We have recently managed to let 4 flats in our development of 6 flats. The rental is at LHA rates, of £1,470 pm. At 500 sq. ft. the flats are not very large. However, as long as we meet the council’s minimum sq. ft. they are classified as 2 bedrooms.
I was concerned following the first few viewings, many of the potential tenants weren’t impressed with the sizes. I assumed that as there was a housing shortage, and that they were newly refurbished flats, they would fly off the shelves very quickly. Not so. Many of the tenants were very particular in their requirements.
However, the bottom line is there is a black hole requirement for accommodating Social Housing Tenants and this is the overriding factor; which in the end comes out on top.
So, now there are only 2 available. One has been delayed because there is a requirement to put a sprinkler system within the flat, with its own water supply; this adds another £4-5K on the costs. This is in motion and should be completed within the next few weeks.
The property when fully let will be producing £100K per annum, giving over 8% yield on the purchase price of £1.2M.
This is only for about 1/3 of the property. The other 2/3rds is still a work in progress. There is a tax credit which has been applied to the income of this property coming up to about £275K. The rental will be received tax free up till this amount to the investors, so they’ll be receiving a tax free income.
The market is very hot at the moment, this is the feedback I have been receiving from other investors in the market as well, and the auction results are confirming this sentiment.
Deals do float to the surface, but you need to keeping fishing.
The market will go down at some point – in my opinion; at this point the bargains will become more readily available.
Currently, we have extended our reach to other parts of London and even outside, basically following the money. To analyse these deals you start from the basics, as a start, then keep digging into the deal. You can never get enough local knowledge on the deal. Remember the deal is only as good as the weakest link.
What I mean by start from the basics, is for example, to first look at the sales prices of properties in the location. If they are too low, there is probably no point in even looking at the deal, as the planning and construction costs will make it unviable. Another example is to check it is close to a prominent station, this will ensure a good demand for resales and rentals.
The above is simply just covering 1st and 2nd bases. There are many variables to consider, and also to try and see what’s going on in the area in the near future as well.