Understanding Lease Financing


A comprehensive guide for property investors.

Property investment has always been a lucrative venture, but with the ever-changing landscape of the real estate market, investors need to adapt and discover innovative strategies to stay ahead. Asset leasing is one such strategy that, although not entirely new, remains a hidden gem for many property investors. 

In a recent presentation, Claire Vince shed light on the power of asset leasing, unveiling its potential to revolutionise the way property investors manage their finances and properties. In this comprehensive guide, we will delve into the invaluable insights from Claire’s discussion to highlight the benefits of asset leasing for property investors.

Understanding Asset Leasing

Asset leasing, at its core, is a strategic approach that allows property investors to acquire essential items for their property business without depleting their cash reserves. This unique financial arrangement enables investors to utilize their property’s monthly cash flow to cover the costs of these items over an agreed-upon period. This method not only preserves precious capital but also comes with significant tax benefits..

The “Why” of Asset Leasing

The primary advantage of asset leasing lies in its ability to minimize upfront costs for furnishing or refurbishing a property. This is especially beneficial for investors employing strategies like rent-to-rent, where cash flow might be limited. Claire astutely pointed out that even if you have the cash readily available, it’s often wiser to allocate it elsewhere, such as property deposits, renovation expenses, or legal fees. 

Furthermore, asset leasing can play a pivotal role in maintaining or elevating the standard of your property, ensuring that you attract high-end tenants and, consequently, enjoy higher rental income.

Tax Efficiency with Asset Leasing

Claire’s discussion highlighted a critical aspect of asset leasing: the transformation of property expenditures from mere purchases into deductible business expenses. This shift in perspective is particularly advantageous for property businesses operating under limited companies. It allows them to claim monthly lease premiums against their corporation tax, ultimately maximizing their profit margins. This becomes especially pertinent in scenarios like serviced accommodation, where purchases may not qualify for capital allowances, whereas leasing consistently qualifies for corporation tax relief.

Nuances of the Leasing Process

Claire’s extensive background in finance, customer service, and furniture sales provided her with unique insights into how the leasing process operates. Here are some key takeaways:

  • Working with the Right Partners: Claire emphasized the importance of building strong relationships with lenders and suppliers. She noted that not all lenders are high-street names, and exploring niche players might lead to more favorable terms.
  • Flexibility in Lending: Whether you’re running a startup or an established business, the company’s age isn’t the primary factor. Other prerequisites, such as having one of the directors as a UK resident and the need for the company or builder to be VAT registered, are more critical.
  • End-of-Term Scenarios: Claire outlined two primary options at the end of the standard three-year lease term: either continue leasing the items for an additional two years by making a lump sum payment or nominate a third party to take over the assets.
  • Sale and Leaseback: For those without a VAT registered company, Claire introduced the concept of sale and leaseback, an advanced strategy that allows property investors to purchase items personally and then ‘sell’ them to a lender, who subsequently provides a lease. This approach offers a technical yet effective way to finance acquisitions.

The world of property investment is a vast and dynamic landscape, offering numerous strategies and tools to investors. 

As Claire Vince elaborated, asset leasing provides a pragmatic and financially astute method to scale one’s property portfolio while safeguarding capital and optimising tax benefits. 

For investors, understanding such strategies can significantly reshape the trajectory of your property journey. Remember, “You don’t look at the cost of the shovel when you’re digging for gold.” Asset leasing might just be that golden shovel for many investors.

Understanding Lease Finance for Refurbishment Projects

Renovation projects in the property development realm often come with substantial price tags, especially when dealing with larger properties or upscale developments. For those unfamiliar with lease finance and its potential benefits for property developers, this financing method could be the cost-saving solution you’ve been searching for. Let’s take a closer look at how lease finance can revolutionize your renovation projects.

What is Lease Finance in the Refurbishment Context?
Lease finance, in the context of property renovation, involves a system where you can lease various items necessary for your renovation and development projects, deferring the upfront costs over a specified period. Think of it as a credit system tailor-made for property developers.

How Does it Work?
The lease finance process revolves around a two-part system. First, your non-VAT registered entity makes the initial purchase. Subsequently, a lender pays your VAT registered company, which, in turn, pays the original source of the funds. This essentially creates a seamless send-and-lease-back mechanism.

What Can Be Leased?
The versatility of lease finance allows you to lease almost any aspect of your renovation project. This includes furniture, electrical appliances, kitchen installations, blinds, and even luxurious amenities like hot tubs. If it’s a tangible product integral to the development of your property, there’s a good chance you can lease it.

Collaborating with Builders
If your business is not VAT registered, you can collaborate with a VAT registered builder. This builder can make the necessary purchases on your behalf, issue invoices for all expenses, and subsequently, you can initiate the leasing process. Trust is paramount in this arrangement, as there may be double payments involved, and the builder must be willing to refund you when necessary.

Costing and Payments

The fundamental principle of lease finance is that you always borrow the net amount, underscoring the importance of having a VAT registered entity. For instance, if you borrow £5,000, you’d be looking at monthly payments of around £200 plus VAT, assuming a 20% interest rate. However, potential tax benefits might offset these costs.

Supplier Networks and Interior Designers

There exists an extensive network of suppliers that you can collaborate with for your lease finance needs. Renowned furniture suppliers like Fusion Furniture, Landlord Furniture Co, and Kingsley Interiors offer a wide array of options. Additionally, you can engage the services of interior designers who might require upfront payments but can encompass other expenses like setup and photography in the lease.

For electrical appliances, AO is a popular choice, although it’s crucial to obtain approval before setting a delivery date. Cotton Bays stands out as a reliable linen

The Takeaway

Lease finance is a game-changing approach for property developers, offering flexibility and improved cash flow management. With potential tax benefits and the ability to spread out costs, this financing model can make property development projects more affordable and manageable. As always, building trusting relationships and meticulous planning are key to ensuring a seamless and successful process.

In Conclusion, whether you’re a seasoned property developer or just beginning your journey in the property world, understanding lease finance can open doors to more sustainable and flexible development projects. The opportunities are vast, and as demonstrated, the process is far simpler and more.

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