23rd July 2019
I will be attending an auction today to pick up a lot which consists of a shop and uppers. This is unusual for us as traditionally we concentrated on pure residential.
However, one must change with the terrain. And the terrain has changed. There are many reasons why commercial is preferable to residential, and a few reasons why residential is better in some aspects.
First and foremost, the biggest thorn in everybody’s behind is the extra premium on the stamp duty BTL residential properties attract. Even though, to be fair, in the current market you can find enough of a deal to compensate for the extra premium. Another, is there are 160 separate pieces of legislation which govern BTL investment. BTL investment requires adherence to these, and also one needs to keep an eye out to see how the horizon is changing.
It seems there is a lot of politically driven bias against BTL landlords. It feels as if it has been on the agenda to have them persecuted, to the point of unfair discrimination.
On the other side of the coin is that I can’t imagine that residential property, especially at the bottom end of the pyramid, is really going to go down in value. There is a housing shortage in the UK, which is not being satiated. Often, we get caught up in the speculative side of property, forgetting we are actually dealing with a human need. A need for shelter. And when you concentrate at the bottom end, which is around the £300K mark in London, you’re no longer dealing with speculative property but the end of the market which is based on need; a need which is not being satisfied.
You can still get a property which will get you a 5% yield in this market, in a strong location. The positive aspect of residential property is typically it will rent in days. You have very little void periods, the market is variegated and strong.
The shop and uppers I am hoping to acquire for my client today, is a mix. The details say there is a one bed flat, and below this an HMO which consists of three rooms. Underneath this is a barber shop paying £10K per annum. The garden is an overgrown jungle consisting of about 100 sq. ft. length.
The angle here is a hit and run strategy. Meaning purchase and then break up and resell. The break up value comes to £565K. The ideal situation is we agree with the commercial to retain the garden space, and use this to get further residential planning. This will be done in addition to disposing of the whole property first and cashing in.
We have done a lot of flipping which involves buying and selling prior to completion.
In this deal we will be aiming to replicate this strategy. With property it’s reasonably easy to make money using a buy and hold strategy, it goes up medium to long term. What’s more interesting is how to make money through property in the short term.