Buying Under Valued Property in the North
Everyone seems to be talking about under valued properties or BMV properties. In today’s property world in Manchester, this is not London…Prices seem to keep on going up though. This makes it much harder to provide profitable yields for ourselves and investors we sell HMO property to. Property investors somewhat have some high expectations for Professional HMOs and even Social Housing HMOs. They seem to want brick and mortar comparable and on Social Housing HMOs yields of 9-10% Net. On professional HMOs they are looking 15-20%. However with inflation…cost of materials…and simply prices shifting upwards rather tough. These property investors do not take into consideration the tens of thousand of quid it costs us to make the Professional HMO or Social Housing HMO. Professional HMOs with en suites cost us a tremendous amount of money.
So, these investors sit on the sidelines and leave their money in the bank with extremely low rates and potentially risk. I recall Northern Rock and well very aware our money in the bank is only protected up to 85,000.
I had a property investor offer me less than what it cost us on a Professional HMO. His rationalisation is he checked land registry and saw we bought it at X. Why should he pay more he thought? He compared it to a terraced house that would rent maybe for 6500 gross a year…he would have a maintenance…voids…management so he would be even less…probably close to 5% net return versus a Gross of return of 13-14% with a tenanted cash flowing, managed Professional HMO grossing approx 23,000 per year.
He compared apples to bananas!
We have started a new line of business in our property investing. We are buying in Liverpool and NewCastle. These prices are significantly lower than 2008 highs. We are in the process of buying 2 properties in Liverpool as a test. In 2008 those properties sold between mid 60k up to 80k. We are looking to buy 3 buy to let properties for working tenants or LHA and sell 2 on with full management and maintenance. We are looking to do the exact same in the greater NewCastle area. This is a common idea in the USA called Turn Key. Whilst many property investors lost everything in the crisis by buying wonderful city centre flats…or overleveraging themselves…My JV partners cash flowed wonderfully 50 basic dull terraced houses that were let to working tenants or LHA. The key to their survival was management. Without management these properties will not work.
Turn Key Properties are sourced, refurbished, tenanted and maintained for investors. Mainly areas like Memphis, Birmingham and Kansas city and investors from high property areas like LA or New York city would purchase. This is our way of fulfilling the demands of property investors. Buying below replacement value…refurbished…tenanted & cash flowing…Not over leveraged…
This example in Gateshead sold in the 2008 peak around 80k. We are looking to buy in this area…refurbish…tenant…cash flow and sell on with management & maintenance in place. Our goal is to sell this property in the mid 50k range. We make a small profit…The property investor gets a great deal…paid to wait until at some point there is appreciation and making double digit returns with a mortgage in place.
Example
55k purchase as a rough number
75% of that is a mortgage lets assume 4% = 41,250
25% investor funds 13,750
cost of mortgage approx 175 per month= 2100 per year
Rents 430 per month.= 5160 per year
Before voids, management, maintenace
22.2% Return on Cash Gross
Buying under value long term…High Cash flow….Mortgage able….full management and maintenance
Full filing property investors demands…
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