Operating Business from Rented Property as a Landlord and Tenant

by Abdul Wahab | Nov 10, 2021 | Articles

• Overview
• What to Look for in a Rental Property
• Characteristics of a profitable business rental property
• What are the immediate benefits of renting property?
• What are the major disadvantages of renting property?
• Adjustment of rental property business in Covid-19
• What if a tenant runs a company out of a rented space?
• What credentials should tenants consider if they’re running a business out of a rented space?
• How Do We Help?

Overview

Every property owner has one primary goal in mind, to create value from the land for goodwill or reputation. So, they usually set up well-managed and fully furnished houses. The land is sometimes purchased and rented by the owners to carry out their commercial activities. In such cases, owners are likely to benefit from various tax advantages.

However, we will focus on the advantages of rental property for starting or running a business in the United Kingdom. However, there are benefits and downsides to purchasing a rental property to create consistent long-term income and capital appreciation. Conversely, it requires a strong relationship between the tenants and property owners. Tenants are the “Limited Liability Entity” who signs the lease with the owner.

The rented property or home can also be utilised in numerous ways such as office, shop or restaurant. Tenants sometimes run their business from rented property that helps them to take benefit of taxes. Every owner and tenant running a business or wants to start from a rented property must consider some helpful tips regarding the land. Moreover, tenants working from a rented property needs to consider some authorised planning and government policies.

What to look for in a Rental Property

While starting a business from a rented property, you should consider the land or property area, which may help create money.

Property pricing: Business owners should keep an eye on other properties’ listing prices and check municipal records for final selling prices to get a sense of what a neighbourhoods’ true market worth is.

Tenant attraction: Look for a property with a qualifying neighbourhood and fair rentals for both appreciation and tenant attraction. It will also increase the property’s worth if you decide to sell it after a few years.

Profitability of ventures: It is critical to purchase a property at a reasonable price in order to assure a lucrative operation.

Characteristics of a profitable business rental property

Taxes on real estate

Taxes on profitable rental properties vary significantly from targeted regions to commercialism. If the neighbourhood is more commercial, the owner will almost certainly pay more. However, if a person is operating a business, it is not regarded as a negative thing. Commercial zones may help a variety of businesses, including restaurants and retail. Long-term tenants are attracted to the area by the high property taxes.

Neighbourhood

The vacancy rates and types of tenants that an area will attract are determined by the community in which it is purchased. If you buy near a university, there’s a good likelihood that more students will come. That’s the way a business won’t have to struggle to find more tenants every summer.

The Job Market

More renters are drawn to areas with increasing employment prospects. In addition, tenants are more inclined to relocate to places with more work prospects. Business owners must be confident that tenants would seek out such a place due to migrating to the neighbourhood.

Accommodations

Business owners should take a tour of the area to see the parks, restaurants, gyms, movie theatres, public transit, and other amenities that attract tenants. Try to find places with the finest combination of public facilities and private property. As a result, the prospects of attracting renters will improve.

Development in the Future

Visit the areas that will be more developed in the future. It’s an excellent growing location if there’s a lot of building going on. Also, keep an eye on new projects that may increase the value of nearby houses.

What are the immediate benefits of renting property?

For businesses, there are various advantages to owning a rental property.

• Financially rewarding and have numerous tax benefits
• Less insurance deductions, mortgage interests, and maintenance costs.
• Selling a rental property and investing in another business without incurring capital gains taxes, if a business owner uses “1031 exchange”.
• Business owners treat a room or portion of a house as a rental, deducting a percentage of the mortgage interest and other expenditures from the revenue.

What are the major disadvantages of renting property?

Owning a rental property has a number of drawbacks for businesses, listed down below.

• As real estate is not a liquid asset, there is a lack of liquidity.
• A sale may take many months to complete.
• Taxes and insurance costs are constantly rising.
• There is no guarantee that taxes would not grow faster than rents.
• Natural catastrophes can also have an impact on insurance rates.

Adjustment of rental property business in COVID-19

The way businesses operate has evolved dramatically over the years, especially following a COVID-19 lockdown. Employees are increasingly opting to work from home rather than commute to the workplace. As a result, it has become a major source of concern for landlords, as rented property carries legal ramifications when it comes to renters working there.

When it comes to rented property, there are various legal considerations for both company owners and renters. It also necessitates the allocation of significant resources from the government and other management organisations.

In covid-19, maintaining a rental business in the best possible way has become a worry. With the new travel restrictions throughout the world, finding new renters and keeping existing ones is a complicated issue. Managing the rental premises may be a problem for business owners.

Business owners must consider a temporary adjustment in rental pricing to maintain business and minimise losses. Rent reductions for present or future renters will make properties far more competitive. Tenants who are going through a difficult time and don’t have a steady source of income require empathy and flexibility in order to rent out their properties.

As a Tenant, how to pay in Covid-19?

Some tenants may only want a little compassion to pay their rent so that owners may work with them in various ways.

• Payment in instalments.
• Long-term payment plan
• Ask for extra time to pay rent  
• Contract-based extensions in case of tenant is not a UK resident.

How to avoid money loss in Covid-19?

To avoid a significant financial loss, owners should examine the following options:

• Learn about the government’s protections for COVID-19-affected tenants.
• Business owners must investigate any local government subsidies or grants that may be available.
• During the months when COVID-19 is in effect, a business owner who receives a loan from a bank must negotiate for a more flexible mortgage.
• Many owners are laying off tenants and workers right now. If you have tenants, you must carefully consider the expense of laying off workers since this would very certainly need rehiring, training, and onboarding new employees, which is not a sensible way to manage time.

What if a tenant runs a company out of a rented space?

There are many self-employed tenants in the United Kingdom who work from their homes or rented properties. Thus, a tenant must primarily comprehend how working from a rented house would benefit him and how much tax he may claim.

For both sole traders and partnership businesses, there are two techniques for estimating tax business use of home or rented property.

The flat-rate method: In this arrangement, tenants are asked how many hours they spend each month running their company. The amount of tax you pay varies depending on how many hours you work at home every month. This technique is quicker since it just considers the costs of heat and light, not rent, council tax, or telephone and broadband.

The costs method: When a limited company operates a home-based business, the renter must employ the cost method. The amount of tax levied in this way is determined by the nature of business, and labour renters undertake at home.

Tenants can conduct their business from home or rented property depending on the type of business they are performing and obeying the legal regulations of the government. Nowadays, most tenants concentrate on running a home-based company. They do, however, have government-imposed laws and regulations.

If a company’s revenue is entirely derived via the internet, the UK government does not impose any tax limits. On the other hand, if your firm requires in-person meetings with overseas clients or freight deliveries, the government will force you to purchase a commercial property to conduct your business.

What credentials should tenants consider if they’re running a business out of a rented space?

Authorised Planning and Permission

Tenants must get approval from the council before altering traffic patterns or the living circumstances of their neighbours. Tenants may also require approval from their mortgage provider or landlord, the local planning office, and the local council to conduct a company from their house.

Insurance

The tenants must think about getting the right business insurance.

Business rates

For landlord property, tenants are charged business rates according to different business conditions:

• If a landlord’s property is used for both commercial and personal purposes by tenants.
• If tenants offer goods or services to visitors to the landlord’s premises, the landlord will receive a commission.
• If tenants hire individuals to work at the landlord’s place of business and make alterations to the landlord’s place of business, they will pay more property rent.

How We Help?

The growing epidemic is having an impact on many aspects of businesses. Bloom Financials believes that a pro-active, problem-solving approach is always more vital throughout COVID-19. It is up to us to turn this difficult situation to our advantage. So, let’s activate our optimistic thinking!

We have the professionals on board to advise and recommend how owners and tenants can stay afloat amidst this crisis. Our staff has produced practical guidance on how to negotiate payments with your renters and landlords, as well as how to find money-saving options.

We also make it simple to claim tax and use of business via home expenditures by allowing tenants to manage all of the bills and leases. So, just the percentage of a business cost can record as an expense in your accounts.