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  • Property-a-holics

    You know to walk away from a property deal when ....

    Missed this first time around; from experience my no-no's would include:-

    Double yellow lines outside

    Any type of commercial premises within close range 

    Cemetery

    Anything on a hill/steep slope

    Any history of subsidence, heave, etc

    Leaseholds

    Pylons nearby especially within eyesight or hearing distance

    Motorways or busy roads in earshot

    Roads used as turning circles or cut-throughs

    I understand Jonathan's argument but personally disagree with it as to me the exit from property is a sale and I don't want anything that means I'm the one selling BMV or where my only buyers are investors!

    Lisa

    PS I'd definitely buy near a mobile home site! They are for the over 50s so are perfect neighbours!

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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com

    The way i look at it is if you got 120K to spend ( forget fees and all other costs for the sake of illustration)

    You want to buy 5 or 6 houses. Its cash flow you are after -  not pretty gardens

    House 1) type is purchased  will 10 of  the negative attributes that have been mentioned  for say £100,000

    House 2) type is purchased without those 10 negative attributes for say £120,000

    To me that doesnt mean that house 1) is anymore BMV  than house 2) .

    BMV is relative to OMV which will take into account all those type of factors anyway when valued.

    You can get BMV off a house in a poor area just as much as you can in a good area. BMV is not so relevant in my view to the type of area a house is in ( it can be of course) but  BMV is primarily due to  because of  other factors eg motivated sellers divorce/debt/death etc. They can occur in any type of area good or bad.

    When you sell ( if you sell which is another story as to why you would want to!) you assume the negatives are still there so proportionally your house in the poor area will still remain below the price for the one in the better area. that will attract investors for the same reasons as you were attracted to it or it will attract families whose incomes cannot stretch to the more expensive areas.

    Now lets say you put down 20%-   thats 20K for House 1)  v   24K deposit for House 2)

    With your 120K you can therefore buy 6 of House type 1) but only 5 of House type 2)

    You rent both at  £750 pcm LHA as they are in the same BMRA.

    House 1) at 5% mortgage rate produces £417 positive cashflow pcm

    House 2) at 5% mortgage rate produces £350 positive cashflow pcm

    Therefore you get £67 pcm more or £804 pa with House 1)

    Plus youve got 6 of them so thats £4824 extra pa

    In year 1 House type 1) produces 6 x £417  x 12 = £30,024

    In year 1 House type 2) produces 5 x £350  x 12 = £21,000

    9K income better off.

    10 years down the line you have 90K more income because you made a business decision 10 years ago to  ignore the negative emotions that are attached to the cemetery the pylons the rubbish the noise the dogs the graffitti etc etc.

    If you got them through a sourcer and put the lot with an agent  that would cost you say 50K in fees in 10 years.

    You would never even have to see them or set foot in the area.

    So your life is not affected in any way shape or form and you get an extra  40K - yes please :-)

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    Jonathan Clarke. http://www.buytoletmk.com


    Agree with all of the above. For me thought the decision has a lot to do with what type of tenant I can attract. As I manage personally, I like to deal with people I like.

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    For me, 'only owning property that I would want/be prepared to live in' means refurbishing property to a good standard and keeping it is good repair.  

    I have a couple of properties in heavily LHA areas which regularly feature in adverse articles in the local papers, but they rent really easily.  We all have different standards and what for me is a definite no-no may be totally unimportant to someone else.

    The deciding factor for many tenants is being near friends and family, which means that any property could be a good investment.

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    Hi Jonathan,

    What about compounding of the capital growth on the properties?  That is where higher value properties really come into their own.

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    @Jonathon - great post, and a very good perspective. It all comes back to what you want out of the property and how long you want to hold it for. I'd still take a very close look at what's nearby as the last thing I want is a property that's a) not letting and b) not selling. However, if it's a good and proven area for rentals, then why not?

    Picking up on Lisa's points, we bought a terraced house on a steep hill last year and had real trouble letting it. Interestingly, I think it said more about our lack of focus than the property itself. It was a bit far off our patch (in Ebbw Vale) and we relied on a local agent. Eventually, we passed the house on to another PT member Rhys Jones, who got it let within a couple of weeks. The lesson learned was as much about keeping focus as being fussy about location.

    J.

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    Jayne Owen @jayneowen

    Editor and Writer: Your Property Network magazine

    Investor: Mozaique Property, South & West Wales and South West England

    Occasional reviewer at The Property Bookshop (@Property_Books)

    Hi V

    But if you got 5 at 120K or 6 at 100K you still will gain surely  from equal  compounded growth of the  600K worth of properties you own whichever model you follow 

    Vanessa said:

    Hi Jonathan,

     

    What about compounding of the capital growth on the properties?  That is where higher value properties really come into their own.

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    Jonathan Clarke. http://www.buytoletmk.com

    But your argument Jonathan is that they are mutually exclusive.

    My argument is if my strategy is to buy 120k properties for 100k then I will ensure those properties don't have any problems when I buy for 100k. Your argument is you buy for 100k because they have these problems. So in that basis who has the better strategy? Clearly me!

    I know a lot of investors have the never sell strategy, I did too for a while but that changed for a host of reasons but you may be forced to sell in which case you'd want properties that you can sell to as many buyers as possible for as much money as possible.

    Again when you talk of yield, if my strategy is to achieve a 10% yield then I'll work to find properties without issues that meet that criteria. Again your strategy seems to be I get that yield because I buy problem properties. I know which I prefer.

    I'm not knocking it; each investor must determine their own strategy but I don't agree with your argument however.

    KR, Lisa

    Jonathan Clarke said:

    Hi V

    But if you got 5 at 120K or 6 at 100K you still will gain surely  from equal  compounded growth of the  600K worth of properties you own whichever model you follow

    Vanessa said:

    Hi Jonathan,

    What about compounding of the capital growth on the properties?  That is where higher value properties really come into their own.

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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com


    Lisa 

    I disagree. If you buy in  a nicer area a  120K one at 100K  thats good but dont think I will buy my 100K ones in my poorer areas for 100K. I will hopefully get  a similar BMV as yours at say 84K.  ( I dont chase BMV as hard as some but thats another argument as to why not) 

    The properties themselves dont have any problems it is the area that may have the ( social)  problems. 

    The £750 pcm rent is the same in both areas

    From purely an investors viewpoint the figures are better with the so called `problem` areas.

    I would like to  turn it on its head and say the `problem` areas are in fact  the ones which have neatly manicured lawns and the latest range rovers on the drive. They are a problem to me because people will expect more for their property. I`m an investor in property  not an investor in the  lifestyle of my tenants.   I just want my £750

    The problem areas to you may affect your business decision because  you simply dont want to go there yourself and cant imagine living there.  I can understand that from an emotional viewpoint  but you pay a premium therefore for not wanting to invest in those types of areas. If an agent is instructed you dont have to go there anyway so it shouldnt be a problem. The tenants dont see it as a problem at all. In fact they want to live there rather than a posher estate where they feel out of place. It is their territory their stomping ground. 

    Your argument about yield and my strategy is not so. I will work to find good yields as well but i will look in areas were the starting point maybe 20K below yours so the yield by its very nature will inevitably be  comparatively higher because of that. If you are better at finding BMV then me that is too your credit but its not an argument for not going to a problem area to find that deal.

    Problem area does not mean a problem property.  To me i see it as I in effect give my self a 20% pay increase for having to dodge the odd bit of dog poo see some graffitti see pizzas cartons thrown in the bushes and listen to  a bit of effing and blinding to get to my investment property.

    Or if i didnt want to do that  I could pay an agent to do that for 10% of my profits and still be 10% up on the deal!

     

     

     

    But your argument Jonathan is that they are mutually exclusive. My argument is if my strategy is to buy 120k properties for 100k then I will ensure those properties don't have any problems when I buy for 100k. Your argument is you buy for 100k because they have these problems. So in that basis who has the better strategy? Clearly me!
    I know a lot of investors have the never sell strategy, I did too for a while but that changed for a host of reasons but you may be forced to sell in which case you'd want properties that you can sell to as many buyers as possible for as much money as possible.
    Again when you talk of yield, if my strategy is to achieve a 10% yield then I'll work to find properties without issues that meet that criteria. Again your strategy seems to be I get that yield because I buy problem properties. I know which I prefer.
    I'm not knocking it; each investor must determine their own strategy but I don't agree with your argument however.
    KR, Lisa

     

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    Jonathan Clarke. http://www.buytoletmk.com

    Sorry Jonathsn you are still way off!

    1. No one is talking about areas! We are talking specific issues such as a pylon, a cemetery, double yellow lines. One of the best areas in Brum has a cemetery! 

    2. If my aim is a 10% yield and your aim is a 10% yield you can pick any purchase price and value you like! But if I get the same yield as you with better properties without problems I just don't get that you can't see mine would be better long term but we both get the same return now.

    3. I'm not overly bothered about BMV either, each deal in it's own right but again I used it to make a point that if you buy for a certain discount, price or yield due to an 'opportunity' (problem), my aim would be to pay the exact same price for a property without a problem! Again how can you dispute who has the better deal?

    4. Using your example though what if I get a great property in the best part of town for 84k that rents for 750 and has NO problems? Do you still maintain you get the better deal? Because this would be my strategy.

    Rent pays your bills, gives you an income, etc etc but the true wealth in property is capital growth; you might not get to take advantage of that if you neglect cashflow I agree but to ignore capital growth in favour of yield is ignoring the fundamental value of property IMHO.

    Lisa

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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com