What effect will lack of supply have on the private rental sector in Clapham & Brixton?

I went for a coffee the other day with a landlord in Clapham and he was interested in my views on the property market. I thought I’d share a bit of our conversation as a lot of you may be thinking about the long term effects price rises have on the market.

He asked a valid question: he asked me whether the property prices rising in Clapham is merely due to lack of supply and that estate agents will suffer due to a decrease in the number of transactions (a lot of properties are being bought now as rental investments, and as you know they are medium to long term investments) or whether there is more to it than that. The answer to this is complicated and I am merely one man of course, offering one opinion, which is as follows:

There is certainly a reduced supply. But this is London. There is always a lack of supply, I can’t think of a time other than the recession when there was an abundance of property and not enough buyers around. Something on the market, presented and priced well, will sell in a short space of time (sub 4 weeks). If not sold there’s something wrong – price, presentation, difficult tenants and you can’t get in, it’s a building site and pitched to end-users to name a few barriers to sale. The government isn't suddenly going to raise interest rates to make people homeless overnight, so I'm not expecting a flood of properties to be sold all of a sudden. So no big knee jerks from the government and supply should remain fairly constant, with demand staying steady but coming from older buyers, using property as a pension/investment for kids, bank of mum and dad helping the youngsters and so on. Trend is that there is more lettings stock and less sales stock. Will estate agents suffer? Those who don’t do lettings and do it well will certainly be missing a trick. I have seen a few competitors sell their lettings arm over the years but to me that’s like a car dealer selling off his servicing department and focusing on car sales – if the market turns and less people are buying cars where is the bread and butter? Oops.

Another thing he asked me was whether the licensing of rental properties was going to have a negative effect on buy-to-let. I think if you are a dodgy beds-in-sheds type landlord, then yes – it will have a profound effect. You will have to clean up your act. And true to this, you’ll be reading more and more headlines along the lines of: “Mr Landlord fined £50,000 for letting a doghouse to young vulnerable couple” and so on… Does it matter to genuine, honest buy-to-letters? No. It’s easy enough to comply with the law, you have your agent do that for you anyway. Many of my readers will see the value of a good letting agent. They are far more experienced at stringing a tenancy together, letting hundreds of properties every year, with all sorts of different circumstances. Certainly different to letting the same property 10 years running. And if you are – why are your tenants only staying for 1 year?!

If you have a question, have an investment you’d like a second opinion on, or just fancy some property patter then by all means drop me a line on jeroen@claphampropertyblog.com or call me in the office on 020 3397 2099.

Property values up in Clapham up by 18% and Brixton by 20%

A landlord came in to seem me the other day and he was keen to hear more on my take on the market. He had been investing in established areas such as Kensington and Chelsea for years and had made a lot of money in doing so. He was telling me that over the years he had made great investments in SW3 but was curious to hear more about the property market South of the River Thames, particularly Clapham and Brixton.

I was all too glad to oblige. I've seen a lot over the years. Clapham and Brixton have changed. For better, in the property sense. What I've seen over time is that Clapham has been Brixton’s affluent neighbour. This is still true to a certain extent; property prices are indeed higher there. Indeed places like Clapham Old Town and Between The Commons (arguably Battersea but we’ll agree it’s a desirable area bordering Clapham Common so let’s call it Clapham today) have always been desirable and you will see a lot of families living here. Less flats, more houses. And these prices, just like properties in Chelsea have gone up a good amount over the years.

What’s the problem then? Buy the most expensive house you can afford in the nicest possible area and you will have the best investment? Yes and no. Maybe a great investment from a capital growth perspective. Not the best investment from a yield perspective. You see here’s the thing. The desirability of those houses is very much restricted to a certain target audience – families. And as you will know from various research people are waiting longer and longer to start families. Single occupation units are on the rise. Why do you think all these room let people are doing so well? So let’s look at Brixton for instance. Hip, young trendy, the Dalston of 2014 it was called. Or Hoxton or Deptford, I can’t keep up with this skinny drainpipe jeans bearded lot… Anyway point I’m making is that properties are CHEAPER to buy in Brixton than they are in Chelsea. And more desirable for the hip and trendy young folk. Which is good, because they want to rent. They don’t want to be tied down with a wife, kids and a labracockadoodledoo (or whatever). This means that rental demand is better – it always is in cheaper segments of the market. Cheaper cars sell in greater volume than Bentleys and Rollers…Families don't want to rent as much, so your expensive house won't yield as well as a smaller house or flat in Brixton for example. With yield I mean the % of rent vs purchase price.

Now Mr. Landlord reminded me that his property’s prices went up by 17.8% in the last two years. I reminded him that SW4 property prices went up by 18.4% over that period and SW2 property prices went up by 20%. And with better rental yields than in Chelsea he had seen the light. He quickly asked me to source some investments for him!

If you’re ever passing by Clapham Park Road or you fancy a chin wag about the weather or property (I know a bit more about the latter truth be told) come in and see me! Or drop me a line on jeroen@xandermatthew.com or hop on the phone 020 3397 2099. Happy to talk investments and property all day long.

Make a 2bed a 3bed? A 3bed a 4bed? Wow that will increase your rent!

I was approached by one of my more savvy buy-to-let investors the other day and asked me if he could make a quick buck by turning a 3bed into a 4bed. You're probably thinking "no, not really, it costs money to build an extension" and so forth. This is true. However he had spotted an opportunity that not a lot of investors make use of, and if they often do it they do so badly and "compromise" the property.

I thought I'd say a few words on the matter because for those of you who are new to the investing game - welcome - you may not know this has been happening for a long time. Let me explain.

As London gets more and more expensive developers and end users are looking for more bedrooms and more space. More bedrooms tends to mean a property is more valuable. Now this isn't a license to take a carving knife to a floorplan and make the rooms only big enough for a single bed and floor space to put your slippers at night. There is of course a limit to how far you can go. But this limit has changed over time.

I'll take three examples, one purpose-built flat and two Victorian conversions to show you what is possible with very little investment. Perhaps moving a kitchen and putting up a stud wall. Ground floors often cost a little more though as they involve an extension.

so: example 1: a typical Victorian conversion on the first floor:

See what was done there? move the kitchen into the living room and VOILA - a 2bed. You'll notice the one on the right goes in a bit at the side, that's only because there's another flat on top, Proving the point even more - the developer even converted the loft into a separate flat. Another good angle!

Example 2: You can actually do this with a bit more work to a ground floor flat but that involves an extension. I've included 2 "after shots" because one is particularly better than the other, the last one has a side return filled in which gives even more space (and it's silly not to do it really, minimal cost).

 

See what was done here? Extension at the back becomes open plan kitchen/living and the bedrooms are at the front. (I've flipped the one on the left up-side down so it's easier to see the changes.)

So what about purpose-built flats? You can hardly extend a purpose-built block can you (well believe me when I say I've seen it done, don't ask re consents!!)?!?

Here is "le grand truc:"

A typical 3bed maisonette:

Move a stud wall here and there and VOILA! a 4bed! Excuse my crude paint job...

So there we have it, I hope that's been interesting. But to come back to the original point - does it add value? Yes and no is the answer. You will get more rent, that's for sure; you will get a better sale price, that's for sure. But within reason. If the flat is too small to start with there is no hope - it still needs "reasonably sized" rooms. Now "reasonable" changes over time, reasonable becomes smaller as gentrification takes hold. Whereas years gone by 500sqft was acceptable for a 1bed it is now not uncommon to see 2beds with that square footage. All of the examples I used are fairly run of the mill, there are much more creative and compromising ones out there. Adding value can be done best my maximising space, and then you are talking loft conversions or filling in side returns. If you just move stud walls around you will get a return on your investment that's for sure (more rooms means more rent), but unless the place is a wreck and you're adding value anyway by refurbishing it there is little scope for a profit in the short term. Those work best as hold and rent investments because you will be able to remortgage and release capital in 2 years or whenever your mortgage deal comes to an end.

And PS there are a few examples around of people making the most of an extra bedroom:

here's a flat in a block which is being sold as a 2bed:

http://www.rightmove.co.uk/property-for-sale/property-52195631.html - 588sqft 

and this one in the same estate is being sold as a 2bed but I have a sneaking suspicion that it was a 1bed before, the council didn't build open-plan kitchens back in the day!

http://www.rightmove.co.uk/property-for-sale/property-34685940.html - 501sqft

A 1bed in that block sold for 266k (no internal photos so presumably a wreck) http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=24800750&sale=53566832&country=england - perhaps it's the same one? No way to tell, really, but not unlikely!

So if you are prepared to spend 30k doing it up that makes a tidy profit!

So you can see first hand examples of someone buying a 1bed, turning it into a 2bed and charging a premium for their work. Which I endorse of course because it's entrepreneurial! I'd do the same quite frankly. In this example 266 plus perhaps 30-40k in costs means a yield of around 6%, so it could do well as a hold and rent if it's not sold around 350-360k to give a short term profit of 50-60k. Brilliant strategy, brilliant exit plan - doesn't sell? Let.

I'm off to find the next deal.

If you fancy talking property give me a call on 020 3397 2099 for a chat or drop me a line on: jeroen@xandermatthew.com – I'm always on hand to answer any property related questions.

* Naturally I don't want to infringe copyrights and the such, the floor plans used in this article are freely available online and I don't want to pass them off on my own. All the relevant owners' markings have therefore been left on there as not to allow anyone to think otherwise.

A landlord asked me about auctions - and a good thing she did!

Well I tell you what, last week's "auction specials" on the blog have certainly stirred up some interest. Lots of landlords came back to me with potential ideas with what they were going to do after having had a look at the properties in the flesh. All very exciting!

Some of you who are eagerly looking for the next deal but didn't know quite how to go about buying at auction asked me for hints, tips and advice. I thought I'd share these as I know there are plenty of readers out there who WANT to take the next step, but don't realise quite how to go about getting an auction property.

I'll go through a couple of things and perhaps you'll decide it's too risky for you after all. Nothing wrong with buying through estate agents, there can be a lot of competition in the room on the day and that may drive the price up over and above your budget. Don't be tempted to win an auction for the sake of winning (we've all done that on eBay!) as it could cost you dearly.

1. Decide on a property and strategy - will you hold it and rent it out for long term gain? Or will you be looking to add value and resell straight away? If you are just starting out the former is probably a safer bet as it may be financially restrictive to be able to spend ample on a property and then have the funds for refurbishment too.
   
   
2. If you are holding and renting are there tenants in situ already? Are they professionals or Housing Benefit tenants (if the latter your income will be capped by the Local Housing Authority - they only pay x for a 1bed and y for a 2bed and so forth, so you'll never get more than that). If there are private tenants in there are they paying market rate? Check with local agents (ahem) as to what you can reasonably expect to get in its current condition and after you do some work. Factor in the costs of the work - is it worth doing straight away to get a higher rent, or could you use that money to perhaps invest in another property?
   
   
3. Are you buying with a mortgage or buying with 100% cash? If you are buying with a mortgage you will be wise to get the property surveyed first and bid with a mortgage offer in hand for the highest amount you will want to pay. This way if you get it for less, great, it can be amended and you'll have the funds ready for completion. But if you go over you will have to find the difference yourself! If you are buying a flat to hold and rent but you want to do work to it this will raise the value. In order to take advantage of that boost in value you will want to buy with cash if possible and then mortgage it later. You can, of course, take a redemption free mortgage but these often attract a lot of fees, thus eating into your returns. Do your sums wisely.
   
   
4. Always have an exit strategy. Holding and renting? What if you can't get the rent you want, are you happy to drop the price? Be sensible. Better get £450pw when you can't get £500pw because the alternative is £0! You can give the market a try next time around when tenants are in there paying your mortgage and you have their 2 months' notice to play with.

There are always potential downsides to buying at auction and particularly pre-bidding. You may want to look at 3 properties, get 3 different lots of surveys and mortgage offers done and see what you end up buying on the day - but this is expensive, if you end up buying the first one then the other two are wasted, but all 3 could go over what you are willing to pay and you can waste thousands in search of a bargain - is it really a bargain then? Higher risk, higher reward of course.

There is of course the old school buy-to-let route. A slower process of course but you are generally in less competition. Pick your flavour - this will be down to your attitude to risk of course.

As always give me a call on 020 3397 2099 for a chat or drop me a line on: jeroen@xandermatthew.com – I'm always on hand to answer any property related questions.

Two tenanted flats in Emerging Outer Prime SW2 – growth guaranteed!

2x Tenanted flats and opportunity for refurbishment (nearly) guaranteed!

http://www.auction.co.uk/residential/data/full_text/may2015/pos74.pdf

So what are we talking? A pair of 2 bedroom apartments, that’s what. Let on tenancies and yielding £26400 per annum. Let’s assume they are in average condition; and I make that assumption because they are achieving an average rent. I would have thought anything in good condition would fetch around £1400pcm in that neck of the woods. It’s a promising location – as you will have ready in my previous articles this part of SW2 is going to see some good growth in years to come. For nay-sayers – just look at the prices near a station. More people as opposed to less people are going to cycle, walk, take the bus than ever before. Growth is guaranteed..

So what’s it worth?  for the would-be investor to decide. I’m thinking that the layouts will vary slightly, but for all intents and purposes the rent both of the flats COULD be £33,600 if let at 1400pcm, which isn’t impossible, providing they are in good condition. You might need to spend some money on them to get that maximum yield. If you spent some money on the decoration, bathrooms and kitchens perhaps more like £1450pcm per unit which makes it worth nearly £35,000 per annum. In order to decide how much you’d be willing to pay you need to decide the minimum yield you want from the property and be prepared to walk away if bidding goes above that. At the current rents 5.8% yield would mean a maximum purchase price of  £455,000. If you are looking at the properties being capable of producing more like £35,000 though you’re looking at 600k all-in. Don’t forget that you will need to spend money to make money in that case so work out costs when you go and view them.

Looks like a bargain really, bearing in mind that Foxtons has three on the road for sale (and it indeed looks like the same block) for £450k!

Option A is to keep on to them, do nothing apart from a bit of decoration and perhaps push up the rents a bit. Refurbish to a good standard 5 years before looking to sell (or when the current standard of décor is not attracting good tenants). This will end up with a low-yielding property in the last few years of ownership, but frees up cash now for the cash yield to allow that expense.

Option B: budget for full refurbishments now (approximately 15-20k per unit) and allow an exit price of 425-450k

This would leave a likely maximum purchase price of 350,000 per unit to allow for refurb costs and selling fees in order to make a bit of a profit. Perhaps in the region of £30-40,000 per unit? Spend 250k per unit plus 50k for costs and refurb leaves a healthy profit of around 100k per unit. Could be done in 6 months. But with numbers like these I wouldn’t be surprised if the guide price goes out the window!

As always give me a call on 020 3397 2099 for a chat or drop me a line on: jeroen@xandermatthew.com – I’m always on hand to answer any property related questions.

Auction Week: 3 bed ground floor with garden – Guide £300,000 in SW16

Here’s one that I don’t see very much of – an opportunity to add value.

http://www.auction.co.uk/residential/LotDetails.asp?A=932&MP=24&ID=932000054&S=L&O=A

* you may need to register to be able to log in (free)

A 3 bedroom ground floor flat with a garden. Not really sure on internal condition, but as it’s an auction let’s assume it’s a wreck… The average three bedroom flat in the area goes for £400k upwards so it really depends on finish and square footage.

Assuming it’s a wreck of a flat and needs £50k spend on it I would have thought a purchase price under £350,000 would see a healthy profit.

There’s two flats on with Foxtons at the moment in the mid 400s (will they get it who knows, and how they’re such a similar price yet 200sqft different is beyond me) so that gives us a rough expectation:

http://www.zoopla.co.uk/for-sale/details/36278086

589sqft – £450,000

http://www.zoopla.co.uk/for-sale/details/35861241

774sqft – £465,000

However more realistically priced is this one with Barnard Marcus offered for OIEO £400,000:

http://www.zoopla.co.uk/for-sale/details/33694084?

At 899sqft a real bargain, but goes to show basement flats don’t sell as quick, it’s been available since July last year! Perhaps more of the seller than the property, or perhaps it's fallen through for one reason or another. I would have thought in today's market a good 2bed would sell for £400k, I've certainly spoken to investor buyers very recently paying that much for conversions locally.

So, if you're in the market for a good opportunity to develop something from nothing then have a look at this one. Rents would be about 400pw ish, so once you factor in your costs about 5.2% at £400k all-in. Perhaps sell? If you can get it at the right price either strategy would work. Remember long term gains are good in SW16.

Call me or drop me a line if you'd like to talk property. 020 3397 2099 or email jeroen@xandermatthew.com.

Happy investing folks.

Auction Week: Emerging Outer Prime SW2 - basement with planning for conversion to a studio flat

For sale: a void underneath a building!

For those with some expertise in creating something out of nothing this could be a great project. A bit unclear whether it still needs excavating, but one thing is certain; the end product is to be a desirable studio flat in “Emerging Outer Prime” Streatham Hill.

http://www.auction.co.uk/residential/LotDetails.asp?A=932&MP=24&ID=932000174&S=L&O=A

* you may need to register to be able to log in (free)

Plans are here: http://planning-docs.lambeth.gov.uk/AnitePublicDocs/00549400.pdf

Studio flats on these roads should fetch in the region of £215,000 to £230,000. So with a potential resale of £215,000 plus a guide of £30,000 plus some legals and building work makes for a handy profit of £150,000plus. Unless of course the bidding goes crazy….

But, will planning permission be granted? There have been objections in the past on the road by the looks of things, so perhaps the vendor was wiser to await the decision before throwing this one under the gavel.

Interesting for the right buyer with the right experience to see it through.

So, if you're in the market for a good opportunity to develop something from nothing then have a look at this one.

Call me or drop me a line if you'd like to talk property. 020 3397 2099 or email jeroen@xandermatthew.com.

Happy investing folks.

No better time than auction time! – 8 tenanted units at bargain price in SW16

If you are looking for some good buy-to-let investments it doesn’t hurt to keep an eye on local auctions. Although in the past they have been mainly reserved for developers and projects to “add value,” more and more properties are coming up that are simply tenanted and are unable to be sold via normal estate agency channels.

This week I’ll be focusing on auctions and the properties coming to market in Allsop’s auction due to be held on the 28^th May.

Let’s have a look at our first properties. Plural, that’s right as it’s a group of 8 flats due to go under the hammer. Don’t worry, if your pockets aren’t as well-lined as an oil sheikh’s there will be an opportunity to bid on them individually.

http://www.auction.co.uk/residential/LotDetails.asp?A=932&MP=24&ID=932000223&S=L&O=A

*You may need to register (free) with Allsop to log in

Lots 211-218 – guide price £2million collectively

Eight Leasehold Self-Contained Purpose Built Flats

•   Each Flat subject to an Assured Shorthold Tenancy 

•   To be offered either Individually or Collectively 

•   Total Current Gross Rent Reserved

£107,180.04 

per annum (equivalent)

So what are we talking? A bunch of 2 bedroom apartments. Let’s assume they are in average condition – and I make that assumption because most are achieving an average rent. I would have thought anything in good condition would fetch around £1300pcm in that neck of the woods. It’s a good location, near to Streatham Station and it’s a nice 1960s looking purpose-built block. Valley Road is near to Streatham High Road so close enough to shops and the likes. Good long-term prospects.

So what’s it worth?? Well that’s for the would-be investor to decide. I’m thinking that the layouts will vary slightly, but for all intents and purposes the rent on all 8 COULD equal £115,000 per year if they were relet at current rents (you will see that some tenants have been in there for a good while now so the tenancy would require a review in order to get the maximum yield). If you spent some money on the decoration, bathrooms and  kitchens perhaps more like £1300pcm per unit which is nearer to £125,000 per annum. In order to decide how much you’d be willing to pay you’re really going to have to decide the minimum yield you want from the property and be prepared to walk away if bidding goes above that. At the current rents 5.8% yield would mean a maximum purchase price of £1,850,000 or roughly £230,000 per unit or thereabouts, but beware the guide is set higher – so you may find yourself bidding against seasoned investors looking to refurbish and add a bit of value, and perhaps even go for top dog rents. My advice would be to keep it nice but simple, Streatham isn’t Kensington & Chelsea (yet!) so it will be difficult to achieve ludicrous rents if you go overboard on gold taps and the like. However… http://www.rightmove.co.uk/house-prices/SW16-2EW.html?

Recent sales suggest that owner occupiers are paying up to £300k for these properties.

A good buy? At the right price most certainly. Strategy? Option A is to keep on to them, do nothing apart from a bit of decoration and perhaps push up the rents a bit. Refurbish to a good standard 5 years before looking to sell (or when the current standard of décor is not attracting good tenants). This will end up with a low-yielding property in the last few years of ownership, but frees up cash now for the cash yield to allow that expense. Option B: budget for full refurbishments now (approximately 15-20k per unit) and allow an exit price of £300,000 – see example here; http://www.zoopla.co.uk/property-history/12-beechcroft-close/valley-road/london/sw16-2ew/32705180 This would leave a likely maximum purchase price of £230,000 per unit to allow for refurb costs and selling fees in order to make a bit of a profit. Perhaps in the region of £30-40,000 per unit? Spend 1,850,000 plus 160,000 for refurb leaves a profit of around £200,000. Could be done in 6 months…

As always if you’re keen to pick my brain drop me a line on jeroen@xandermatthew.com or call me for a chat on 020 3397 2099.

Spotted: 5.8% yield in Battersea SW11 - bordering on Nine Elms regeneration area so good long-termer!

Not often does a day go by that my eagle eye doesn't spot another hot investment.

I'll kick off this week with this one:

http://www.rightmove.co.uk/property-for-sale/property-52045577.html

Rollo Court, Strasburg Road, SW11 OIEO £405,000

A lovely flat in Battersea Park/Queenstown Road (who knows where the boundaries really lie in London?). Anyway it looks good, needs no work really and it will rent in the region of £450pw, thus producing a gross yield of 5.8%. Nice! If you look down the road (Battersea Park Road that is) you'll find a few building sites and the like, or to the well-informed the new quarters of the American, Dutch and many more embassies. All these new builds will most likely be bought by those looking for ultimate convenience and luxury - 1 bedroom flats are selling for over 700k! Tenants will still need somewhere to live for sure. Always. The area promises even better tenant demand in the next few years as these new builds complete - the secretarial staff, chauffeurs, cooks and cleaners and all the other people waiting on these high-flying diplomats will add to that demand.

So, if you're in the market for a good buy then have a look at this one.

Call me or drop me a line if you'd like to talk property. 020 3397 2099 or email jeroen@xandermatthew.com.

Happy investing folks.

(Is There Trouble With) Houses in Multiple Occupation (HMO), Anyone?

I’ve had a busy week answering lots of questions from landlords and one asked me about multi-lets. He was worried about HMO regulations and the like, something that you may have heard of.

“Should I be worried?”

“Do I need a license?”

“How much does it cost?”

“If I don’t get a license will I get caught?”

Well for starters what is an HMO? With houses in multiple occupation imagery of derelict bedsits come to mind don’t they? Nothing is further from the truth in London. A lovely 5 bedroom Victorian residence can be considered an HMO as can a bedsit squalor.

The following is defined as an HMO by the national HMO network:

• An entire house or flat which is let to 3 or more tenants who form 2 or more households and who share a kitchen, bathroom or toilet.
• A house which has been converted entirely into bedsits or other non-self-contained accommodation and which is let to 3 or more tenants who form two or more households and who share kitchen, bathroom or toilet facilities. 
• A converted house which contains one or more flats which are not wholly self-contained (ie the flat does not contain within it a kitchen, bathroom and toilet) and which is occupied by 3 or more tenants who form two or more households. 
• A building which is converted entirely into self-contained flats if the conversion did not meet the standards of the 1991 Building Regulations and more than one-third of the flats are let on short-term tenancies. 
• In order to be an HMO the property must be used as the tenants’ only or main residence and it should be used solely or mainly to house tenants. Properties let to students and migrant workers will be treated as their only or main residence and the same will apply to properties which are used as domestic refuges.

There’s a few terms thrown in there like “household” which is defined to death also but in layman’s terms – anyone eating or doing washing together or family-related.

Therefore three friends sharing together are considered three households. If a couple are sharing with a third person that would consist of two households. If a family rents a property that is a single household. If that family had an au-pair to look after their children that person would be included in their household.

BUT…

An HMO is not necessarily a LICENSABLE HMO. When asked about HMOs this is generally what people refer to, as quite frankly, if it has no effect on anything else then why bother calling it an HMO??

What properties need a license? Simple: You need an HMO licence if you own or manage an HMO that is:

• three or more storeys AND
• let to five or more people AND
• made up of two or more households.

So if it doesn’t satisfy all 3 above, then you don’t need a license. In essence what one will find is that letting a large property as an HMO brings all sorts of problems. A lot of investors do it this way, but personally I’m not a fan… reasons below:

• Tenants moving in and out all of the time
• You will need to readvertise rooms regularly (tenants might not get on etc)
• Carry out inspections at every changeover
• Deal with deposit return and other admin every time someone moves in and out
• Tend to repairs more regularly as people treat the property less well (short term views)
• HMO regulations insist on modifications such as fire alarms, fire doors (shame to get rid of beautiful period doors for instance)
• Tempted by high returns but left high and dry with voids due to difficult tenants
• Once a property is registered as an HMO it wouldn’t likely be considered to be a family home for potential purchasers (stigma) hence limiting capital growth
• Finance may be more difficult to obtain as the investment is seen as higher risk – a higher deposit would mean tying up more capital than with other investments.

So in answer to my dear landlord above, costs are substantial. These vary per council of course but Lambeth will want up to £250 PER ROOM PER YEAR upon initial application (discounts available for “Accredited landlords”) which go down a little bit upon renewal, but eat into income of course. As well will your costs of sorting out fire alarms and ripping out your lovely period features. However proceed without a license and you will leave yourself open to prosecution. They have clever ways of picking this up, not just limited to checking how many people are on the council tax bill…

My professional opinion would be to limit the number of tenants to 4, perhaps taking a slight hit on the rental achieved in order to get the capital gain, but in all honesty the better yielding properties (and better for capital growth) have thus far been smaller units.

So bigger units? Great for diversification of course as there is usually a steady demand for family homes, and increasingly so as more and more properties are being chopped in to flats. Perhaps a good long termer, but in the short-medium term look at smaller units. Just look at the yield for now and build cash flow. This way with relatively small deposits one can build a portfolio which you can then diversify with acquisition of (larger) period properties. The problem with older stock is that it appreciates, but the yield is generally less good. This means that you will have to pay a higher deposit because the banks will require that the rent is 125% of the interest payment (always calculated at 5%, to allow for rate rises). Let’s compare two purchases:

A Victorian £400k 1bed flat will rent at 1500ish in a good part of SW2 or SW4.

• That’s £18k per annum rent
• Divide by 1.25 means your max interest payment is £14400 per annum
• Divide by 5% and the max loan you can get on this property is £288k, which means a 112k deposit.
• Realistically you will get a rate around 2.5% so will yield you £900gross per month yield

Ex-local 3bed for £300k in Streatham/Brixton Hill will let at the same money (worst case)

• £18k per annum
• Divide by 1.25 means your max interest payment is £14400 per annum
• Divide by 5% and the max loan you can get on this property is £288k, but capped to 80%LTV, so loan of £240k
• The difference between the mortgage and the rent here is 700pcm at 2.5% BUT you’ve only tied up 60k.

So you can buy two of these for the price of a Victorian. So your 120k will make you £1400pcm gross, not £900pcm. Plus of course the capital appreciation in the long run. HMO or smaller units, I know what I’d do if I was starting a portfolio or adding to a small one.

As always give me a call on 020 3397 2099 for a chat or drop me a line: jeroen@xandermatthew.com – always on hand to answer any property related questions.

7% Yield in Kennington SE17 – yes yes yes another golden find!

Have a look at this lovely 3bed ex-local authority flat on Doddington Grove. This part of Kennington is ideal for professional sharers starting their life in the City as it offers unrivalled access to the tube. Less than a minute walk and you are ready to embark on a Northern line train.

Garbett House SE17 – 3 bedroom flat at £450,000

http://www.rightmove.co.uk/property-for-sale/property-34559220.html

I estimate rents up to 500pw (470pw worst case) as a 3bed, thus yielding 5.8% (5.4% at worst) but to increase the yield you can actually let this property as a 4bed. Ideal for sharers who live their life in and around work in town and just need a place to put their head down at night. As a 4bed no living you would fetch 550-600pw (6.4%-7% yield).

Now that’s attractive.

And furthermore you needn’t really do much to the flat. It looks in perfectly lettable condition as it has a relatively modern kitchen and bathroom, it comes with a long lease and reasonable service charges as there’s no lift.

Buy now and I’ll guarantee you will have tenants for the peak summer months.

As always email me for property chat on jeroen@xandermatthew.com or call the office on 020 3397 2099.

STOP PRESS – 8.5% yield in Clapham – BUY NOW

If you aren't doing anything that will yield you 8.5% stop what you are doing and go and buy this flat.

Spotted on for sale this morning: A 3 bedroom maisonette with roof terrace for £275,000. They either got the price wrong or it’s earmarked for a sale TODAY!

Oaklands Place is just off St Alphonsus Road SW4, and there are probably only a bunch of flats above shops that are actually closer to Clapham Common Tube.

http://www.rightmove.co.uk/property-for-sale/property-49806079.html

Normally I would say it may be tricky to let as 2 out of the three bedrooms are a bit on the smaller side, but location prevails. It will let in a day surely. I put a conservative estimate of £450pw on it, but I think given the location a bidding war isn’t out of the question, especially with the Summer Rush taking place by the time you complete on this beauty.

It’s in immaculate condition and features outside space.

WHAT ARE YOU WAITING FOR!?

Call me the moment you’ve placed your bid as I’m keen to hear what you’ve secured it for. I’ll be keeping my eye on this one!

Drop me a line for further property talk on Jeroen@xandermatthew.com or call 020 3397 2099.