Thursday 31 March 2016
I've been speaking to many of you over the past months, and thank you for all your lovely comments. I get great feedback on the blog so I certainly will be keeping things up. My aim is to help everyone invest wisely and of course make the most return on their investment (big or small).
Some critics however had asked me when the last time was that I did a deal myself - not orchestrated, sourced, pointed someone in the right direction - just myself. I had to confess it was indeed some years ago that I had bought myself. I had been busy building a portfolio of loyal landlord customers that are customers of my estate agency, XanderMatthew. Now that I am not so actively involved with that side of things any more (I am of course still involved, but less directly), I thought I'd get out there and show my clients first hand how things are done.
Today I have completed on the second flat in as many weeks. How did I do this so quickly? Well truthfully one was bought through an agent - I had actually put the offer in last year August (slow solicitor on the seller's side, management information coming through slowly, the list goes on). It's been a cake in the oven for some time now. It just happened to nearly coincide with the other one that I bought at auction.
Auction? Yes, auction. It's not as nervewracking as one might think. With a good look at the legal bits to ensure there is no silly business like a short lease, wrong rights of access and a of course to see if there's parking or gardens actually included. Simples. When in doubt obviously speak to a qualified professional. Hand up, hopefully nobody bids over your maximum that you set and then voila! My solicitor was even able to complete early (saving me thousands in stamp duty). Excellent service of course. If you want access to this then come and speak to me at the next event and I'll tell you more.
So, putting my money where my mouth is, I went ahead and bought two. Well, nothing by halves of course, I have an audience of followers to demonstrate knowledge and expertise to. Sceptics watch out.
Deal number 1: 3 bedroom ex-local authority flat in need of full refurbishment. I will post before and after pictures, along with numbers as the works complete of course, no good showing you a building site. This property is suitable for a long term hold and rent strategy. As you will have read in my previous posts 3bed apartments are a sweet spot in the lettings market and if the flat is big enough you can even convert the lounge to an open-plan kitchen/living and make a 4th bedroom. This flat however is slightly too small I feel, so I will keep it as is. 3beds are always amazingly popular in the summer (you will have read that I'm sure) so the building work should be complete just in time for a peak summer rent on a long let basis. £295k for a 3bed, yes please! Even at a pessimistic rent of £2000pcm and including all costs the gross yield will be over 7%. Once the property has been refinanced however I'll be looking at a ROCE of 25%.
Deal number 2: 2bed (well, one and a half really) flat on the second floor of a detached Victorian building with shared parking to the rear and communal gardens. This flat was totally unloved by the previous owner and actually sold in auction as a repossession. Very rare, but it still happens. The property had been sitting on the market for over a year with two agents and it failed to sell. There is some Japanese knotweed in the garden, yes, the parking has been fly tipped a few times, cracks down the front and back of the building and the flat itself is about as basic and dirty as you can imagine. Upon reading the legals it came to light there is a treatment plan in place for the knotweed, and the cracks are actually nothing more than paint peeling off due to poor preparatory work. £160k later and the keys are in my hand.
Over the coming weeks I will elaborate further on certain deal structures. Joint venture, private investor finance. I will also be keeping you up to date with the progress of the two deals I've got going through - I say "going through" because the end result (a sale or a let) has not been reached as yet. Until then the money I've laid out is just that - expenditure.
If you are interested and would like to know how to make the best from your investments why not come have a chat with me at the next PIN meeting that I'll be speaking at? On Tuesday the 5th of April I'll be at Wimbledon PIN together with host Trevor Cutmore. I'll be giving the lettings update as usual, but I'm acutely aware that more and more of you want to know how to make big money quickly in property. This is possible, but don't forget investing a long game. Better to hedge your bets with a few let properties and then play with a few "flips" on the side. Come talk to me about your strategy. Hopefully see you at the next PIN meeting, or email me on firstname.lastname@example.org.
Thursday 3 March 2016
I was speaking to one of my investor clients the other day and we were discussing the possibility of offering his property for short let instead of the usual long let. He had a friend who claimed he was earning £700pw from his average two bedroom victorian conversion in Clapham, so naturally he was all ears.
Apparently his friend had been telling all about his new found fortunes and my client wanted to go the same way. "Get rid of those pesky, cheapskate long term tenants and short let my property on a nightly basis through AirBnB!" he exclaimed. I was interested at the proposal, as naturally I want the best for my clients which usually (but not always) means getting them more money for their investments.
I sat down with my client and drilled down the figures. Quite surprisingly all wasn't as it seemed....
For one, things to consider with short lets is a high turnover. Every booking will require a clean of the property, washing the linen, putting flowers on the table and a bottle of wine & box of chocolates or similar as a welcome. Not mentioning the effort, there is of course cost involved. He quickly had second thoughts about that effort and money he'd be putting in, but we carried on.
I pointed out that AirBnB or whatever hosting site he chose would require a commission when the property was filled; this didn't put him off of course. We asked some other owners to see if they had experience. Some were good, some were bad. It turned out that properties nearer to a tube line and in zones 1 and 2 were certainly better off than zones 2 and 3. Modern properties did better than Victorian conversions. Occupancy rates varied wildly from the summer to the winter also, with the best occupancy being around 70% and the worst around 50%. Price could be an influence, this also needed to be varied to entice higher occupancy at off-peak times. So to embark on this he would have to constantly gauge the market BEFORE he ended up with a void. Time consuming for sure!
There were the matters of legalities to consider also. Short lets are often prohibited by mortgage companies. This gentleman had an unencumbered property, so this didn't bother him, but the next point I raised did: he would require a change of use (planning permission) to change his property to a holiday lettings property (Class C3). This was the clincher naturally, as he wanted to gear up the property against the newly found yield in order to finance his next purchases. That wouldn't be so easy, having to get commercial finance on the property as opposed to a normal BTL loan. We got into insurance as well briefly, which again would need to be changed, but you can see where this was heading.
We did the maths and when we added up all the potential voids, turnover costs, higher finance costs and so forth it made sense to keep this one as a nice long let property. It certainly made sense for this gentleman, and I trust that it would make sense for most of my clients as time-poor individuals.
I trust everyone will be looking to make the most from their investment, so with as little investment in terms of time and money getting the best return. Naturally where this balance lies is different for everyone, but to stay on the right side of the law it was certainly going to be time intensive and more costly than staying with long lets.
So to summarise there are certainly caveats with short letting - does it still make sense for you?
- Most likely breach of mortgage terms
- Difficult to refinance
- Change of use - planning permission for short lets exceeding 90 days per annum.
- Turnover costs - cleaning, key handover, laundry.
- Voids - occupancy of 70% is ambitious!
As always I'm available on email@example.com if you're interested in running a deal past me. I'm always on hand with advice to help you make the most from your investment in Clapham, Brixton or further afield.
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