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.