17th February 2018
Today, I am heading over to Birmingham with a view of closing a few deals by the end of the week. These are small in value, but the yields are high, and we aim to make them even higher by turning them into HMOs.
I bought a property in Birmingham about 15 years ago. The property was a new build and came with an apparent 15% ‘discount’. The trouble is, it seems that almost everyone got the discount. Therefore, it wasn’t really a discount, it was market price. New build properties were often packaged this way in order for the investor to put zero or very little into the deal. Normally, the costs would be stamp duty, legals and a sourcing fee.
The property was a one bedroom flat on the tenth floor of a new build block overlooking the Grand Union Canal. You would have expected the property to rise steadily along with the rental.
The reality is it hasn’t gone up a penny. There were periods when it had actually gone down in value, even below what we had paid. The same can be said about the rental. In fact, after the mortgage and the service charge payments, this investment is cash flow negative.
We had a similar experience with a foray we had in Luton many years ago. Here, we purchased below market value, second hand property, not new builds. High yields. The beauty here was one could refinance almost instantly and extract the original deposit out of the deal, and still have the property producing cash month on month.
Sounds good right? However, the reality on the ground was very different. The type of tenants the block attracted were the lowest of the low. Dealing with them even through Agents was frustrating, and expensive, to the point where the negatives outweighed the positives, which led us to exit all the investments. We couldn’t wait to get out.
However, in recent years Luton has been one of the fastest growing boroughs in the UK, with returns of over 20% per annum.
It wasn’t that long ago that Luton, much to the dismay and protest of the Mayor of Luton, was voted as Britain’s worst borough.
Property and areas move in cycles, and today’s ghetto will often become tomorrow’s investment destination.
The shift out of London is driven by a need, not by a desire or preference. The ability to purchase a property £300k or less has almost disappeared completely out of London now. Why is this bracket so important? It is because this is what the average couple can afford as first-time buyers.
Therefore, there is an exodus of first time buyers, who are heading out of London but within commuting distance to London. This trend will carry on, and the hotspots will be centred around the stations which provide connectivity. What the smart thing to do is to look one layer deeper and foresee which areas will rise off the back of the ripple effect of a station. This is when you will be purchasing very cheaply, and will not have any competition.
A similar trend is occurring in Birmingham, an area named one of the poorest in the UK, has now the fastest house price rises. Prices in Ladywood are up 17% in a year.
Prices in the B16 postcode of the city, which covers the Ladywood area, rose by 17% in the 12 months to July, far outstripping any part of London, where the property market has cooled rapidly since the EU referendum.
The average house price in Ladywood jumped to £172,498, from £147,121 the year before, according to a report by the mortgage arm of Barclays bank, with local estate agents pointing to an influx of young professionals and investors amid the HS2 rail project, and the building of a “super hospital” in nearby Smethwick.
OBR has warned that the stamp duty cut for first-time buyers will push up prices.
Ladywood, on the western edge of the city centre, has long suffered from a reputation as a crime-ridden jumble of estates, high unemployment and low pay. Last year it was named by the End Child Poverty campaign group as having the worst levels of child poverty in the UK.
But cheap housing – it is possible to buy a three-bed terraced house in the area for £120,000 – has prompted a new wave of buyers to move in.
Areas like Moseley, Sutton Coldfield and the Jewellery Quarter are often talked about as some of the main property hotspots in Birmingham.
These areas typically command high prices and some of the best houses in the city – but they aren’t the only places that could make a great investment.
We’ve found some of the lesser known places in Birmingham that could become some of the most desirable areas to live over the next few years – and where you could make a fortune.
According to the 2017 Crane Survey, Birmingham is seeing the highest level of development for 15 years, with a huge focus on creating office, retail, leisure and residential areas.
One of the world’s biggest banks, HSBC, is relocating out of the UK capital to Birmingham in what’s considered the ‘biggest inward investment deal for a generation’. HSBC’s new headquarters will soon sit in one of Birmingham’s largest mixed-use schemes, Arena Central. The new ‘Paradise’ development in Birmingham City Centre is also soon set to welcome a prestigious financial services company, PwC, to the neighbourhood.
Suresh Vagjiani
