Friday, 26 February 2016

Headingley Buy To let – Freehold House or Leasehold Flat?

Well my Headingley Property Blog reading friends, as seems to be all the rage with Jeremy Corben asking the PM questions emailed in to him at Prime Minster Question Times, I too wish to answer a question emailed into me from a potential Headingley landlord last week. Nice chap, lives near Hyde Park, and it turns out, after speaking to him, he works in IT, has a spare bit of cash (now the kids have flown the nest) and wanted to buy his first buy to let property.

His main question was ... Do I buy a freehold house or a leasehold flat in Headingley?

Most people will say freehold every time, because you own the land. However, it’s not as simple as that (it never would be would it!). The definitive answer though is to research what Headingley tenants want in the area of Headingley they want! The tenant is ultimately your customer, and, if they don't want to rent what you decide is best to buy, then you are not going to have a successful BTL investment. So starting with the tenant in mind and working backwards from there, you won’t go far wrong. In a nutshell, find the demand before you think about creating the supply.

Leasehold flats and apartments in Headingley are excellent in some respects as they offer the landlord certain advantages, including the fact a flat can be initially cheaper to buy. Yields can be quite good, offering better cash flow. The building will already be insured and yes there is a service charge, but it’s still for a service at the end of the day and that cost is spread between many others (i.e. when your freehold house roof goes, its falls 100% on your shoulders) and one of my favourites is that there is often no garden to maintain or blown down fences to replace!

However, some Headingley leasehold flats can suffer from poor capital growth. Some leasehold properties have no cap on the level of the service charge and it may get out of control. The length of the lease will significantly affect value if not renewed before it gets too short. Thankfully there’s not many, but some Headingley apartments/flats have burdensome clauses. Finally, with leases, there can be sub-letting issues – which means you can’t let them out.

So what do the numbers look like? Well since 2003, the average freehold property in Headingley (detached, semis and terraced) has risen from £158,849 to £238,231, a rise of 50% whilst the average Headingley leasehold property (flats and apartments) has dropped in value from £135,407 to £122,700, a decrease of 9%. 

I was really interested to note that of the 53,599 rental properties in the Leeds City Council area that the Office of National Statistics believe are either let privately or through a letting agency, 23,934 of them (or 44.7%) are apartments. However, there are only 68,171 apartments in the whole council area (be they owned, council rented or privately rented), which represents 21.3% of the whole housing stock in the area. This really intrigued me that, quite obviously, there is a high proportion of Headingley’s leasehold apartments/flats rented to tenants compared to detached, semi’s or terraced. Fascinating don’t you think?

Every Headingley apartment block, every terraced house or semi is different. Like I said at the start, the definitive answer though is to research what Headingley tenants want in the area of Headingley they want. Demand for town centre apartments, near the nightlife and transport links can be popular and can offer the Headingley landlord very good yields with minimal voids. However, Headingley terraced houses and semis, whilst not always offering the best yields (although sometimes they can), they do offer the Headingley landlord decent capital growth.

My advice to the prospective landlord as it is to you is do your homework. What many Headingley landlords do, irrespective of whether you are a landlord of ours, a landlord with another agent or a DIY landlord, if you see any property in Headingley that catches your eye as a potential buy to let property, be it a terraced house, semi or flat ... email me and I will email you back with my thoughts (although I will tell you what you need to hear .. not want to hear!)

Friday, 19 February 2016

The Burley Property Market and £1,300,000,000,000,000,000 in loose change

The 5th of March 2009 was the date Mervyn King, the then Bank of England Governor, slashed UK interest rates to the unparalleled figure of 0.5%. In just under five months, starting on 8th October 2008, the rate had come down from 4.5% to that low figure, all in an attempt to ensure the British economy survived the worldwide credit crunch. Now nobody expected that, over seven years later, rates would still be at that low level.

In the summer, people were predicting a rise in the New Year, yet now, some forecast it may remain the same for years to come the due to the issues in China. Now, I am not some City Whiz kid with a hotline to Mr Carney at Threadneedle Street, but merely a humble letting agent from Burley, so I can not profess to know what will happen to interest rates. However, what I do know, speaking to my Burley friends and Burley landlords is that these low interest rates have hit savers really hard.

If you added up everyone’s bank and building society savings in the UK, they would add up to £1,300,000,000,000,000,000 (that’s £1.3 trillion), most of which is earning a pittance in interest.  That is why more and more 40 and 50 year old Burley landlords have been investing some of that cash into Burley bricks and mortar, as they search for a low risk investment opportunity.

Buying a Burley buy to let property isn’t risk free, but there are certainly things you can do to mitigate and lower one’s exposure to risk. You see by buying a rental property, it potentially offers an enigmatically decent proposition in terms of being able to obtain attractive returns that beat inflation and savings accounts, yet without taking the levels of risk associated with stock markets.

The UK residential property market has long been the safest form of collateral for lenders of all varieties. Against a backdrop of a greatly changing economic environment, Burley house prices have been extraordinarily robust, increasing by over 1413.7% between 1974 and today. Some will say there have been significant property price falls, namely in 1975, 1988 and 2008, yet each time after this has been followed by an upturn in property values. For the record, the stock markets in the same time frame only rose by 432.5%!

... and that is the best thing about buy to let property. Unlike the stock market, with its unfathomable equities, shares and bonds, that nobody really understands (as they are controlled by some faceless whizzkid in Canary Wharf!) with a buy to let property, landlords can take control and understand their investment .. .in fact you can touch and feel the bricks and mortar investment...  but before you go out and buy any old Burley property, be are that plenty of landlords still get it wrong. You have to be aware of your legal responsibilities when it comes to tenant safety, tenants deposits, energy certificates and now landlords have the added responsibility of checking the immigration status of prospective tenants. Get it wrong and big fines and even prison is an option – but that’s why many agents use a letting agent to manage their property for them.

Next, you have to buy the right property at the right price. Recently I have seen some really heart breaking situations in Burley and the immediate area, of people paying way too much for a property, only to lose out when they came to sell. One example that comes to mind is that of a property owner in one of those apartments in the quiet, modern Abbots Mews complex, close to colleges and universities and with plenty of local amenities within walking distance ... a decent two bed apartment, 69 sq metres inside (742 sq ft in old money) sold in November 2007 for £153,500. In the summer, it only obtained £136,000, a drop of 11.4% or 1.58% a year - a very disappointing result.

I cannot stress enough the importance of doing your homework. One source of information and advice is this blog where I have similar articles to this about the Burley property market and what I consider to be the best buy to let deals around at any one time in the suburb, irrespective of which agent it is on the market with.

Wednesday, 17 February 2016

Fantastic terraced house in Burley with potential 12.6% yield

This 5 bed house on Knowle Terrace in Burley is an ideal property for a landlord to looking to add value and make a great investment. It's situated just next to the Stanmore's giving really easy access to both Headingley and just off Burley Road which is perfect for either students or professionals. 

From a glance at the floorplan it does seem to suffer from having one too many bedrooms squeezed in to it. Whilst trying to maximise the rent with getting in as many tenants as possible is understandable, from my experience what it ends up doing is putting potential tenants off. Very few these days are willing to take the smaller room even with the seemingly enticing option of a cheaper rent. 

My advise would be to spend some money on utilising the space better and making it more desirable thus easier to rent. I would do this by using the current small bedroom on the first floor and creating an en-suite for the larger bedroom on that floor. There's already a bathroom on the top floor so by just moving the door you can make that top floor bedroom en-suite also. Down in the basement, I would create a jack-and-jill bathroom which the two bedrooms down there could share. 

By creating a house with more even sized bedrooms and finishing it off to a high spec you're likely to achieve an annual rent of £17,056 which if you're overall spend for the property and the work came to around £135,000 you'd be looking at a cracking return of nearly 13%!