When a garage on Fulham Palace Road was listed in the auction catalogue for a recent Savills auction with a guide price of £250,000, it piqued the interest of so many investors it sparked a bidding war and eventually sold for £466,000.
Although the appeal of that particular lot was due to the planning permission for a house that came with it, it brought the humble garage into the media spotlight, with a wide range of news outlets covering the sale. Many in the property community, however, have long been aware of the investment potential of garages, perhaps most notably Rodger Dudding, who built up assets worth more than £100 million by investing in garages.
With the stamp duty changes already upon us and the phase-in of the reduction in mortgage interest relief looming, there are even greater incentives than ever before for higher rate taxpayers to consider investing in garages.
Garages are classed as commercial property, meaning the restricting of mortgage interest relief to 20% does not apply and if you have financing, the costs of servicing that financing can be offset against any money you receive for renting out the garage in full. In practice, you’re unlikely to be able to secure a mortgage per se on a garage and if you need financing you will probably need to use a personal loan or commercial finance to buy the property.
There is another alternative that brings even greater tax advantages, however, and that is to fund the purchase of garages using a self-invested personal pension (SIPP). We’ve previously covered investing in property using pensions in detail, and also explained how to set up a SIPP to do so.
For stamp duty land tax (SDLT) purposes, garages are considered non-residential so you only have to pay stamp duty if you’re purchasing one worth more than £150,000 and even then the staggered charges are now far more favourable than residential rates.
Increase in demand
With rental property taxes and regulations having grown dramatically in recent years and the share market in turmoil, cash-rich investors have increasingly been looking to more unusual asset classes, particularly classic cars.
Because cars are considered a depreciating asset, there’s no tax to pay on any gains and these can be substantial for those who choose the right car — classic cars were the top performing asset in the Knight Frank Luxury Investment Index for 2015, rising 17% on the previous year.
The increase in the number of investors in classic cars has resulted in an increase in the need for lock-up garages to store these cars in — those who invest in classic cars do not generally wish to store them on the street. There are also many commuters looking for secure garages, and some people rent them simply to store goods they can’t fit in their homes. While local councils do rent out garages at reasonably low rents, waiting lists in some boroughs are years long and there are therefore many opportunities for those with garages to rent them out for yields that often exceed residential property.
It is, however, harder to research supply and demand for a particular area than it is for residential property. You might want to start by finding out how long the local council’s waiting list is and investigating other private garages for rent in the area. Portals such as Rightmove and Zoopla are unlikely to offer up much in the way of comparables, but one way of assessing local pricing and demand is by looking on parking websites such as justpark.com, yourparkingspace.co.uk and parklet.co.uk.
Garages are often sold via auctions, and less commonly, via traditional estate agents. They are relatively inexpensive to build if you happen to own a plot of land, although you’ll likely need planning permission to build one.
An added bonus of investing in garages rather than buy-to-let property is the minimal management that’s required. Once you find a tenant, you won’t have to worry about frantic ‘the boiler is broken’ calls and maintenance is minimal compared to buy-to-let properties.
Once you secure a garage and find a tenant, you should have a solicitor draw up a tenancy agreement, but if someone breaches it, you won’t have the same difficulties terminating the agreement as you would with an assured shorthold tenancy.
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