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Bouncing Back

25th August 2020

A client who invested in a deal which went a little wobbly, was keen to make his funds up again.

Rather than wallow, he asked me to help him how to make the funds back up.

I pointed him in the direction of a location which we feel will have continuous growth in years to come. This is backed by an in house report which drills down into the reasons why.

The price of the property is expected to increase very well, and this is where one makes the most money in property.

However, what’s interesting is the following, the borrowing rates are extremely cheap at the moment; when we did the numbers, it transpired there would be a passive income of over £12K.

The client is looking to borrow the full amount of the purchase price of £226,000.

£75,000 will come by way of a remortgage on his main house.  This will cost 1.13% fixed, which equates to £847 considering it on an interest only basis.

The other £169,000 will be on the BTL property, the interest rate on this will be 2.13%.  This will cost £3,600 pa.  Both mortgages are on fixed rate products which gives certainty with regards to the outgoing.

The property which has been agreed is a three bedder, spread over two floors, known as a duplex flat, and consists of 960 sq. ft.  This is large for a 3 bedroom, and therefore there is potential to convert it to a 4 bedroom property.  This will increase the rental, however, by no means will the conversion be done aesthetically.  Therefore, the rental may not be so much on the open market.  However, the council have become favourite renters again.  They are paying £1,600 for a 4 bedroom property in this location, and one bathroom is sufficient.  Their rates are calculated based on only two factors, location and bedrooms, and can be checked online.

Allowing for a 10% management fee this means there will be an income of over £12K per annum for the client.

Even if we assume the location doesn’t appreciate, and 18 pages of hard research says it will, the client has a stable income of £12K, which should increase gradually with time.

A council let, was often scorned by landlords, however it has a lot going for it at the moment.  A council tenant is not likely to require a payment holiday, as in effect the government is paying.

The problem landlords perceive is the fluctuation of benefit income, which is down to policy at the time, and also when it comes to eviction, it tends to be a more longer drawn out process.

However, a recent case has made rejecting DSS tenants illegal.  It is unknown how this will fit into current mortgages, many of which do not allow DSS tenants in any property they have lent on.

With this kind of cash flow, and arguably currently the strongest location in London, if not the UK, this investment is expected to perform well in years to come.

Suresh Vagjiani

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