Happy To Be Wrong
18th November 2017
We have a relatively small rental department, which has been born off the back of our sourcing business; we manage several properties in central London, and a few outside.
One particular property in Wembley had been let out directly by the landlord, for several years, to a family, who in turn had sublet the property out to several more occupants, effectively turning the property into an HMO.
We were asked to get involved at this point in the cycle.
Generally, after this type of occupation, once the property is returned it requires a considerable amount of work in order for it to be rented again.
So, we started the process of getting quotes, with the intention to start works as soon as possible.
The landlord was aggrieved at the state of his property, and was reluctant to put more money into the property, especially as his cash flow didn’t allow for it; and every day the property was empty, he was losing further money.
Looking at the property I personally did not think there was any hope this property could be rented without any works done to it at all. This was my assumption. We tested my assumption by placing the property on the market. Within 48 hours I had two offers for the property, one for £1,700 and another for £2,000. A short while later the offer for £1,700 was backed by a two month deposit, with cleared funds in the account.
I was actually extremely surprised, and glad to be wrong. Of course, references will be taken, prior to the signing of the tenancy agreement.
At the moment, we are in the process of carrying out due diligence on a Pub, in Shepherd’s Bush, which we have sourced recently on behalf a client. A part of this process is looking at whether we should destroy the building, or look at keeping it and renting it; whilst we go for planning. Destruction has many benefits, firstly, it cannot be occupied by squatters and people cannot steal lead from the roof etc. The insurance premium is minimal when there is no building to protect.
In considering the rental ability of the asset we first had to look at its usage. The top part of the property had been registered as a 52 room hostel. This would rent at £15 per night per bed. Again, this was a revelation for me; I did not realise you could sleep anywhere in Shepherd’s Bush for this kind of money.
When you multiply the two figures, the daily rental income comes to £780 per night, which equals a whopping £284,700 per annum. This is a yield of over 16% on the purchase price.
This is not the end game, however, as the plan is to get a scheme of 18 units on the site, with a view to sell on, or not, depending on what’s going on internally, and the market situation.
We are still in the process of understanding how logistically this will operate. If it is implementable, we will be very relaxed in regards to the timing of when the planning will come through. We can also afford to push harder on aspects like the S106 agreement, which is the deal you make with the council in regards to how much social housing the site would have.