Not a lot to report on this week. Been to a couple of viewings which are local to me for a change. I don’t buy properties in my area anymore simply because they are now over priced and the yield just doesn’t add up. The first property I looked at had a guide of £200,000 and needed about £25 -30,000 in refurbishment costs. The property market has now peaked and you can’t rely on increasing values to add to your profit margin. Taking this into account the property will likely be bid to £220 – 230 as it’s a detached bungalow which are always popular with a private down sizer. Also this had a decent plot with the potential to extend or go into the roof and convert to a 3/4 bed property.
The problem with this is not just planning. I rarely sell. My strategy is to buy, refurbish by adding value and rent out. As a four bed property this would achieve a rental somewhere between £1300 – £1450 per month. Trouble is by the time you add on development costs you would be lucky to come out with a £50,000 – £60,000 spend. Even at a total cost of £300,000 you are only looking at a 5.6% yield taking £1400 pm as the rental income. Now a few years back that wouldn’t be disastrous because property prices were shooting up and you’d be looking at some amazing returns when you came to sell. This has all changed now and reversed. In my area I wouldn’t be at all surprised to see a further drop of 10% which puts a whole new perspective on the deal.
You could always look at just doing a refurbishment and rent it as a detached 2 bedroom bungalow. You’d be looking at a rental between £1000 – £1200 pm. Lets say total costs are around £260,000 which is tight and you rented this out at £1100 pm. Your yield would be even worse at 5.08%. Taking all that into account it’s not a deal I would be interested in as the figures simply don’t work for me. I would guess this property will be bought either by a private buyer for their own occupation or an amateur as the figures just don’t add up for investment purposes.
You should always do your sums first and be prepared to walk away from a deal which doesn’t meet your own criteria. There are always other deals just around the corner. To make the point just after this viewing another auction house released their catalogue and so far I’ve found 6 properties that I’m interested in. They are in my investment area and fit my buying criteria. One in particular is very interesting. I’m just waiting for the legal pack to be uploaded on their website and if all is well I will instruct my builder to go and view prior to my own viewing. I’ll keep you informed on this one. It’s right up my street!
Talk soon
Trevor
