London Buy to Let still makes sense

by Mark Edwards

19:00 PM, 18th May 2014
About 7 years ago

London Buy to Let still makes sense

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London Buy to Let still makes sense

One of my clients, Philip an IT consultant, recently completed on a purchase of a three bedroom house in Edmonton North London. It was his first venture into property investment and so I was impressed at how wisely he had bought. Furthermore it’s encouraging to see that it is still possible to acquire property in areas of London that provide good prospects of capital growth yet offer sensible positive cash flow from day one. Mark Edwards - "London Buy to Let still makes sense"

Using an 85% buy to let mortgage, I was able to arrange funding for him as follows:-

Purchase price £240,000

Deposit £36,000

Mortgage £209,100 (includes lenders fee being added)

Interest Rate 4.89% (2 Year Discounted Variable rate)

Rent £1300 pcm

Gross Yield 6.5%

Monthly Interest £852.08

Gross monthly cash flow £447.92

Gross return on capital invested 14.93%

The 85% product has no early repayment charges at any time, so as the property increases in value he will be able to release equity or refinance to recover his initial investment.

He was also able to arrange a corporate let with a local agent who provided him with a guaranteed rental for the next two years. Although just below market rent this was offset by no management fees being charged.

Edmonton offers excellent transport links with the journey from Edmonton Green BR station to Liverpool St taking only 25 minutes. The Tottenham Hotspur FC £400m new stadium and regeneration project, which includes shops, parks, 1650 new homes and 5000 new jobs is only a mile away.

You can find similar properties for sale to this example in the N18 and N9 postcodes.

If you would like to learn more about this case study or require mortgage advice please contact me.

Contact Mark Edwards

 

 


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Comments

Londoner 43

13:07 PM, 25th May 2014
About 7 years ago

Many thanks for your very useful response, Vanessa. One really has to be careful when looking to buy an investment property in a part of London you are not familiar with.

One matter to flag for London at the moment is that there is an oversupply of 1-and 2-bedroom flats to rent in some parts of the city, such as Islington, and the achieved rents have gone down this spring. I own a 2bed,2bath flat in a desirable gated development in Islington that I have never had any difficulty letting. My tenant is leaving at the end of the month (moving to a 1-bed flat in the same development), and I am facing a void for the first time in over 8 years. The flat was valued at £540 pw by 3 letting agents and was under offer quite soon after it went on the market in early April (through Foxtons, the largest letting agent in the area) for £520 pw. Unfortunately an independent referencing agency failed one of the 2 prospective tenants, so I could not take them on as my buy-to-let mortgage lender insists on the tenants passing independent referencing. (The letting agent had not bothered to check the references, although they were inconsistent and the guy had provided a false Landlord reference - he had moved back to his parents' house but claimed to be the property owner.) Over two weeks was wasted with the referencing as the other guy was changing jobs (again something the letting agent had not spotted) and it took ages to obtain a reference from the new employer. Since then many people have viewed the flat and although the marketing price has now been reduced to £500 pw, I have not received any offers. (Foxtons had 54 2-bedroom flats in Islington on their books a couple of weeks ago). I received an offer earlier this week of £425 pw, as in desperation I put an advert in Moveflat.com, but the tenant can only move in at the beginning of July. With no agency fees to pay, the offer is no worse than £500 through Foxtons.

Apparently the Help to Buy Scheme is affecting the rental market in my price category, as many professional tenants who would normally be keen to rent my flat can afford to buy a property with a 5% deposit (and possibly help from their parents if they don't have enough funds for the deposit). At the same time, there is a shortage of properties to buy in good areas of London. Last week, two estate agents valued my flat at between £650K and £675K and were confident that at least £650K would be achieved. I would put my flat on the market like a shot, if I did not have to pay 28% CGT on the profit. I bought my flat off-plan in 2004 as my future retirement home, but my plans have changed and I am likely to move out of London. (My son moved to Spain last year, and I may join him there next year. No CGT to pay after 3 years of living abroad.)

13:16 PM, 25th May 2014
About 7 years ago

@Londoner43

That's very interesting as we have 1 and 2 bed flats in N5, N7, and N4.

Thankfully, as you have found in the past, they let very well and I have not had to renew a tenancy for a long while now, so interesting to hear up-to-date views on demand.

Over-saturation is something to be mindful of, as there is quite a few new developments going up in the Holloway and Islington areas. As I mentioned, overseas investors are buying them for investment purposes, and this always has the potential to downgrade rents in the area.

Having said that I am a big fan of N5 and N7 as the transport links to the West End and City are second to none and Holloway in particular has a lot of potential as surrounding areas are becoming so expensive imho.

Londoner 43

13:36 PM, 25th May 2014
About 7 years ago

Reply to the comment left by "Vanessa Warwick" at "25/05/2014 - 13:16":

My flat is off Essex Road in N1. Very convenient for the City, but not so good for West End. N5 and N7 are probably better for transport links and properties there are probably still a little cheaper than in N1. I had a tenant who stayed for 4 and a half years until relocating to New York in 2012. (He came to me through a recommendation, so the net rent was already then over £500 pw.) Since then, I have used letting agents, and as they take 11% plus VAT, the net rent has been considerably lower. I think I should have advertised privately from the start, at about £450 pw, and I would probably already have new tenants lined up. Lessons learned the hard way!

Mark Edwards

16:06 PM, 25th May 2014
About 7 years ago

Reply to the comment left by "Londoner 43" at "24/05/2014 - 20:56":

Hi London 43

On the contrary the purchase completed within the last two weeks. You can't get much more recent than that! I will post the Land Registry link as soon as it becomes available.

I am not suggesting it is easy to find these properties, you will have to work hard at it and move fast when necessary. Currently a 3 bed terraced house can be found for sale on Rightmove at £250,000. Remember asking prices are not necessarily the agreed sold price.

My clients offer was below the original asking price but was accepted as he had his finance in place and was in a position to move quickly. I spoke to the estate agents on his behalf and convinced them of my clients ability to perform. The offer was subsequently accepted on 4 April 2014 and we were able to get the valuation completed by 9 April, which kept the agents happy.

Have a look at the Rightmove links below which show 2 and 3 bed houses currently selling in Edmonton at or below £250,000. Granted most are now sold subject to contract or under offer but you would expect this to be the case as they do not stay on the market for long.

If you are interested in these types of properties then you should register with the local agents and impress upon them your seriousness and ability to move fast as competition is fierce.

I spoke to one agent recently who advised that they have usually sold the property by the time they return to the office after taking the initial pictures. So if you are depending on Rightmove you may be left behind.

http://www.rightmove.co.uk/property-for-sale/find.html?locationIdentifier=OUTCODE%5E1687&insId=1&maxPrice=250000&displayPropertyType=houses&oldDisplayPropertyType=houses&includeSSTC=true&_includeSSTC=on&index=30

http://www.rightmove.co.uk/property-for-sale/find.html?locationIdentifier=OUTCODE%5E1675&insId=2&maxPrice=250000&displayPropertyType=houses&oldDisplayPropertyType=houses&includeSSTC=true&_includeSSTC=on

Londoner 43

16:25 PM, 25th May 2014
About 7 years ago

Reply to the comment left by "Mark Edwards" at "25/05/2014 - 16:06":

Mark, Thanks for the information. I would never consider buying a buy-to-let property in Edmonton. I doubt very much that I would find professional tenants for such properties. I would not consider tenants on benefits. Vanessa Warwick's report about Edmonton was quite enlightening. I live in east London (in London Fields, E8), so Edmonton is not a million miles from here. There are such problem areas also in Hackney, as there are a few large run-down council estates in the borough. Now there is a major regeneration of Woodberry Down, once a model council estate when it was built in the 1950s. Many council blocks have been pulled down and some housing association flats, part-buy-part-rent flats, and private flats (at £400K+) are built in their place. It is in Manor House, and all the new properties for sale are marketed to unsuspecting investors in SE Asia, who have no idea how gritty the area still is.

Mark Edwards

17:26 PM, 25th May 2014
About 7 years ago

Reply to the comment left by "Vanessa Warwick" at "25/05/2014 - 10:51":

Hi Vanessa

Thanks for the compliment on my "sensible" case study.

As stated to London 43, it is a very current case with completion having only taken place within the last couple of weeks.

The intention of the article was to share a clients positive experience and show what is still possible in the London market. Judging from the responses there seems to be some interest. I will be sharing similar detailed case studies in the future as I have a number of clients currently investing in London. I think real time case studies can be very helpful for investors looking for ideas on where and what to buy.

There is good and bad in all parts of London, and unfortunately drug use is prevalent in all areas of society. Sorry to hear about your experience with your one bed flat, on the other hand I have owned a two bed flat in Edmonton for several years and during this time I have had great professional tenants and thankfully none of the issues you describe.

I own properties all over London and the only time that I have experienced similar problems to the ones you mention was the two bed flat I own in Acton, W3. Ironically the area is quite decent however the block has had its issues.

The important thing is to do your own research and due diligence before investing. It makes sense to view a property at different times of the day and on weekends too in order to get a flavour of the immediate and general vicinity. Additionally what works for one investor may not work for all. Some investors are happy to buy properties in need of cosmetic repair, letting to LHA tenants or with a general limited appeal.

It is also worth noting areas change over time, especially in London. I remember when I was growing up Stoke Newington N16 could be regarded as being down on it's luck. Now it is a very expensive part of London having undergone regeneration and some would say gentrification with those who cannot afford Islington considering the area. As young professionals are priced out of these locations they move North and East into neighbouring areas like Tottenham and Walthamstow.

When I invest I look at how the figures work today. I expect a decent return on my capital invested from day one, any subsequent growth in capital is therefore a welcome bonus however I expect to realise this over the longer term, say 10-15 years. To expect faster capital growth than this would be purely speculation. Investing in this way is in my view, the best way to combat being caught up in any "capital growth frenzy".

Mark Edwards

17:30 PM, 25th May 2014
About 7 years ago

Reply to the comment left by "Londoner 43" at "25/05/2014 - 16:25":

Hi London 43

I know the area where you live very well, E8 is also Dalston, an area that has had its social problems and would definitely be described by some as "gritty". However it has changed drastically over the years.

You are entitled to your opinions on other areas but not everyone would agree with either your findings or your conclusions.

You seem to be happy living in E8.

Londoner 43

18:01 PM, 25th May 2014
About 7 years ago

Mark, I have lived in London Fields area for 28 years. E8 is a large area. This is not Dalston, but a couple of bus stops east of Dalston Junction. The area has undergone quite a lot of gentrification since I moved here, although not as much as Stoke Newington. I moved here from west London in order to cut down my daily commute from 3+ hours to under 2 hours. I have not had any problems living here, but could no longer to afford to buy a house if I did not have a considerable amount to put down as a deposit. A fairly modest 3-storey terrace house nearby is on the market for £1.34 million. (There are no 2-storey Victorian houses, only 3- and 4-storey ones; the latter usually divided into 2 or even 3 flats.) There are some small blocks of flats and groups of 2-3 council houses built on the sites bombed during World War II.) -- I find it hard to understand how professional tenants would choose to live in Edmonton, unless they are saving for a deposit to buy a property of their own.

Mark Edwards

18:33 PM, 25th May 2014
About 7 years ago

London 43, both Vanessa and I have professional tenants in Edmonton so it is possible. To state otherwise is to suggest the entire population of Edmonton is on benefits!

Clearly Edmonton is not for you, which is fine. Enjoy the rest of the bank holiday weekend.

21:01 PM, 20th October 2014
About 6 years ago

Hi and thanks Vanessa Warwick, what is the full meaning of LHA please?

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