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Stacking The Numbers

Veteran international investor John Corey offers his thoughts

Property investing is about control. Control of an income producing asset so you gain the benefit of the income stream. Or control of an asset which you can buy low and sell higher, maybe this after doing something to add value. It is really that simple.

In the UK there is now a lot of focus on the build to rent, or built to let, sector. Creating residential property with the intention to rent it out to tenants. The uplift in capital value is not the primary focus in the short term but may play a role in terms of a financing.

First, when a development company builds a block of flats or row of homes, they primarily are interested in the profit from the end sale. They want to get in, develop and then sell on what they have built. They do not want to manage rentals, deal with tenants plus worry about wear and tear. That would be a different game from the one they know.

The development company is a trading company. It makes its profit from producing 'things'. The things are homes and their profits are taxed as trading income, so there are no real capital gains. Adding value through good planning and then executing on the development through to sales is their focus.

Being a landlord is different. We might be closer to an airline which needs to fill the seat spaces before they can earn a profit. High, fixed capital costs. Use it or lose it in terms of earning an income from the space available.

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