Generally, when we come across an investor who wishes to invest, we ask them if they wish for capital growth or income. Normally their answer is both. Their possible rationale is if they say one they will lose out on not getting the other.
This is not a trick question, this question needs to be defined before going out and investing.
If you’re a high rate taxpayer and earning a good income, you perhaps don’t want further income, as a large chunk will be going to the government. Therefore, your gain would be better in as a capital gain in the property. You would be able to extract this by way of refinance in the future, without any income tax or even capital gains tax. Therefore, in this situation one would not require income.
If, however, you do require a monthly income, then probably a poor yielding flat in the centre of town is not going to provide you with one.
You will more likely be better off with a house which can be turned into an HMO. This will give you a decent income on a monthly basis.
We currently have a couple of high value properties in Central London. One in which we have a high maintenance tenant who is paying a third less than ‘market rent’. The other is a flat near the Dorchester Hotel, where the tenant has decided to pay nothing; notice has been served and it remains to be seen whether they will leave on the correct date. The service charges and the mortgages still need to be paid.
These properties, if they are to be held on to, will be sucking money for the next year or two. It requires deep pockets to hold on to assets like these in the current climate, and the indication being put out is things are not likely to get better.
Unless one has a flow of money coming in or very deep pockets, serious consideration should be given to the disposing of these properties fast and cutting loses; especially as currently there is perhaps a misplaced buoyancy in the market.
Conversely, there are properties which are also producing and are seen almost as a safe haven in this environment. One is a new HMO which is almost full, and it will be generating circa £4K every month against a mortgage of just £1,100. This property started to fill up at the tail end of lockdown, which shows its resilience to the market; this is bread and butter. This end of the market will be the most resilient in the coming years, because regardless of the current environment, the bottom line is we have a housing shortage, which is like a black hole and cannot be filled.
If one concentrates on this end of the market, there are deals which are floating up to the surface.