actually buying something that is a complete knockdown and, and rebuild. Lenders in particular with that will want to know your experience because in the nicest way, you may be an amazing dentist, but you’ve got no property background.
And you might decide to go and buy something, say, Right, I’m gonna knock this down and build 15 flats. I’m gonna manage the project, I’m gonna do it all, and. Is can be very costly. It’s very time consuming. So yeah, that, that can be a bit more, a bit more complex but still an option for people to do.
And a lot of people like to do that side of it as well. Cause it’s a bit more interested in that you can take something and, and make it something really amazing.
James: Tell me this, you know, I’ve spent enough time on YouTube to see those flipping adverts about how we can all make a fortune in commercial.
Now whilst we have to take those with a pinch of salt, what would be the appeal of going residential versus commercial? How would that relate to the potential buyer or investor under circumstances?
Paula: I mean, on, on commercial, it could be, it could be a bigger, it could be a bigger opportunity for you and a bigger investment.
So it could be that you buy for example, like an office complex where you’ve got multiple tenants in there, you’re getting multiple rental incomes from it versus say a residential where you get, I dunno, for example, say it could be. A two bedroom flat, you’re getting 1500 pound a month for, you’re paying someone to manage it.
Your kind of potential earning is limited to that. Whereas on the commercial side, you might have a lot more, a lot more opportunity to, to rent, to, to different people to do other stuff with it. So on commercial now obviously for example, the dental classes changed, so it could be that actually you were renting to.
People with just kind of office space. And actually now you can say, well actually we’ve now got some space that someone that might be looking to start a practice could come into that and you, you could get more money from it, from the rent. And also could be a stronger, a stronger tenant from than you then I guess with, with a lot of offices.
I know I’ve certainly seen that you see office space up to let a lot because a lot of people have changed and they’re now working from home.
James: Yeah, absolutely. So maybe that market isn’t what it used to be on that basis,
Paula: Yeah, i wouldn’t say it’s not what it, not what it used to be, but it just comes down to understanding who your tenants are, Especially if you’re buying a commercial asset that has the tenants already in it.
Obviously if you buy, if you buy a commercial asset that has no tenant in it’s vacant possession And you could have, say, a dentist that would be interested in that. You kind of know that you’ve got a good, strong tenant in there. Whereas if you’re buying with the tenants already in there, existing under certain leases, they might not have breaks in the leases yet, or rent reviews.
You kind of have to then take it as it is. So again, it’s weighing out what’s the cost of the investment versus what your, what your return is.
James: Got you. Fair enough. Okay, cool. We touched upon this a little bit earlier, and I know that this is more the realm of accountance.
Given that the tax advantages of what we’re about to talk about are the mean, the mean draw or appeal. Let’s talk about, bang it as a sole trader. Versus buying property as a limited company versus buying property in an spv. What are the pros and cons in each one of those?
Paula: That’s a hard question to answer in a nutshell, really.
And I’m not avoiding answering it, it’s just purely comes down to really the tax advantages. I mean, from, from, from a lending point of view. If, if you are buying it as a sole trader or a limited company there, there’s no difference in the amount that you could, that you could borrow.
Obviously with an spv you’ve got more of a vehicle there that you can then add the properties into. But, but purely from a lending point of view, which I know isn’t answering your question there, there is no difference in terms of what you can, what you can borrow.
James: But that is an answer in it. That is an answer. That’s perfect.
Paula: Yeah. I guess one other difference could be that if you are operating as a sole trader or a partnership, it could be husband and wife, it could just be you. Whereas with a limited company, it could be a group of people coming together. So there’s advantages in that, in that you are splitting the risk.
You could all come with a different bit of experience, which again, for lenders can, can kind of add weight to the proposition.
James: Awesome. Or by til that’s what they used to be because everybody used to, they’ve received wisdom. Okay. Now this is something we, this is, this comes up from time to time on the podcast.
The received wisdom is that we should all take every spare of Penny that we earn and throw it into property and have multiple streams of passive income from multiple properties. But given that by the Let so are nowhere nearly as favorable treated, favorably treated as they once were. Now nowadays. Is that still the same? Does the same logic apply?
Paula: I, I think, look, anything you buy tangible if you buy a right, then you will, you will get some, some return on it. It may not be a quick win. So if you buy a property today, in a year’s time, you might not make any money on it. You might make a bit of money on it.
Property is a long term investment and I think that versus having cash it in the bank earning no interest. If you’ve got some surplus cash, property is always good to invest in, but like I say, it is long term. It’s not a short win. It’s not a quick way to invest money and kind of get rich quick.
But, but also having something tangible. There’s a flip side on it, not just from the investment side, but especially for dentists that if you are looking to say buy a practice and you might not have much cash, but you’ve got some property in the background. There’s two ways that the lender could look at it, to potentially lend you some money to buy a practice.
In that they could say, Well, you’ve got something tangible here that actually we can take a physical charge on. Or we can assist you, as in mantra, can help you if you’ve got some equity in it to actually take some of that equity out. And invest again into enough property or invest into your dental practice.
So, yeah, it might not be as buoyant of a market. The returns might not be as great as they are because obviously interest rates are increasing. But I still think personally something tangible. If it’s the right location, if it’s a good investment, then then that’s a good way to kind of invest your money.
But like I say, just be aware. It’s not a quick win. It is something that you’ve got put in for the long term. And, when you’re looking at that and actually what you’re investing, obviously if you’ve got cash in the bank for a dentist, for example, You might decide to invest further in another practice, or actually you think, okay, don’t go down the property route.
Just make sure that what you’re investing is kind of, I guess, spare cash, not cash that you’re gonna need in a few months to assist with cash flow.
James: Gotcha. Seems reasonable. What are your thoughts on JVs doing this with somebody else? Maybe a partner?
Paula: Yeah, so. I think joint ventures, again, it’s a positive, especially with dentists because you might have the cash, but you’ve got no time.
Dentists are typically time poor and you could have someone that’s got the experience but hasn’t got access to the cash. So the two can work very well. And again, from a lending point of view, the lenders like it. If you’ve got someone that’s got a bit of experience, so as I said earlier, you can’t go from being a dentist.
Buying a property and building 1520 flats. But actually, if you’ve got someone with a proven record that does that, And that actually you come together and you say, Okay, I’ll give you the cash. We go into this together. You manage the product, you manage the project, you manage the build, you kind of manage everything.
Again, and, and that’s not just two people. We’ve seen somewhere there’s multiple people coming together to, to all invest in the project. So yeah, I, I’m, I’m a great advocate of joint ventures and the banks like it, I think. One thing on a joint venture is kind of knowing, especially if it’s a development, for example, know your exit.
So with developments, it could be on development, finance, it could be that you are with a lender that will say, Okay, you’ve got funding for say 12, 18 months. What’s your exit? Are you selling it or are you refinancing it? And just make sure, as you would do if you were going into a joint venture with another dentist and a dental practice, just make sure you’re on the same page.
I think is an important thing. But, yeah, I think. We’re probably seeing more and more maybe of of that side of things where people are actually, and again, you might have your own property stuff in the background that you say we’re gonna keep separate and then we’re just gonna do one other thing as a joint venture.
And everything else you’ve done sits outside. So again, it’s just, just knowing the structure of how you wanna set it up.
James: Always think about the exit.
Paula: Always think about the exit as you would do. But if you are, if you think if you’re buying a dental practice, Like I always say to people like, think about your exit plan, or not even your exit plan, but where do you wanna be in five years?
Do you wanna invest in another pro? Do you wanna invest in another practice? Again, with property, what’s your exit? Or actually, are you doing this? You’re gonna build it up, you’re gonna drive the value in it, Take that out and then go again. So yeah, always think of the exit. But you don’t wanna exit to come too soon, cuz you want it to be long term.
James: Yeah, of course. Absolutely. You know what, it’s actually interesting that we’re talking about exits just now because I shot a video about exits on Monday and there’s actually four types. Three of them are not favorable. Only one off the maze. Oh really? Yeah. Yeah, yeah, yeah. And you know what, I know that I’ve just said enough to intrigue you just then, and I’m really listen to that podcast.
Paula: I’m really sorry. That’s a way to get people to listen.
James: Oh really? I wasn’t even on purpose, honestly. But basically, basically if I, if I launch into the story, it’s gonna take a good 10 minutes, cuz I know, I know this from experience cuz the video itself, the original video itself is 10 minutes. But in a long, long story short, in a nutshell, there’s only four exits that you can ever have from any.
Right. The one that you want, that’s the favorable one, is the satellite, right? Or one of the three, not so favorable ones will happen to you. And I can briefly summarize those. So one of the unfavorable ones is that basically you walk out one day cuz you’re like about enough, Here’s the deeds, find the nearest person as you’re walking down the street, here’s the deeds, it’s your problem.
I want you to have it. Okay? You can get pushed out. Not so common in a dental practice because it’s a private limited company. That’s not really possible. But in a public limited company that can happen. The boardroom can turn against you, but not really something we have to consider. Or number three, you can get carried out.
Which basically means you pop your clogs while you still own the business. And the point of it is, the whole point of creating a business is that you pull forwards. You pull forward your financial freedom, debt. Yeah. Which would otherwise, you know, there’s two broad methods of becoming wealthy. One is you get rich slowly. the other which is to invest in long term things, not being in the stock market, whatever it or property or whatever you’ve decided that your vehicle is. Now, it’s better to do that than not to do anything. Cause otherwise you’re gonna work until the day we drop and potentially be in ill health when we’re older and not be able to work. So we gotta do something. Be with me.
Paula: Yeah. Yeah.
James: Number two, the other way to get rich quick is to think about something that can pull effectively, pull well forwards from the future in that we don’t have to wait so long to get it. Yeah, and one of the most formidable. Based on that, you can either be a trader, you have to be unbelievably skilled at that, though, in order to do it properly, there’s only ver, there’s very few people that have come across.
You can actually do it well. Very, very, very few. So for most people that outside of reach. But what is within reach for lots of people is creating some sort of business and then figuring out how that business can be profit. How you can leverage your time. Yeah. How much, how, how you can get as much output as possible for one hour’s input. And if you figure that out, you get a business and you made something that can make you a lot of money. But anyway, we digress slightly.
Paula: Well actually I think there’s an important, I think there’s an important point in there though because your property should be, you should look at that, your property investment you should look at as a business.
And it may well be that actually. Your property investment goes on longer than your, than your dental career in that, or, or maybe that you decide to, to sell your dental practice if you’re an owner, but actually you’ve got this property in the background. And actually, if you’ve got it right, like you’re saying, it could take an hour a day.
You could just make sure that. The rents renting on time. If you’re managing it yourself or see in some cases people can manage the properties for you, but you also have something outside of dentistry to rely on from an income perspective. But also if you, if you’ve been a dentist and you’ve worked for say, I don’t know, 40 years, and all of a sudden you sell your practice and you go.
What do I do now? At least you’ve got something to kind of keep you ticking over and keep you, keep you interested. Even if I say, even if it is just checking once a day or once a month, whatever, to make sure on the bank account, your, your money’s in the account, it, it’s still something and you’ve still got something there that whether you choose to sell or you may leave to your family or help them start a business you’ve always still got that, that business aspect there with the property.
James: There we are. And actually it’s all coming back to me now cuz I said it on another pod. I said that exact thing in another podcast, but I think it’s worth repeating because it’s really powerful. Yeah. And that made me reframe things cuz I was like, Whoa, James, if you don’t, if anybody who owns a business doesn’t actually plan for the favorable exit, one of the unfavorable ones will happen by default.
Yeah, but how many people, you know, lots of dentists in business and you know, lots of people in business and myself included to a degree, you know, as long as there’s more money coming in than going out, than all rosy. But that works to a point. That works to a point. But if we just continue to use that methodology I’ve just described and be a bit happy go lucky, then what it means is that we never actually fully realize the potential of a business, which is to give us financial freedom soon, because we planned our satellite exit anyway.
Paula: Yeah, and, and, and, and in a dental practice, i do know dentists that do, do look at their business like that. There’s money in the bank. We’ve got enough to pay out on that set. But actually, if you are looking at your business, kind of from a performance point of view, again, look at your property like that.
Like look at the values of it. You might have something that you brought say 10 years ago that actually now you’re not making much money out of from a rental perspective, but you could sell it, get some cash out and reinvest that in. Even in your dental business or in more property. So yeah, always, I’d say always monitor it as, and run it as you would your, your dental business,
James: I mean, as well. Apart from anything else, I’m convinced that you can actually make more money if you monitor your KPIs and understand where you need to look to improve. Yeah. When your business gets to a point where there’s too much going on for you to process at any one time, you need to reduce it to a few KPIs and figure out how they are, how they’re doing and then figure out how to improve them. But anyway, that’s probably a podcast for another day, but I find this stuff fascinating. I really do. Let’s talk about the current housing market. Things gonna get tough by the way, I do realize that’s a hard question to answer, so I’m being slightly unkind there, but even if you can just give us something to navigate on.
Paula: Yeah, I, I think from, from what we are seeing, we, we, within Mantra we have, obviously we do the commercial side of, of the property and the individual side of the property, but we also have a mortgage arm as well, and they are probably as busy as ever. So, and, and that’s a mixture of people.
Looking at Remortgages because obviously the cost of the cost of rates is going up. No one’s really knowing where that, where that’s gonna be. An important thing is that some people might not realize that actually you can, you can fix a rate with a lender, typically six months before your rate expires.
So if you, I guess one bit of advice if I can give one bit on the residential mortgage side on, so the property investment side is that, have a look at your offer, your mortgage offer. Your commercial investment offers because fixed rates are a lot more expensive than they were this time last year. A lot more expensive than they were this time at the start of the year. So if you can secure a rate now, okay, we dunno what six months might look like, but I think we all know where, where it’s going. It’s gonna get worse before it gets better. So yeah, engage with, with someone like ourselves and we can, we can help you.
But yeah, I mean, In, in London. I’m from Essex. There’s lots of housing developments going up. There doesn’t seem to be a shortage of housing. So yeah, I, I think from what we’ve seen we haven’t seen a, we haven’t seen a downturn now that may come that people might look to actually.
Downsize in the future because especially with electricity in gas costs and, and stuff like that, their family may have moved out. So you, you dunno what kind of might happen with that stock just to make sure that if people are downsizing, actually you’ve got people on the other end that can maybe afford a bit more of a, of a, of a higher valued, higher valued property.
But yeah, certainly in our mortgage team, I busy with a mixture of first time buyers. Obviously there’s various schemes out there to help first time buyers as well. So, yeah, I’d, I’d say it’s still, it’s, it’s still looking good. Despite all the dooming gloom that we are seeing and everything else.
James: That’s cool. No, thank you for giving your opinion on that one. And yeah, I do realize that that was slightly difficult question to answer, so thank you for giving us your honest opinion on that.
Paula: I think it just depend on where you are as well. And, kind of that the housing stock that that’s out there.
Obviously if you are, if you are in London you’re probably more, more fortunate that you maybe can afford. A property more than maybe some people that are out in other areas, which are actually struggling a lot more than others. But again, and I guess I need to be careful how I’ll work this, but that could potentially be an opportunity for someone that does have some, some income to invest because there may be opportunity of more housing stock, maybe a little bit further route, but a bit cheaper.
Because people will, are still renting and, and need somewhere to, and need somewhere to live.
James: Seems reasonable. Fair enough. Okay, cool. We’re gonna wrap things up very shortly, Paula, thank you for your time today. You spoke a few times about Mantra Finance. Is that a refinancing agency? Is that, how does that work?
Paula: No. So we are a, we’re a broker, so we will help like I say, commercial clients or individual clients. We’re the intermediary between the, the banks and the clients. So, Like on a mortgage, you might have gone to your local bank when you got your mortgage. And now actually there’s so many lenders out.
They’re not just High Street, but other lenders as well. So they can come to us, we can help them with their mortgage. We have access to. Many, many panels of, of lenders sorry, of lenders on our panel that we can reach out to, and get the clients as good a deal as we can. So that’s on the, obviously on the dental side, which I can do.
So that’s people looking to buy a dental practice or stuff, dental practice and, but also on the property side as well. And what’s great about Man Group is that we have all different parts of the business that we can kind of like connect together. So we had a deal complete today, for example, where I’ve helped them on the dental side.
They had a single buy to let that they wanted to remortgage and take some cash out of. So on our mortgage team as well, they’ve been able to do that. So the client’s been helped in two areas of their, of their business, different areas, but still, still all under the mentor group.
James: Cool. Interesting stuff. Nice one. So we’re gonna wrap up for you today. Thank you so much, Paula. We hope to see you back on the Dentists Who Invest Invest podcast sometime soon. Feel free to find Paula in the group. Paula, Cadey, you’ll be able to search for her in the members. Of course, if anything that we said today is of interest. Paula, thank you for your time. We’ll catch up soon.
Paula: Thank you so much. See you soon. Bye.