How an SPV can help you to get on the property ladder
Are you dreaming of becoming a homeowner but struggling to make it a reality? The property market can be a tough nut to crack, especially for first-time buyers or those facing the challenges of soaring prices. However, there’s a lesser-known strategy that might just be the key to unlock your homeownership dreams – Special Purpose Vehicles (SPVs).
In the past, buying property was far more challenging, and not everyone had easy access to buy-to-let investments or SPVs. Couples or friends tried the route of co-owning, but it often resulted in disputes and tears, as personal living spaces are best kept separate. But times have changed, and SPVs now offer an enticing solution for those struggling to get on the property ladder.
What is an SPV, and How Can It Help You?
An SPV is a legal entity created for a specific purpose, such as owning and managing property. Instead of attempting to purchase a property alone, you can pool resources with family, friends, or other potential investors to collectively buy a property through an SPV. This joint effort means you’ll need to raise far less capital, making it easier to secure your footing on the property ladder.
The key to success with SPVs lies in setting clear agreements in writing from the start. Ensure that the property will be rented out exclusively, and create provisions for anyone wanting to sell their share. By collectively reinvesting the rental income, you can steadily grow your equity and even purchase additional properties over time.
Maximizing Opportunities with SPVs
If six or more individuals come together to buy an SPV, the odds of successfully managing it increase significantly. In a property market where prices are becoming more realistic, reinvesting profits can amplify your purchasing power. What may have started as a smaller share in one property can snowball into multiple properties with substantial equity within a few years.
Applying the Correct SIC Codes
To set up an SPV as landlords, you must apply the correct Standard Industrial Classification (SIC) codes. For this purpose, you’ll need to use codes 68209 and 68100, which cover buy-to-let and property renovation and flipping, respectively.
An Alternative to Traditional Equity Release
SPVs can be a game-changer for individuals aged 50, 60, or even 70 years old, who may be contemplating equity release as a means to access funds. Instead of handing over the lion’s share of your property to a corporation, consider refinancing and using the money to invest in an SPV with your family. This way, not only can your family benefit from the investment indefinitely, but future generations can also continue to reap the rewards.
The Golden Rule: Never Live in a Buy-to-Let Property
While SPVs open doors to new possibilities, one golden rule must be adhered to: never move into a buy-to-let property. While some lenders may permit it, this can significantly limit your options. Ensure the property remains strictly an investment vehicle to preserve your eligibility for a broader range of lenders.
The property market can be a daunting place, especially for those trying to get a foothold on the ladder. However, the concept of Special Purpose Vehicles offers a compelling solution for individuals to join forces, pool resources, and collectively invest in properties. By adopting this approach, you can achieve your homeownership dreams faster, secure your financial future, and ensure that the benefits pass down through generations. Don’t let the challenges of the market deter you—embrace the power of SPVs to make your dreams of homeownership a reality.