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OUR UK INVESTMENT STRATEGY The Long Term Approach. Firstly, we take a long term approach to investing in property, especially at this time in the UK. Having never been convinced ourselves about investing our money in pensions and with interest rates at an all time low, savers now must be desperately looking for other ways to secure an income. We view our property portfolio as an immediate and guaranteed income for the future. We view any capital appreciation is a bonus, probably for our children to enjoy one day. The great thing about owning property is that it is tangible you can actually see what you own. Our long term plan is to hold onto all of our UK property and if need be sell one or two of them to clear the mortgages as the 15-20 year agreements end, leaving us mortgage free when we reach retirement. ‘Warren Buffet’ (the 5th richest man in the world, allegedly worth $52 billion), is famous for being a long-term player. He eschews short-term strategies and his record is exemplary over decades. Getting the Finance Right. Secondly, as the majority of us will need to raise a mortgage, which is no bad thing, we should always try and use other people’s money to generate profits. The finance structure has to be right, with a number of factors coming together. By using ‘leverage’ to maximize returns, as well as focusing on ‘Hi-Yielding’ properties that deliver ‘Cash Flow Positive’ incomes and producing a minimum of 6% ‘gross yield’ 5% ‘net’, additionally with strong capital growth potential. With the recent fall in property prices combined with record low interest rates we aim to achieve yields of 7- 10% on new acquisitions in 2010. By getting into the market now you could see your portfolio double in value in 10 years time. There is a tab link at the side of the page to 'A-Z Jargon' which is useful to read to understand some of these expressions Creative Finance. Lenders have tightening their belts in the light of the 'credit crunch' and we have seen an end to the 'normal' 90-125% mortgages. Currently, Buy-To-Let lenders are typically offering 75% mortgages at 5-6% interest. We imagine that ‘Interest Only’ mortgages will continue to be the main choice for property investors for the forcible future. Typical, current rates are about 5% (Dec 09) normally 3% over the banks base rate. Sensibly, we would suggest putting down roughly a 25% deposit and raising no more than 75% mortgages. However, if we can acquire a property for you at well 'Below Market Value' and importantly the rental income covers the mortgage by 125%approximatly, then by using 'Creative Funding' it is possible to raise 100% 'NO Money Down Finance' at competitive rates and we will help you do it. If you do need to raise a deposit, there are a number of ways and again we can show you how. Below Market Value.
Additionally, we are now using 'Lease Option' to acquire properties. This is a very useful and flexible method of acquiring a property without having to put any money into a deal. We are certain that this will become a major part of our strategy for the future. What Property? We have never been convinced or even tempted to buy into the flashy city centre apartments phenomenon that many people believe constitutes Buy-to-Let in its entirety. These kinds of properties are generally in over priced and over supplied areas offering little chance of any kind of return. In fact, due to the rise in property values over the past few years the vast majority of new builds and traditional homes in popular areas, may be great to live in but don't offer a sensible return for independent landlords. Buying the right kind of property that someone wants to live in and located in an undervalued area, is one of our most important strategies. We have generally sought out property in areas where property prices are lower than in the rest of the country, but where rental demand is strong. Believe it or not there is little difference between the rental achieved for a 2 bedroom flat in the suburbs of Birmingham and the same in a small town in Wales. However, the purchase price of the properties is significantly different! Undervalued Areas. There are still many areas in the country where properties prices are relatively low compared to the rest of the country. Scotland is a good example of this where prices are 26% lower than the average UK price, but prices have risen in recent years, 13% in 2007 according to 'Bank of Scotland'. You can still buy a 2-bedroom terrace house in South Wales for £50-60K and achieve a 7-10% gross yield. The national average is only 4% G.Y. In Nottingham it is possible to buy a 4 bedroom town house for well under £100K.
In addition to this it’s useful to consider the average house price to income ratio, which is now 9. Suggesting that a large chunk of the country is overvalued, but there are some areas well undervalued, some as low as 4-5 times on the HIP ratio, so it makes sense to target these areas. They should prove to be excellent investments as there are clearly undervalued. We steer clear of areas were the house prices are greater than 7 times the local salary. The average UK house price is currently £160K (2009). Taking into account the average wage of £24K, this would rule out properties higher than £165K, so areas with house prices stating at around £80K offer the best opportunities. These are the places worth concentrating on, in our opinion but it’s important to be sure that there is a good demand for lettings and the supply is fairly constrained. Don’t be put of by the distances from where you are based. The most successful property investors have a spread of investments all over the globe. More importantly, there are lots of good letting & management agencies all over the country who we can recommend and who could manage a property for you, if you or we can’t. Better Value for Money. Single flats and terrace houses make up the bulk of most investors portfolio’s as they are easier to obtain to obtain finance for. However, part of our strategy has been to buy property that does or has the potential to provide more than one letting unit included, e.g. One large house which could convert into several units, a shop with a flat above or large terrace type properties that can provide several bed-sit type units. Typically, a 4 bedroom terrace can be let to 5 students. You generally get a lot of floor space for your money with these types of properties. They are often run down, but with a bit of money spent on them they provide a much better return than just one dwelling. One of our criteria has always been if the property would cost you more to rebuild than you are paying for it, then you cannot go wrong.
Some lenders are now offering specially tailored mortgages for these types of properties. These properties may not be your ideal place to live in yourself, but there is a steady supply of tenants in full time employment and carefully vetted students, who will generally take care of your property, but are priced out of the housing market, who want solid, sensible and affordable rental accommodation that professional landlords have been good at providing and this has always been an important factor. Exit Strategy. Finally, it’s important to have a sensible ‘Exit Strategy’ the most important questions we ask ourselves before buying is: Are there enough of the right people looking to rent in the area and is anyone likely to buy the property off us in the future? If you find this interesting and would like to find out more, please fill in our 'enquiry form' Click Here A Brief Summary of our UK Strategy
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You can contact our friendly team on
freephone 0800 195 0245
during normal office hours
or email: info@1-world-properties.co.uk anytime.
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