Today, I am heading over to Birmingham with a view of closing a few deals by the end of the week. These are small in value, but the yields are high, and we aim to make them even higher by turning them into HMOs.
I bought a property in Birmingham about 15 years ago. The property was a new build and came with an apparent 15% ‘discount’. The trouble is, it seems that almost everyone got the discount. Therefore, it wasn't really a discount, it was market price. New build properties were often packaged this way in order for the investor to put zero or very little into the deal. Normally, the costs would be stamp duty, legals and a sourcing fee.
The property was a one bedroom flat on the tenth floor of a new build block overlooking the Grand Union Canal. You would have expected the property to rise steadily along with the rental.
The reality is it hasn't gone up a penny. There were periods when it had actually gone down in value, even below what we had paid. The same can be said about the rental. In fact, after the mortgage and the service charge payments, this investment is cash flow negative.
We had a similar experience with a foray we had in Luton many years ago. Here, we purchased below market value, second hand property, not new builds. High yields. The beauty here was one could refinance almost instantly and extract the original deposit out of the deal, and still have the property producing cash month on month.
Sounds good right? However, the reality on the ground was very different. The type of tenants the block attracted were the lowest of the low. Dealing with them even through Agents was frustrating, and expensive, to the point where the negatives outweighed the positives, which led us to exit all the investments. We couldn't wait to get out.
However, in recent years Luton has been one of the fastest growing boroughs in the UK, with returns of over 20% per annum.
It wasn't that long ago that Luton, much to the dismay and protest of the Mayor of Luton, was voted as Britain's worst borough.
Property and areas move in cycles, and today's ghetto will often become tomorrow's investment destination.
The shift out of London is driven by a need, not by a desire or preference. The ability to purchase a property £300k or less has almost disappeared completely out of London now. Why is this bracket so important? It is because this is what the average couple can afford as first-time buyers.
Therefore, there is an exodus of first time buyers, who are heading out of London but within commuting distance to London. This trend will carry on, and the hotspots will be centred around the stations which provide connectivity. What the smart thing to do is to look one layer deeper and foresee which areas will rise off the back of the ripple effect of a station. This is when you will be purchasing very cheaply, and will not have any competition.
A similar trend is occurring in Birmingham, an area named one of the poorest in the UK, has now the fastest house price rises. Prices in Ladywood are up 17% in a year.
Prices in the B16 postcode of the city, which covers the Ladywood area, rose by 17% in the 12 months to July, far outstripping any part of London, where the property market has cooled rapidly since the EU referendum.
The average house price in Ladywood jumped to £172,498, from £147,121 the year before, according to a report by the mortgage arm of Barclays bank, with local estate agents pointing to an influx of young professionals and investors amid the HS2 rail project, and the building of a “super hospital” in nearby Smethwick.
OBR has warned that the stamp duty cut for first-time buyers will push up prices.
Ladywood, on the western edge of the city centre, has long suffered from a reputation as a crime-ridden jumble of estates, high unemployment and low pay. Last year it was named by the End Child Poverty campaign group as having the worst levels of child poverty in the UK.
But cheap housing – it is possible to buy a three-bed terraced house in the area for £120,000 – has prompted a new wave of buyers to move in.
Areas like Moseley, Sutton Coldfield and the Jewellery Quarter are often talked about as some of the main property hotspots in Birmingham.
These areas typically command high prices and some of the best houses in the city - but they aren’t the only places that could make a great investment.
We’ve found some of the lesser known places in Birmingham that could become some of the most desirable areas to live over the next few years - and where you could make a fortune.
According to the 2017 Crane Survey, Birmingham is seeing the highest level of development for 15 years, with a huge focus on creating office, retail, leisure and residential areas.
One of the world’s biggest banks, HSBC, is relocating out of the UK capital to Birmingham in what’s considered the ‘biggest inward investment deal for a generation’. HSBC’s new headquarters will soon sit in one of Birmingham’s largest mixed-use schemes, Arena Central. The new ‘Paradise’ development in Birmingham City Centre is also soon set to welcome a prestigious financial services company, PwC, to the neighbourhood.
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Agony Agent Is Here To Help!
I get asked a lot of questions about renting to students. Over the years, many myths have surrounded student living and the properties they rent, but most of these simply aren’t true.
Student Myths
1. Students don’t care about location
Whilst students may have limited budgets, this doesn’t mean they’ll live anywhere in pursuit of cheap rents. Ultimately, they’re looking for somewhere within a couple of miles of their University; so it’s crucial that you find a property to let that’s in the right area.
2. Students don't respect property
With students now demanding more, for example, properties with high quality furnishings, this myth is no longer the case. What this does mean is that landlords with student accommodation to rent will need to invest in quality furniture and fittings, with a modern interior. Don’t scrimp with cheap furnishings, as it’ll need to withstand wear and tear, and in the long run, you could end up forking more out for replacements.
3. Students don’t mind living in grotty properties
Again, this is another total misconception – students today look for a comfortable property that they’ll enjoy living in. It’s worth knowing that whilst students may not always demand the best of furnishings and decor, their parents most certainly will, especially if they’re asked to be a guarantor for the rent! A scruffy, dirty student property will most definitely struggle finding quality student tenants.
4. Students don’t pay much in rent
While it's true to say that students would prefer to pay a low rent because of their limited budgets, it isn't true to assume that all students are like this. There is a growing demand for quality accommodation which means that students are willing to pay realistic market rents to enjoy these properties. Additionally, when a house is recognised as an HMO, the reality that the property has undergone inspection to ensure it reaches a certain standard, will draw in students looking for good-quality housing; meaning higher rents can be charged.
5. Student houses are too much trouble
Again, the clear majority of students are decent, hard-working people who have been undermined by the antics of a very small minority. So, while there are some badly behaved students, most students today have too much invested in their education to cause problems for their landlord or their neighbours. Additionally, most students sign up for a year long tenancy agreement, ensuring the consistent payment of rent – even when they’re not residing in the property during the summer months.
The student accommodation sector is a buoyant one, so get in touch and let us help you to tailor your property to the student market.
Richard Bond
Lettings Manager
Sow & Reap
