4 Important Things to Check When Purchasing an Investment Property in Clapham

As you will know I've been investing in residential property for some time now. I thought I'd share a few useful tips; things that I do on a viewing to ensure what I'm seeing is what I'm getting and to make sure I have a solid investment!

1. Is the floor plan correct? Often times the properties I'm attracted to are advertised with little more than an exterior photo and a sketch floor plan. Obviously an internal inspection is required, but is what you're seeing adding up to what you think you're getting? I, more often than not, measure up myself to eliminate the risk of an "optimistic" measurement from the agent. Here is the link to the laser measuring device I use, only £20 from our friends at Amazon. With the proper measurements I can be sure the surface area is on par with what I believe it to be. Believe me, it can swing either way. The last one I measured was 75sqm and the agent had it listed as 46sqm. It doesn't take a genius to work out that 46 m2 is impossible for a split-level 3bedroom flat, but needless to say it put a lot of people off viewing, so bagged another bargain!

2. Checking your numbers. There's no harm in calling local agents to see what they think you'll fetch. Whether you are looking to resell the property straight away or let it, it's wise to call a few agents to gauge confidence and price levels. Time of year will make a difference, so do ask them. And no harm in calling on different days pretending to be either a buyer or a seller. You'd be amazed at the difference in what you're quoted; not sure if there's a hard and fast rule, but I always feel that they tell buyers/tenants a higher price and a seller/landlord a lower price to manage expectations, but you do get the odd agent overquoting the seller/landlord to "win business." Be wary of this and take averages. Mix a few local independents and big corporates too, and don't bother calling the agent that you're looking to purchase the property from, it will be unreliably skewed to make the property look a better investment than it is!

2a. Further on numbers - what does it cost in fixed costs such as ground rent, service charges. Any Section 20 notices served by the landlord? These are repairs of over £250, so don't necessarily have to be life changing but you will want to know before committing, that's for sure. Add this in to your spreadsheet to make sure your overall return is still acceptable. Also, does the freeholder require an admin fee for consent to let? Is it a per tenancy, per annum fee or one-off?

3. Exit strategy. I'm very much a believer in keeping a property in a "family style" condition so that it can be resold. This is my qualm with the full-blown HMO strategy. It works, gives good cash flow but it hurts you on the resale because you can end up with a glorified youth hostel! If you chop it up into bedsit rooms etc will you be able to sell it as a family home? Probably not, families don't appreciate an en-suite shower room in the living room! If it is easily turned back into a family dwelling then fair enough, but if you will have to spend 5 figure sums then you need to reconsider. Here's two flats in the same block where someone has chopped the living room in order to get another bedroom. Sensible. I pasted an original floor plan of another one in the block on the right (it was mirror image so I flipped it around for easy comparison). You can see that it's just a partition wall in the living room, so easily undone if required.

4. Further on this topic, (re)financing. If you put en-suite bathrooms everywhere and let the property on multiple tenancies (by the room for instance) then you will not be able to get a mortgage through a mainstream lender, you will be limited to commercial finance through HMO lenders. Much higher rates and lower Loan to Value, limiting how much you can gear up, so beware of these pitfalls. The other factor to consider is, if you are buying ex local authority properties is that often times lenders have restrictions, so they won't like lending on properties with shared decking access, a less than 50% private ownership in the block or blocks of more than 5 storeys. Most lenders have 8 as a max, so anything above that is a cash buy only. And beware, being on the ground floor doesn't help either, they look at the whole picture!

I hope that helps you in looking for a great yielding property, for hints, tips, news and more do sign up to the blog via email here. I have been investing in South London for nearly 15 years. Would you like to get better returns from your investments? Why not start the conversation by sending me an email, or join me at the Clapham Property Meet, the monthly networking meeting where we talk about all things property. Join us this month for Jonathan McDermott's talk on Planning Gain.

Yields are attractive in South London - if you invest right!

I'm hearing a lot of my investor clients say "I'm thinking of investing my money up North for better yields." I think it's an interesting point of view of course, basing your investing mindset on a gross figure. It is true, of course, that there is an inverse relationship between gross yield and capital growth. Often times investors that are new to me me have been used to very little cash flow and, as often with period property, spates of repairs further eating into their rental profits. So, they've got masses of equity tied up in these properties and no way forward. They think that buying with gross yield in mind is the way forward.

What can I do?

If you, like most of my new clients, are stuck with lots of equity and little option to release it for further investment, then it's time to review your portfolio. What can you do to enhance the cash flow? I had a call from a fellow investor who had several properties geared at only 30%! He was very astute and was on top of his mortgages, but due to the rental stress test he was unable to release any more equity. You see, the annual rent was exactly 145% of his interest payment. That's where the problem lied, the rent was too low. Having judged the current rent vs the market rent I saw it was far below the norm. Dated? Perhaps. After a site visit I saw some improvements that could be made to this particular property in order to increase the rent the landlord could achieve. We are currently drawing up plans in order to reconfigure this property to add another bedroom, adding another 33% to the rent, even if we don't update things as we go along. We will of course. This client, once the project is finished, will end up with an extra bedroom and a 50% rent increase! As a result more money can be released upon refinance for reinvestment.

So rather than taking what (relatively) little money he had up North, where it would be more difficult to manage, would cost hours of travel to even get to purchase stage and would invariably appreciate less than a London property, he is able to raise another £100k and has added another £75k to the value of his current property. This gives him enough money to embark on another project with me. I am currently looking to source him another property where we can add value like we have done with his own property. He will refinance the project once complete, leaving him with a net return after all costs of 10-15%, or a gross yield of around 7%. a London property appreciates say 5% per year on average over the long term, so you are looking at a 12% gross yield, or about 20% return on capital employed if you were to sell the property after say 10-15 years. On your doorstep as opposed to 300 miles away.

How to buck the trend

By sourcing viable projects for my investor clients where we are able to add value - both capital appreciation and rental - they benefit from the long term wealth this brings. They end up with property within zones 2-3 London. This should prove:

1. A more liquid asset should it come time to sell

2. A more desirable asset, commanding a higher price (as a property in London always will)

3. Benefit from high rental demand as London has a bigger and more diverse economy than any other place in the UK. Both price and and the demand from tenants will be high so less voids

4. Closer to home and therefore easier to manage should they choose to self-manage

5. A high yielding property AND the benefit of capital appreciation in London

Would you like to own more property within London? Use the resources available to you? Don't know where to start? Start the conversation today on email or come down to the Clapham Property Meet this month and meet me in person. There is so much I can do for you if you want to get started or help your property investing along. I can source a property for you, manage the refurbishment and help you dress the property for the best rental returns. I have nearly 15 years experience in the South London property market. I invest locally myself, and I'm a firm believer that good, safe, sustainable returns are on your doorstep. Let me show you.

More contradicting headlines in the news today. What's really going on in Clapham?

Not a day goes by that I don't have my finger firmly on the pulse. Be it Clapham, Brixton or beyond I do like to get a feel of what is going on in South London. As do you, I'm sure.

Today, however, I was confronted with such contradicting headlines I couldn't help but tell you about it.

A selection:
House price growth to slump 1% post-Brexit
Prime London prices cool in Q2
Limited company applications surge in June
43 million Brits 'would go over budget' for the right home

The first claim about house prices "slumping" (if you can call 1% a slump) was made by Fionnuala Earley, Countrywide’s Chief Economist. Forgive me for not immediately agreeing. Countrywide have not exactly been the best bunch of business people or estate agents for that matter, so much so that they are now investing heavily in online property sales. Anyway, rest assured, they do conclude with something sensible such as "Countrywide says they will mean prices returning to levels similar to Q1 2016". Scaremongering over.

The second article again has a misleading title. You get the jist of the article by the title you would have thought, but I quote "The rate of quarterly house price growth in Prime London cooled in the second quarter of the year, with a 0.3% decrease from the opening three months of the year". Yes, you read that right, the RATE OF HOUSE PRICE GROWTH. So there is still growth. Excellent news.

On the brighter side you will see that limited company applications are up in the mortgage sector. A very interesting development - it is clear that astute landlords have taken advice to proceed down such a route. Thanks to a growing number of lending products now available to limited companies (this has grown exponentially over the course of this year) more and more landlords are incorporating and taking advantage of this tax efficient way of holding a portfolio. A clear sign that a) opportunities are there and b) investors are not holding back.

The last headline pertains somewhat to investors using a "buy-to-sell" strategy. Excellent news really. In a nutshell 75% of people would stretch the budget to get the ideal property that suits their needs. With this in mind I re-emphasise that knowing your target audience can pay dividends. A bidding war worth of dividends, mind you! A recent development of mine saw a bidding war - perhaps due to the modern bathroom with underfloor heating, perhaps because of the wine cooler in the kitchen. Maybe both. I know for a fact though that first time buyers like aspirational property, so sell that lifestyle; the key to a successful development.

In summary, read closely. Headlines conflict, but the overall message is still clear: there is a market for your product (property). If you are selling, ensure you know your audience. Same goes of course for your letting portfolio, but key is to structure wisely to minimise your tax bill. With recent changes you will see some of your tax breaks go, so make sure you adapt, or you will lose money to the Chancellor of the Exchequer.

To finish off, a lovely quote from the first article: "Annually, Prime London prices saw a 1.3% increase, rising to 2.7% in Outer Prime London. This has been driven by particularly strong growth in certain south London areas, with Clapham (9.2%) and Balham (6.5%) – forever popular with aspirant, young professionals – leading the charge. North Kensington (5.1%) also enjoyed solid price growth on a year-on-year basis." Lovely news of course, so let's keep investing locally!

Remember - if you are after investment advice, whether you are looking to grow your existing portfolio or start afresh then do get in touch by emailing me on jeroen@claphampropertyblog.com or come and meet me at the Clapham Property Meet Wednesday 28th September. There are still a few tickets remaining to the event, so do RSVP promptly here. Also, if you are looking for hands-off investing and you wish to invest upwards of £50,000 then do get in touch as I have a number of transactions that are ready for funding within the next 2-12 weeks. I help investors like you make better returns on their investment. I have done so for nearly 15 years, with proven results. If you are interested in taking the next step on your investment journey then reach out and I will expertly guide you through the process. I am actively looking for clients to invest with and for to expand the current successful portfolio. 

Where should I buy my next property? Brixton or Clapham? How many bedrooms? House or flat?

So, another profitable year draws to a close. We all know that very little happens in the property market in these last few months of the year, so now is probably a good time to recap on what’s happened locally. It’s also a brilliant time to set your goals for 2016. How many properties are you planning on buying? Refinancing? Refurbishing? Adding value to?

Let’s look at some numbers I’ve compiled, courtesy of Zoopla. My main aim is to point out areas of good growth for you, the investor.

	Brixton SW2	Clapham SW4
Average Value	£496,886 up 5.22%	£843,777 up 6.74% (12m)
Flats	£405,081 up 4.96%	£566,979 up 5.36% (12m)
Terraced	£738,939 up 7.41%	£1,344,463 up 7.95% (12m)
Semi D	£914,410 up 0.66%	£1,808,612 up 0.66% (12m)
Average Rent	£1,822pcm	£2,141pcm
Average gross yield	4.4%	3%
Number of transactions	542	445

This table certainly makes interesting reading. On the face of it you’d be inclined to buy in Clapham straight away (average values up), but there are certainly advantages to both areas. For one, you can see that the average gross yield in Brixton is nearly 50% more than in Clapham! So rents are much greater in relation to the purchase price. That’s a good thing, because that will make up for the slightly slower house price growth we’ve seen compared to Clapham over the last 12 months. Also interesting to note is that terraced houses are absolutely unaffordable as a buy-to-let, with vastly diminishing yields, only made good by the increase in capital value.

Should I buy in Brixton or Clapham?

Well that depends. Historically we can see that both are good bets. But decide what you are going for: capital appreciation, on the face of it, looks stronger in Clapham but rental yields are definitely better in Brixton. But let’s compare over a longer period. Queue a beautiful graph again courtesy of Zoopla. Now look at how SW2 prices are keeping pace with SW4. There is a difference. But the gap isn’t widening. So as far as investment goes I think Brixton has more to offer in terms of house price growth as gentrification increases and “Brixton Villaaaage” becomes even more popular.

So we’ve decided that Brixton has the best yields and best potential based on historic data and trends. Which property is doing well? 1beds? 2beds? No, it’s actually 3beds which are doing the best. They are still relatively affordable (a big word in London of course) and command the best rents as a percentage of purchase price. Also personal experience tells me that they are ALWAYS in good demand.

   

SW2		1 bed	2 beds	3 beds	4 beds	5 beds
Houses	Value	£385,000	£517,492	£705,702	£1,073,638	£1,238,325
	Rent	£901	£1,807	£2,440	£2,977	£3,398
	Yield	2.81%	4.19%	4.15%	3.33%	3.29%
Flats	Value	£372,569	£512,683	£595,585	£514,544	-
	Rent	£1,280	£1,652	£2,970	£2,743
	Yield	4.12%	3.87%	5.98%	6.40%
All	Value	£372,958	£513,387	£635,820	£929,871	£1,238,325
	Rent	£1,263	£1,661	£2,872	£2,919	£3,398
	Yield	4.06%	3.88%	5.42%	3.77%	3.29%

SW4		1 bed	2 beds	3 beds	4 beds	5 beds
Houses	Value	£499,950	£873,000	£879,988	£1,456,663	£2,506,250
	Rent	£1,077	£2,136	£3,656	£4,444	£4,695
	Yield	2.59%	2.94%	4.99%	3.66%	2.25%
Flats	Value	£508,714	£702,250	£762,349	£1,071,000
	Rent	£1,581	£1,970	£2,321	£3,049
	Yield	3.73%	3.37%	3.65%	3.42%
All	Value	£508,412	£713,195	£787,115	£1,360,248	£2,506,250
	Rent	£1,564	£1,978	£2,714	£3,921	£4,695
	Yield	3.69%	3.33%	4.14%	3.46%	2.25%

Interesting to see that 3 bed flats are offering a near 6% yield in Brixton. Tell me it isn’t so, my chants in April of three bed flats in SW2 being a good bet were fairly accurate.

So if you want more advice on what to buy, where to buy it and when – just drop me a line on jeroen@claphampropertyblog.com. Helping landlords make wise investments now and in 2016. 

How much does it cost to let a flat in Clapham or Brixton? Nothing, I'll treble your monthly income if you do it right.

I was speaking to a landlord just the other day about his investment. He called me up to ask me about my letting fees. Well in fact he phoned up the office and my colleague answered. She put him on hold and put him through to me, whispering in my ear "I know you shouldn't discuss fees but discuss value on the phone, can you show me how?" 

The gentleman explained to me how he was looking to buy a 1bed apartment on the William Bonney Estate. I commended him on finding something in such a brilliant location. Being the sleuth that I am I punched in the postcode into rightmove as I spoke. Up it came. An immaculate 1bed ground floor flat. Again I mentioned to him how easy it would be to let. "But," I said, "I wouldn't buy this, I think you can get a 3bed for the same money and get at least 50% more rent every month, with more chance of capital growth, better tenant demand and less voids."

He was amazed. A long conversation followed. He couldn't believe that a letting agent was telling him to buy a different flat. "Any agent would want me to buy this property quickly so that I instruct them to let it." He said. Not me. I look at investments all day long, and there's nothing better than helping landlords make a better investment. They get a higher yield and ultimately they are happier to come back to me because I've given them solid advice. They thank me for my advice and ultimately we all win. You see, I've been doing this for over a dozen years now. I know what is a good investment. I know what is not. I am local. Every day. I see demand shift from area to area. Flat to flat. I know what lets and what doesn't. And people come to me for knowledge, advice, expertise. Value that you don't get from high street branded (or bland) agents.

I recommended two other investments straight away that had come to market recently. They fit in with his criteria: he had a busy job and didn't want to get involved with loads of refurbishments; looking for something with minimal fuss to let and take advantage of a rising market. I trust he will be happy for me to advise on furnishings to get the best tenant in the shortest timescale for that type of property, too. He still doesn't know what I charge to let and manage. That's not important to him. Value is important. The fact that if he follows my guidance he would be netting £1000pcm from his investment and not £300pcm. So how much does it cost to let and manage through me? Nothing sir, I just doubled your capital growth over 5 years and gave you treble your cash flow on a monthly basis. After my fees. Using my services therefore makes money, it doesn't cost you money.

Everything is better in summertime. Well in Clapham & Brixton it's definitely the rent!

So, you're letting your property? Now is the time. Take advantage of that summer market whilst you still can. What's that you say? Property available in November? Well get marketing. Now. Because whilst there are stragglers around from the busy summer period you will do very well, despite your property being available in what is usually a slow time of the year.

How does that work? Simples... 

August is the busiest month in lettings. This has always been the case. After that there are some stragglers left over in September, snapping up anything that is left. Even properties with move dates far in advance are taken, simply because they can't rely on anything else coming on to the market. You know the student saying "if you leave it to late EVERYTHING will be gone." Not true of course, there will be plenty of greedy landlords with sky high prices, but nobody rents those. Well-priced, well-presented properties let. Beds in sheds do not. Regardless of imminent homelessness. Which is never really the case. Tenants would much rather sofa surf than lock in for 12 months to a dingy bedsit in an understairs cupboard.

So when is the best time to market? Ideally you want your property available in September to take advantage of the peak in August. People need a little bit of notice to move, they don't walk around with their belongings in a knapsack and move in on the day they view. So with foresight, plan your tenancies to come up middle of September. I say middle, because invariably you will have a few days' void for painting and decorating and fixing things, and over the years that will spill in to October eventually. No disaster, but see if you can negotiate slightly early departures in the long-term to get that desirable availability date back. Why? So that you can expose your property to the biggest audience in the shortest space of time and achieve the best rents, that's why.

Want to hear more? drop me a line or feel free to pick up the phone and give me a call. Happy to talk. Or if it's easier drop me a line on jeroen@claphampropertyblog.com.