I
received a brilliant response to last week's mailshot. Reason being it included
the Quarter 1 property update. In case you had missed it please
download it here.
I had a few landlords pop in over the last week and sit down with me for some advice, but one particularly stood out. He asked me for a moment of my time, which I happily gave him in order to discuss his property investment goals.
He was
looking to re-invest some money after the sale of his other BTL property and
was keen to hear more about the areas I had recommended previously in the
Clapham Property Blog. Great news of course. He was after a relatively “safe”
investment as the properties should remain fairly liquid due to the imminent
need to sell them to help fund his children’s ambition to become homeowners
also. A great move. We compared properties close to the station (in this case a
lot of Victorian properties near Brixton and Clapham Tube) and properties a
little bit further out near Tulse Hill, Streatham Hill and Brixton Hill. He
mentioned to me the children might just keep the properties and live there
themselves, but it would have to be something a bit easier on the eye, a
Victorian, as opposed to a flat in a block – these would likely be sold to fund
something “nicer.” “Buying something nice will cost you in yield” I said. And
he agreed that in most likeliness the children wouldn’t like the flats he
bought regardless of what or where they were. 90% certainty of a sale in 5
years’ time. We compared these two properties to predict gains further down the
line:
Linom
Road – 1bed – Near Clapham and Brixton Stations – Asking price £425,000, est.
rental 360pw = gross yield of 4.4%.
Glanville
Road – 1bed – Bit further from Clapham and Brixton stations – Asking price of £279,950,
est rental of £320pw = gross yield of 5.9%.
As you
can see from the above figures the yield on the second property looks much more
appetising. This combined with my professional experience that “more affordable”
properties are always easier to let that something top of the range (or bottom
of the range for that matter) you will most likely enjoy less voids. Truth of
the matter is that everyone “wants” to be close to a station but when it comes
down to getting their wallet out there are very few who will shell out a
substantial premium for this. Numbers are increasingly attractive when you
consider that the first property will require a deposit of 85k (20%) and even
then it will not satisfy most lenders’ criteria that the rental income must be
125% of the monthly interest payment. Calculation as follows: rent of £360pw = £18,720
annually, so interest payment (calculated at 5% as this is lending criteria
now) cannot exceed £14,976 annually or £1,248 monthly, which means that the
maximum loan would be 299520, leaving Mr. Investor to pay a higher deposit. £125,480
in fact as opposed to the £56k required to purchase property number 2, which
easily meets the 125% rule (loan of £244,000 x 5% = £11,200 per annum; the
annual rent of £16,640 is 149% of this so will pass with flying colours).
This
combined with equal or greater capital gains (you will know from my previous
articles that SW2 had a 2% bigger capital gain over the past five years) then
we are on to a winner, in cash flow, capital gains and so forth. The difference
will be considerable as property number 2 leaves Mr. Investor to purchase more
property, again with more gains to be had there. The difference is substantial
in the amount of money required to invest (56k vs 125k), leaving the investor
to purchase 2 properties and not 1 when he follows my advice. More investments,
more yield, more gains, more eggs in more baskets. A sensible approach to
investing.
So as
always please feel free to drop me a line, call me or pop in to the office on
Clapham Park Road. The coffee is always hot and the chair always comfortable.
Let’s talk property!
Jeroen
Hoppe
Director
XanderMatthew
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