A new online platform is promising investors the chance to become residential landlords overnight, with an instant mortgage and tenants ready to move into properties, initially in the rental hotspots of Manchester and Liverpool.
Dot Residential says it will set up a company to own the home, allowing the casual investor more easily to build a property portfolio — and pay corporation tax at 20 per cent, rather than income tax of 40 per cent, on earnings. Dividends are taxed at 27.5 per cent.
“We create a wrapper around the property that means anyone can become a professional landlord,” said Gray Stern, co-founder and chief executive of Dot. “We take all the time and friction out of it so you can get on with your life.”
Demand for buy-to-let has been hit by regulatory changes introduced in the past four years, including the withdrawal of tax relief and higher stamp duty. Some investors have sought to mitigate the effects of the tax relief loss by buying through a limited company.
Under Dot’s model, investors pay a 30 per cent deposit and can complete quickly on a Dot mortgage. “It is more like asset-based lending because we know the property and it can be sold.”
These loans carry an interest rate of 4.99 per cent and Mr Stern expects many UK investors subsequently to remortgage with specialist providers at lower rates. That would lift their expected yields after costs from around 4 per cent a year to 6 per cent.
Dot bulk-buys properties at a discount from a developer and furnishes them what it calls a “boutique hotel” standard. The landlord must pay for this upfront, spending as much as £5,000. The payback comes, Mr Stern claims, through higher rents and fewer empty periods. Dot is budgeting for 4 weeks of voids a year but hopes to reduce that. It aims to fill empty days through Airbnb or company short-term lets.
The company will charge landlords £500-£1,000 a year for filing accounts and other compliance, with EY, the Big Four accountant, providing the service. Service charges will be at least 10 per cent of the rent.
The business started in London but moved to Manchester last year because it could not find suitable apartments in the capital that could be let profitably. It has started with 20 properties in Manchester and Liverpool, bought with $3m raised from investors, mainly in the US.
The two cities have growing populations of young professionals. Rents in Manchester for a two-bed apartment are around £1,200-£1,400 a month, and in Liverpool around two-thirds of that. Typical apartments will sell for £150,000 and above. Dot is aiming for high, but not above market rents. Rents and sales prices in both cities are forecast to keep rising modestly.
Neal Hudson, an independent residential analyst, said investors should take advice before buying and beware future regulatory crackdowns. Company-owned homes worth more than £500,000 that are left empty for long periods in the UK attract a £3,650 annual tax on enveloped dwellings.
He also questioned whether rental demand had peaked. “Low deposit mortgages are becoming available again. The high earners that Dot is targeting could equally afford a mortgage.”
Mr Stern founded buy-to-let mortgage lender Landbay. He says the days of the “dinner party landlord” who might rent out a former home are over because of regulatory changes.
Dot, which launched in April, is expanding to the US this year and targeting “secondary cities” such as Austin and Denver, where millennials priced out of big cities are increasingly moving. Dot would be a mark of quality to attract tenants, or customers as Mr Stern prefers to call them.
Once it has greater scale, it could provide a secondary market in Dot companies. Until then, investors wanting to leave could dissolve the company and sell the house.