Separating the wheat from the chaff
14th July 2018
I had a client who visited me yesterday. He has previously purchased a couple of properties through us, one in W2 in Queensway; and the other in Wembley, through an auction. They were bought in June 2011.
The purchase price at the time was £153k for the one in Wembley, and £315k for the W2 one. The properties now have a combined value of £800k.
This means the increase in price has been £332k in just seven years. If you allow for gearing, the cash required would be only 30% of the purchase price of the property, this would equate to £140k. This means the return on the money invested is actually about 33% per annum over the seven years. A strong return by any means. And note, this does not take into account the rental returns which are being made after paying the mortgage.
There were some issues with the tenancies at the beginning. The one in Wembley was purchased with a tenant in situ. The tenant refused to acknowledge the new landlord. Why? Probably because it suited him to do so. There was an eviction process which had to be followed in order to evict him.
Surprisingly, the tenant attended court, but in the end was evicted. The judge did not buy his feeble arguments. This did mean some hassle factor was there.
Also, in the case of the W2 property, it is occupied by a council tenant. At some point her benefit was cut and now there is a back log of rent due. There is about £5k of outstanding rent, which is being worked through currently.
Residential property is not totally hassle free. It can be on many occasions, but the point is you should be prepared for the hassle; it may come.
A competent agent in between tenants and the landlord, should mitigate any hassle that may arise for the landlord, by taking much of the hassle on themselves for situations which may arise.
However, you must look at the whole picture, which is that our client has made a third of a million pounds in seven years.
The cost of not doing the investment would be far worse than the relatively small amount of hassle that our landlord went through. One hundred and forty thousand would be sitting and depreciating in a bank account.
It would be disingenuous not to mention the client has lost money in a deal which went wobbly. £100k was lost. Still, overall the client has profited well, and is in touch with us to see which property he can invest in next, with a hope to make this loss back up and earn more profits.
We have just the one which we expect will do that and more for them. It is a property worth £750-£850k, yet we can procure it for only £480k. This investment will for sure have some issues, however, none of them are insurmountable. They can all be overcome.
As with any investment, there can be issues with investing in residential or any property. However, when you put it in perspective to the rewards which can be gained through investing sensibly, we believe the rewards far outweigh the hassle factor.