A contract has just come in this morning, on a property agreed a week ago. The price has jumped up by 5%, since we agreed the deal. The reason for this is that there are two other people who are ready to jump on this deal at £1m. That’s what the agent told me, anyhow. I wouldn’t be surprised though considering the nature of this deal.
An extra £50k, though it’s hurtful doesn't kill the deal; the pounds per sq. ft. has increased by £50, which means we’re buying in at £1,218 per sq. ft.
The nearest comparable we’re comparing against is at £1,768 per sq. ft., so this is a £550 difference in price, which equates to a 30% discount.
Ok, this is post Brexit, I hear you say. Yes, it is post Brexit, but this still does not account for this level of discount given the location which is in the primest shopping district of Central London.
Furthermore this deal is being purchased not as a flip but a long term hold. The reason being is due to the excellent location we are confident of short letting this property. This means instead of the usual 3-4% yield on this deal we are looking at a yield of 8-9%.
This means whether the prices go up or down, holding the deal makes sense as you have a strong monthly cash flow. On the assumption of the short let model and assuming a deposit of £400k, and a reasonable mortgage interest rate (and associated mortgage terms), you would be looking at a net income of around £55k per annum.
I have only seen numbers like this pre credit crunch, when the government had vast amounts of money to spend on housing benefit. Unfortunately for investors they capped this, and yields were reduced for such properties, bringing them closer to private rental yields. Central London is more known for capital growth rather than high yields, and this is what makes this opportunity a rare deal. The contracts are with us. If you are interested in this deal call our office now.
Quality Not Quantity
Over the next few weeks we will be looking at rental issues, which come up in the process of investing in property. In the first article of this series we will be looking at the serious issue of subletting, which may mean short term gain but might mean long term damage to the property.
This is particularly an issue where the properties are sublet in order to satisfy low income tenants.
One particular instance of this was when I was asked to source a tenant for a property on a tenant find service, not a fully managed service. The tenant we found was referenced and passed the referencing stage and therefore secured the tenancy.
Sometime later I was informed there were 12 people living in the property and the original tenant never moved in.
This resulted in damages of £5,000, and eviction costs as well as a void period.
This situation could have been avoided with regular inspection, under a managed service.
This third party not only caused damages but made around £28,680 in profit! The landlord in this situation was only charging £15,000.
Multi lettings can be both profitable and safe if managed in the right manner.
Call me, Richard Bond, Lettings Manager at Sow & Reap to find out how we can help.
Crowdfunding
Crowdfunding is one of the latest method for raising funds by asking a large number of people each for a small amount of money. Until recently, doing large property transactions involved asking a few people for large sums of money.
With crowdfunding this gets changed, you just use the internet to communicate with thousands of potential investors. Through crowdfunding, investors can pool money together and buy shares of properties, rather than buying the entire property and dealing with the hassle of works, mortgages and tenants, but still end up with usual property returns. By investing through crowdfunding investors also reduce the burden of high interest rates of development mortgages. One of the benefits of crowdfunding is insider access to private transactions that were historically limited to the extent of one’s personal network. Another benefit is the transparency it brings with it.
The moment a new deal becomes available, investors have the chance to look over the finer details before committing to a final investment decision. Investors also have the flexibility to choose the amount they wish to invest compared to the large sums that they would had tied up for individual property deals. This flexibility would help them to diversify their property investment portfolio not just in multiple properties but also by using different crowdfunding platforms.
