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  • Property-a-holics

    Why higher value properties are better



    A few discussions on Property Tribes have sparked my thinking in this regards.

    I now believe higher value properties to be better for investment than low value ones.

    The reasons are as follows:

    1.  It costs the same to replace a new boiler on a £60K property as it does for a £250K property.  So a new boiler costing £1500.00 could wipe out three months rent on the lower value property, but would be paid for within one month on the higher value property.

    2.  It costs roughtly the same to maintain and run a £100K four bed house as it does a £250K four bed house, yet the rent on the latter is much higher.

    See - Minimum costs of running ANY investment property?

    3.  Spending £15K to refurb kitchens and bathroom on a £100K property is the same as a £250K property, yet the return will likely be far higher on the higher value property.

    4.  The miracle of compounding:  "The money that money makes makes money, and that money that money makes, makes even more money".

    In other words, if you earn 10% per annum on a £100K house, that is £10K uplift.  If you earn the same on a £250K property, that is £25K over the same time frame.  So over time, the compounding will be far greater on a higher value property.  This may allow an investor to release equity more quickly to carry on building their portfolio.

    5.  Higher value properties tend to attract better quality tenants (in my experience) and therefore have less rental arrears, and are less hassle. They may also experience lower void periods.

    6.  In a market down-turn, higher value properties tend to recover more quickly than lower value ones, again speaking from experience.

    Interested to hear other members' thoughts on this topic and developing a robust debate!

    SEE ALSO  -        The North South Yield Divide?

    UP NEXT -            How many properties & in what timeframe?

    DON'T MISS -       Reasons I am feeling positive about BTL!

    NOW WATCH:


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    We have made an active decision over the past 4yrs to buy more expensive properties, historically we have bought lots of terraces and had a price ceiling that pretty much precluded everything else. Now we have more than doubled our price brackets so 3bed semi's are in budget and over the past 4yrs we have kept about 20 semi's, the yield isnt as good but the increase in value has been incredible.

    One that we bought 15mths ago in a superb area where we dont normally have much luck, we paid £190k for, we did a minor refurb for £12k and it was then worth £220k. A identical property a few doors away has just been put up for sale at £275k.

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    Phil Stewardson.

    Stewardson Properties.

    Stewardson Developments Ltd.

    Burson Land Ltd. & Jennings & Gilchreaste Ltd.

    http://www.stewardson.co.uk

    Follow me on twitter - @philstewardson


    I think V has always been a fan of the semi

    It pretty much can be a forever home if it can be afforded

    There is usually scope for various  extensions which can add considerable value

    A 3 bed semi can be a home for a couple future proofed for a family.

    Given the choice of a 2 bed terrace in a better part of town and a 3 bed in not such a good place  I would have the 3 bed semi

    There are by their very nature more in demand as the most affordable  minimum  size of family home

    No wonder the values of yours have increased

    Everyone is after one!!!

    Stretch to a semi and save a fortune  in SDLT moving from  a 2 bed to a 3 bed property etc.

    I lived in a 4 bed semi for 18 years

    Perfectly acceptable.

    A terrace property owner is just a frustrated semi owner.

    Few will ever be able to afford detached

    Most aspire to semi-detached suburban bliss

    Just not so easy to achieve so we have to put up with 2nd best 2 bed flats and houses.

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    I could not agree more. Sometimes it does bring down the yield but capital growth way outstrips.

    I have always bought 2-3 bed houses in the SE.

    Admittedly I bought cheap because of building background but, as an example, 2 years ago I paid £248k for a nice property in need of £5k works (trade rates). I ummed and ared. It was the most expensive property I had ever bought. It would rent for £1,250 not really a good return but on completion of works I had hard evidence it would be worth £275 all day long. So I could sell on if wished.

    At the same time I could have bought a 2 bed maisonette in the area for £195k and let out for £1k pcm.

    2 years later my property type are selling for £370-390k all day long the maisonette £225k. Okay we have seen some crazy growth but i am comparing the 2 properties over that time. Worth noting is there is a glut of flats and maisonettes to let in the area. Apartment blocks built in last 5 years are about 75% BTL. These although quite nice are competing against each other  and against my 3 bed houses. I do not have any problem letting.

    I am not really sure where I stand Sec 24 has made me re-asses my position.

    I now have 10 properties worth alot of money and 5 more your traditional maisonette type.

    I have planning going through for one property and am developing just after xmas turning a 2 bed house, current value £425k, to 5 bed value £600k, works cost £50 (in trade). On paper the question is where do I stop?

    By initially buying the higher value properties I am now in a position where I can develop them all out, keep 5 maisonettes (ie the higher yielding compared with houses) and pay off all debt and walk away a rich man with very little Govt hassle. The question is rhetorical.

    I am showing my situation as someone who owns high net worth, low yield properties, which I agree with Vanessa is the way to go but perversely thinking about just keeping the traditional high yield properties.

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    Absolutely agree on point 5 re better quality tenants. I personally joined the property game with low icome and student tenants. I was continually having problems with payments. It wasnt always their fault but bottom line was rent was late.

    But once I moved upscale those problems went away largely.

    Then stepping over to good quality commercial provided almost completely hands off investments.

    My motto is to always try to do business with those with more resources than me, they tend not to want to waste time going through a court process which they are almost certain to lose.

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    Wow your two bed project house is amazing

    Are there many other similar  2 bed properties which can stand being forcibly appreciated for so little to a 5 bed!?

    £50k is peanuts and your lender will love you!!!

    To achieve so much value uplift for so little input is nothing short of amazing.

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    The North is a different world from the south 15k for a kitchen ?????

    I have some City Centre Property with high end values

    as a Investment property in the past ten years they have done worse pound for pound compared to an Ex Council House in a working class area

    We had a posh development opened by mrs thatcher in I think 1988 the Penthouse flats were 99k a fortune for the NE at the time

    there worth today 200k

    I purchased a Council House for 12k and its valued today at 100k

    I know which investment I would have and its not the posh property


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    Learn Change and Adapt ?????


    Hi Paul this is not an exaggeration I assure you. I have been a builder all my life. That profit includes my wages as it were and the project will take about a year. Perhaps I should have made that clear.

    The reason is that from running my own building firm I am able to do all trades or at least hold my own (I used to be Corgi, a it was then).

    Also from my experiences in those days I now hate having loads of people on site. Therefore for a project like this (I have bought houses specifically to develop but this is a rental of mine), I do all the drawings and get through planning (I am efficient on CAD), I do all the structural calcs for the loft conversion etc.

    I will do 99% of the build, from ground works to second fix. I only have 1 unskilled laborer who comes in with me (I am getting on a bit so mixing and heavy lifting comes down to him). Occasionally I might get a contact in the trade if I am getting fed up with a specific job (plastering can get a bit of a chore when doing a project of this size).

    So  admit my original post may have misled but not intentionally. Many will argue that I should project manage and bring in trades as financially it is more efficient, they are probably right. I have had all that when I had my building firm and I ended up hating it.

    Builders are a fickle bunch and unreliable. I am very lucky in that I am able to more or less spend my time how I wish. Although I no longer do any private building work, I am a builder at heart and love that aching feeling of having done a hard days work.

    Doing it myself gives me plenty of variety in jobs, so I do not get bored on any trade and has the advantage of me knowing the job inside out so no plumber getting pissed off cos the sparks buggered his pipework. It also means I can do the job in a perfect logical order rather than trying to juggle trades.

    Sorry I did not particularly mean to drag on about what I do but I felt those figures needed some explanation.

    I do all the work, except for basic laboring (I confess some of it gets signed off by trade contacts but I was once registered and to be honest LABC no the way I work and choose not to mention it), I get my materials pretty darn cheap again from being in trade so long so I have very little cost but the job takes a long time.

    If you factor in using an architect, builders and paying retail price for materials, at a guess (I have not looked accurately) but I would say the spend would be around £150k. So I was not exaggerating but just not factoring the significant cost of my time for a year but thats the way I like doing things now.

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    I partly agree and partly disagree,

    2) in cheaper areas maintainance can be a bit cheaper.

    3) For 15k I would expect to refurb the entire house, to a very high statndard, not just kitchen and bathroom. I did 2 complete refurbs in 2014 including electrics and central heating for £10k and £8.5k. For cheaper properties the standard expected can be lower.

    4) A single property does not get compounding. if you earn £10k on a £100k house one year you can't expect to reinvest the £10k in that house to earn £11k the following year. To get the same effect as compound interest you need to buy new properties. That is eaier to do when they are cheap ones. Also if you are likely to get a smaller yield on more expensive property.

    5) Higher value properties in the same area attract better tenants. I have had significant voids with only 2 properties - my cheapest, and my most expensive = which is in a different area to the rest. I looked at some of the cheapest properties available im Tameside when I first started - but ended up going for ones a step higher. Ones that don't attract tenants looking for the cheapest possible properties, but rather ones willing to spend a little extra.

    I have some 3 bed semis, a 2 bed end terrace 2 mins walk from the station. a 2 bed "quasi-semi" 5 mins walk from a tram station and 2 mins drive from a motorway, a 2 bed semi in a nice area that backs onto an outstanding primary school. My first purchase was a 2 bed back to back terrace and that has given me most problems, though it is close to the high strreet and faces some playing fields. I wasn't looking for capital growth, but have been getting some. My latest purchase cost £90k and a similar house on the same street has sold for £112k.

    The most I have ever paid for a property was £179k for my current home. My former home was valued at £210k in 2014 and Zoopla says it is worth over £300k now. I bought my investment properties for income to see my through to taking my pensions (less than 18 months to go Smile ). I wasn't expecting much capital growth, just hoping to keep up with inflation. I kept my former home for capital growth, and it has probably made more of that than the income from all my properties together. The wierd thing is I am now seeing capital growth from the cheap properties bought for income. According to RightMove prices in Tameside rose 8% last year (11% in Ashton-Under-Lyne).

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    Listened to a great podcast recently ( if you can get past the American approach it really is worth a listen )

    https://www.biggerpockets.com/renewsblog...n-holiday/

    in it they discussed what they call "perennial sellers", suggesting we should ask this of our investment property's . Does it have the fundamentals to make it an attractive prospect regardless of the landscape at any given time .

    They talked of looking for  something unique that will always be in demand regardless of changes in sentiment etc . I recently purchased a property in Chester within 50 yards of the ancient roman Walls and a 2 minute walk from the racecourse . I'd like to think that this will always be attractive regardless of what may come in future .

    To link back to the topic of this post , I would say that such "perrennial sellers" will always come at a greater premium .

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    In the context of this discussion, it is also worth mentioning that it costs the same to manage a property with £400pcm income as it does to manage a property with £1500.00 pcm income.

    That is one of the reasons that flat-fee property management, like ours, is becoming so popular with landlords.

    A landlord with a high value income of £1500.00 pcm would typically pay £150 pcm (10% of rent roll) in management fees.  With our nationwide property management service, that would drop to a flat fee £40.00 pcm including VAT, saving that landlord £110.00 per month.

    Landlords of higher value properties with high LTV's in the South East are likely to be far more affected by S24 than their northern counterparts. This is why many are moving to flat fee management, to reduce their outgoings.

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