Jump to content

10% ROI and 20% BMV - Does that really exist or is that a marketing angle?


Recommended Posts

Hello,

 

I am new to the property hub but have previously made two BTL purchases. Both of them, comparing to what R&R describe as a good investment (20% BMV, aiming towards 10% ROI) are crap. In terms of net yield, I'm getting something around 4.5%, which I'm not happy with, but they rent really really well.

 

I have been looking (through the traditional channels I admit) for over 6 months now in various locations (Liverpool, Manchester, Derby, Nottingham, Leeds), and CANNOT for the life of me find anything like what R&R speak of that isn't in 1. Need of serious renovating (that will chew up my capital growth) 2. In a rough area that will have no/lower capital growth and unreliable tenant.

 

This isn't just a rant though :) I'm really interested/hoping to know if there are people out there (here) that are willing to share their experience - have they found anything like that?

 

My "type" of investment is either professional let apartment or 2-bed house, no students, no DSS/rough areas, no major renovations (I can handle new carpets and paint :P). Up to £160k.

 

It well may be that my "type" of investment property isn't suitable for the above, but R&R didn't mention that in their strategy podcast.

 

Thanks in advance,

 

Moore

#frustratedinvestor

Link to post

Hi Moore,

 

Not that I'm an experienced investor myself, still a newbie. I & my partner recently bought a 3 bed flat in Aberdeen at around 20% BMV in December 2017. The flat below sold for £240k in August 2017 and others in the area were selling around £250k mark. Both flats (ours and the one below) were taken as part exchange from the developer from the previous owners so the developer was willing to sell on quick and at a discount. The flat was 5 years old and still in pristine condition and no money was spent on any renovations except for general cleaning etc

 

I live in the same area and its in high demand from professionals etc and the flat was let out in a week after completion.

 

I think you should know the area quite well to identify such opportunities or use a sourcing agent but ultimately you have to move quickly too :) .I suspect a lot of these properties will pop up at auctions too and obviously with a lot of interest.

 

 

 

Link to post

I am currently buying with 10% ROI (8% is acceptable if I really like the property/area but no lower) - the way I get this are by buying houses that need virtually no work with 75% mortgage and letting them as single lets, generally they have yields around 7%.  As soon as I include a refurb in the mix my cash invested will increase hence the ROI will decrease.  I have been doing this for 6 months in the NW and have bought a few (prior to this I was buying in London a while ago which is a completely different market).

 

I buy houses in good condition in areas that have high rental demand, in a buoyant market, so I haven't found anything significantly BMV.  It's easy to say an off plan new build flat is worth 100k but you are being offered it for only 80k, but look behind the figures, a friend showed me a new build 'BMV' flat offering for 80k and I looked at the area it in in which was high LHA, and freehold houses were being sold for 80k in the same area in good condition, with no leasehold charges/service fees. 

 

In areas with a very slow property market it's easy to say something is BMV, because little is selling so a desperate seller needs to do something to sell, this is happening in London right now, in fact it is because generally things are selling for 10% less than a year or two ago.

 

In London when I bought my last flat in the mid 2000's I was told top floor flats were selling for 10k more than middle or bottom floor at the time.  It was 177k at the time.  The ground floor flat in similar condition was bought for 165k a few months after, on paper it was easy to say it was BMV, however it was actually smaller at some of the storage cupboards in communal area make the 2nd bedroom smaller, the flat was dark and a lot less desirable.  I would argue the buyer actually overpaid.

 

So basically think about the deal on its individual merits, does it stack up?  I have been offered a lot of BMV property and as soon as I look into it, it is often market value, or even slightly above when the true cost of refurb is factored into it (refurbs are in my experience a lot more than we estimate so double your estimate for works and see if it still stacks up).  Once you buy it is it in a particular road in an area that will let right away by a long term tenant?  If it's a city centre flat and you need to do a tenant find every year you're losing rent plus c.£300 for a new tenant, so your yield massively decreases.

 

If you buy an off plan flat with guaranteed yields for X years this is factored into the cost of selling it to you, get onto right move or ring a local agent, see how much they are realistically renting for and how long they're on the market.

 

I basically ignore BMV, and focus on other things - ie. Does it have a good yield? What is the condition of the property in terms of long term risks? (ie will it need a lot of money spent on it in the near future or is it good enough that I have to spend relatively little for next 5-10 years?) Great tenant demand? How long do tenants stay in that type of property in that area? I aim to provide a house that is in a location and of a high enough standard that tenants want to stay 5-10+ years.

 

Find yourself a good independent lettings agent and they will be able to give you this specific information on the area you focus on.  Better to learn one area well than a few areas not so well.

 

Just some food for thought, hope it helps!

Link to post

Thanks guys.

 

I am looking at new-build sent to me but various sources/agents nothing above 5.5% real net yield, and even that's a rarity! 

 

I need to try source my properties in a different way. *sigh*

 

13 hours ago, londoner said:

I basically ignore BMV, and focus on other things - ie. Does it have a good yield? What is the condition of the property in terms of long term risks? (ie will it need a lot of money spent on it in the near future or is it good enough that I have to spend relatively little for next 5-10 years?) Great tenant demand? How long do tenants stay in that type of property in that area? I aim to provide a house that is in a location and of a high enough standard that tenants want to stay 5-10+ years.

2

 

If you ignore BMV, it will hard to 'fast-track' the process of adding value to your portfolio and re-finance I would have thought?

 

Link to post

Hi Moore

 

Some really good observations from both Kingsley and Londoner there, which are a lot more realistic than you will see from some property trainers and the sourcing sales glossies that's for sure!

 

Combining 'BMV' AND  high yield AND professional tenants with NO remedial work is a bit of a unicorn in truth. I agree with Londoner about genuine BMV but that said, I tend to find plenty of properties that achieve a 10% ROI with minimal or no work on the open market...I would tell you where to find these but I am not allowed to ;)

 

The one potential compromise I suggest you make is with the tenant profile. Everybody seems to want a 'professional tenant' when all you really need is a reliable 'working tenant'. Make sure the tenant is not spending more than 40% and ideally closer to 30% of their take home pay on the rent and a working tenant with good references should be fine. Keep in mind that families tend to stay for longer than young singles generally as well. I would say you can definitely find a BTL with minimal works suitable for renting to a couple / family for £160k that can achieve a 10% ROI. In fact, I know this to be the case as several have passed across my desk in the last few weeks and months alone.

 

Get in touch if you want to know more, but if you want to find them yourself - as a starting point, look in locations where the average gross yield is >=7% (ignoring multi-lets from the results) and then appreciate that you will have to kiss a few frogs along the way!

 

Best

Richard

Richard W J Brown a.k.a. The Property Voice

Property Investment Strategist

10%+ ROI property deals every week: check out PROPERTY DEAL TIPS
Amazon best-selling author Property Investor Toolkit & #PropTech, YPN Magazine columnist & PODCAST host

Web & Blog: The Property Voice | Curated property news & insights feed

Facebook Page | TwitterLinked In

Let's connect...mention The Property Hub :)

Link to post
16 hours ago, richard brown said:

which are a lot more realistic than you will see from some property trainers and the sourcing sales glossies that's for sure!

 

What do you mean? is 20% BMV AND 10% ROI a myth? (myth= yes, maybe there's a one-off here and there, but it will bre very rare). If so, what IS realistic? 10% BMV? 8% ROI? I'm trying to understand what I should be aiming for, what is the "goal" in terms of returns.

 

For example, next to one of my properties now (that generates a low 4.5% net yield) they are building a new development, a small 1 and 2 beds, aimed at professionals. I got my hopes out "I know the area, I know the flats rent really well, and surely this will be a better deal than the one I already have, because its a new build, and it must be at the very least BMV".

 

In reality, they price a 1-bed at £135k, SC is roughly £750/yr and expected rent is £650. Now add all the other costs (stamp duty, solicitors fees, mortgage fees, furniture etc), you are left with a mind-blowing 3.8% net yield. I mean, who buys these properties? And that's the story of 99% of everything I have been presented with (most better than this, but still lower than 5%).

 

16 hours ago, richard brown said:

all you really need is a reliable 'working tenant'

 

I agree completely. Those are usually a bit further away from town centre, 2-3 bed terraced house?

 

16 hours ago, richard brown said:

Get in touch if you want to know more

 

Sent you 

Link to post

Are you calculating your NET yield on just the money you put in? As in, the deposit, stamp duty, broker fees, small renovation fees etc? Are you looking at the North or the South?

 

I currently purchase properties for around 15/20% BMV and the NET yield after monthly mortgage costs is never below 20%. Usually it’s 30%. 

 

Just purchased a property for £48,000 where the other houses are worth £60,000. That’s 20% BMV. I spent £5k on furniture and paint and a new kitchen so in total, deposit plus 3% stamp duty plus fees plus refurb is £20,000. That means the property has now had £58k spent and my only comparisons are £60k. However the £60k houses are not done up to a good standard so I know mine will sell for more than £60k, just unsure by how much.

 

Monthly rental is £595 to a working tenant, which to me is a professional. I had 30 enquiries within a week and had 7 good applicants within 2 weeks. 

 

Mortgage payments are £75/month and Insurance is £30/month. That’s a 29% NET yield on my initial investment if I’m right? Very standard deal, not particularly exciting or different. 

 

Within just over 3 years I’ll have my money back anyway regardless of whether there is capital growth or not. This is a 3 bed terrace, 1 mile out of a city centre with excellent transport links. 

 

I tend not to shy away from big refurbs because that’s where you can get a big discount from the vendor and if you have a good team of tradespeople and good trade knowledge of where to buy you can do good work for relatively cheaply therefore not eating too much into your capital growth. I also go very detailed on the design of the house in order to be able to achieve the highest rent possible. Other rents in this area are only at around £450/month although the properties are not in good condition. 

 

I also actively look for high-yield over BMV. I have been investing full-time in property for around 5 years now so have relative experience but possibly not as much as others. 

 

Again, this deal was not too hard to find and is not the best deal I’ve ever got, just the most recent. A pretty standard deal.  

 

Currently letting a property that yields 40% NET and I paid £10,000 over what the survey said it’s worth. Because it will yield me 40%. I’ll have that money back so soon and then it will be earning money for me forever. Sometimes you have to weigh up yield and BMV. 

 

Anyway, don’t know if this helped or just made it seem like I was tooting my own horn?! I just wanted you to know it’s possible since there were no others comments saying it was. 

 

Stephanie 

Link to post

I agree with Mr Moore and have recently asked the same question. I too am a newbie.

 

I am currently looking in the Notts area and am finding it very difficult to find anything with decent net yields... if honest about the costs! Maybe I am being too conservative with my figures but most 2 bed places are coming out at around 3.3-4.5% net yield, for single lets. OK I am looking at LHA, which I appreciate will give me a lower yield but the figures don't massively increase if I look at average private rental. I have seen some where yield of 6-7% is promised (never higher) but they always turn out to be gross when you drill down! ROI doesn't seem so bad, coming in more around 9.8-12.4%. I'd like to buy in areas with capital growth potential, which the numbers don't really show..but the obvious problem there is that this is often reflected in the price! I have 4 properties on my radar at the moment. 

 

I have also noticed that house prices have shot up around 15-20k since the start of the year without any real reason. Agents say it is because the market is hot, but I'm not sure I agree. The difference in property quality and size in the same area is massive. Houses that were on for 80-90k are now on for 100-115k and they just don't seem worth it. Available selling prices certainly don't seem to back it up. Are we heading for a (regional) wobble?

 

I guess I am nervous about taking the plunge! I would be buying in cash and getting a mortgage at 75% LTV later on through a LTD Company. I'm currently using R&R Property Comparison s/s (which I guess doesn't take into account what I can claim against tax e.g. interest etc)...

Link to post

Hi all,

 

I am based in the North West and tend to focus on very specific streets to add to my portfolio as it has all the fundamentals i'm looking for, it has has a pretty good owner-occupier ratio and is a catchment area for the best local schools. So i'm able to buy at a good price but also appeal to good tenants, I appreciate this doesn't spread my investments around which will likely affect long term capital appreciation however I tend to buy properties that just need that little bit to much work to put off FTB which really helps the asking price. From buying low and adding value then I have made my own capital appreciation and not reliant on factors i can't control.

 

Below is an example of my last purchase

 

£14.25k  Deposit (57k Purchase)

£5k        Renovation

£1k        Legals/Survey

£1.7k     Stamp Duty

-----

£21.95k

 

 

Monthly financials

 

£450 Rent

£83  Mortgage

£15  Insurance

£45  Maintenace pot

----

+£304

 

 

Net Yield - 5.94%

 

I plan on re-financing this deal at the end of the 2 year fix which would result in £17.25k release which alone would result in a annual 39.29% ROI - If you want to add the rental profit then at the end of year it's all money out + profit.

 

I think ultimately It's down to what your strategy is and research reseach research, my goals are to build up solid cashflowing investments that attract good tenants and are stable. I'm not fixed on a specific tenant profile as i don't want to narrow my options, as long as they can provide a reference and have the finances to support then i'll go with my gut feeling on them. If your very specific on who/what you want they you will likely find it either doesn't exist or you can't make it work.

 

Thought I'd put this out there to offer some perspective :)

 

P.S  I agree with Stephane about Yield vs BMV - Yield you can control, appeciation you can't.

 

Greg

 

 

 

Link to post
5 minutes ago, greg ashall said:

Below is an example of my last purchase

 

£14.25k  Deposit (57k Purchase)

 

Where in the UK you can buy a property for £50k that will attract good tenant? I saw a few of these in not-so-good areas in Liverpool a couple of months back and decided against it for a few main reasons:

  1. No or minimal capital gains long-term (run down area)
  2. Unreliable tenant
  3. Old property that unless (as you mentioned) you're doing up, will need an overhaul at least once in 25 years.

 

1 hour ago, t barratt said:

I am currently looking in the Notts area and am finding it very difficult to find anything with decent net yields

 

In Notts I don't think it exists. One of my properties is in Beeston, and the Yield is rubbish. (I may be wrong of course)

 

 

Link to post
1 hour ago, t barratt said:

I agree with Mr Moore and have recently asked the same question. I too am a newbie.

 

I am currently looking in the Notts area and am finding it very difficult to find anything with decent net yields... if honest about the costs! Maybe I am being too conservative with my figures but most 2 bed places are coming out at around 3.3-4.5% net yield, for single lets. OK I am looking at LHA, which I appreciate will give me a lower yield but the figures don't massively increase if I look at average private rental. I have seen some where yield of 6-7% is promised (never higher) but they always turn out to be gross when you drill down! ROI doesn't seem so bad, coming in more around 9.8-12.4%. I'd like to buy in areas with capital growth potential, which the numbers don't really show..but the obvious problem there is that this is often reflected in the price! I have 4 properties on my radar at the moment. 

 

I have also noticed that house prices have shot up around 15-20k since the start of the year without any real reason. Agents say it is because the market is hot, but I'm not sure I agree. The difference in property quality and size in the same area is massive. Houses that were on for 80-90k are now on for 100-115k and they just don't seem worth it. Available selling prices certainly don't seem to back it up. Are we heading for a (regional) wobble?

 

I guess I am nervous about taking the plunge! I would be buying in cash and getting a mortgage at 75% LTV later on through a LTD Company. I'm currently using R&R Property Comparison s/s (which I guess doesn't take into account what I can claim against tax e.g. interest etc)...

Looking in the northwest, the only places that will give decent yield are the areas where you're going to struggle for capital growth and are going to suffer with lots of voids. I've got a single BTL in Burnley, bought with no planning with a friend back in 2005. It rents for 6-12 months at a time, for £85pw, but at some point the rent stops and you discover the tenant has disappeared, leaving a lot of credit agency letters. It can then take months to let again. Similar properties can be picked up for c£40k, so yield is technically great, if there's someone in it. The other issue is that you can't get a mortgage as a ltd company, as they're too cheap, so ROI isn't great.

I've therefore been looking to go up in the price range, looking £90-£170k for 2-3 bed houses or apartments. Net yield is usually 1.5-2.5%, with ROI of 6-8%. Not great, especially if you take into account inflation.

I'm there looking for ones that provide reasonable yield, but look like they should have better capital growth. Difficult to predict after the last 10 years, but you can guess which areas will perform better than others. I'd seen capital growth as the cherry, as it was uncertain, but without it, little seems to work. 

I can get 7%+ through an investment ISA, which puts capital at risk but spread enough that it's no more risky than a property. And there's no licence; tax; CGT; accountant to pay for.

Currently in complete analysis paralysis and have been for a few months, which is frustrating, but standard BTL just doesn't seem to work very well anymore.

Link to post
20 minutes ago, greg ashall said:

 

Below is an example of my last purchase

 

£14.25k  Deposit (57k Purchase)

£5k        Renovation

£1k        Legals/Survey

£1.7k     Stamp Duty

-----

£21.95k

 

 

Monthly financials

 

£450 Rent

£83  Mortgage

£15  Insurance

£45  Maintenace pot

----

+£304

 

 

Net Yield - 5.94%

 

 

 

 

 

I believe your NET yield on this property is 16%, not 5.94%. 

 

You are earning £304/month NET from this property from a total input of £21,950

 

That means you earn £3648/annum from this property. £3648 is 16.6% of £21,950. 

Link to post

My net yield would take into account the purchase price + renovation costs.

 

I would view the 16% as an ROI not yield as that is my spend vs returns therefore a return on investment.

 

Every seems to have their own adjustments but in my opinion yield is against the value of the investment and ROI is your return against your set up costs.

 

Greg

 

Link to post

I'm with Greg in terms of calcs and definitions. 

 

Mr Dix's Property Geek website has examples and definitions as well to clarify - https://www.propertygeek.net/article/rental-yield-calculations/

 

Ideally, if you can pull all your cash back out via a refinance, then you'll ultimately have an infinite ROI. 

Personal Blog: https://abcdad.co.uk
Property Spreadsheet and Deal Analyser: https://abcdad.co.uk/property-spreadsheet
Looking to read some Property books? https://abcdad.co.uk/books/property-books
Follow on Instagram: @abc.dad

Link to post
2 hours ago, mrmoore said:

 

Where in the UK you can buy a property for £50k that will attract good tenant? I saw a few of these in not-so-good areas in Liverpool a couple of months back and decided against it for a few main reasons:

  1. No or minimal capital gains long-term (run down area)
  2. Unreliable tenant
  3. Old property that unless (as you mentioned) you're doing up, will need an overhaul at least once in 25 years

 

 

 

MrMoore,

 

I look in St Helens/Widnes/Warrington, bare in mind that I buy at 57k but these houses are worth about 80k done up and as FTB lose there heads if it requires more than some paint it makes it easier for me to get true BMV after a light refurb. I will add that that if you don't know the area then some of your fears will be reality, I have a few goldmines that I will keep buying in as I know the area and I have good tenants lined up to live there before completion such is the demand.

 

1). I agree that uplift is minimal but bare in mind that appreciation is speculative and the success of your portfolio is based on something you have no control over then can you ride the storm? Worth noting that with rising interest rates when your margin is squeezed can you guarantee that rents can keep increasing? That being said I think it's about balance.

 

2) The way I look at it is you can get problem tenants anywhere, and yeah I get statistics dictate that the chances you get an unreliable tenant are higher but this is were you spend a bit more time doing due DD and if the fundamentals are there then so are the people you want. I know my area perfect so I know whats got the good reputation and the demographics it attracts. Also worth adding on the deal I put the figures on, if the tenant pays only 3 months of they year my costs are covered - can you say that about the shiny high end properties?

 

3) The houses need a bit of love but never more than 5k - however once you have done your refurb then you should get a few years with only light maintenance if any. With my tenants I spend money on making it a nicer more desirable home for them which results in a higher valuation when I extract cash so actually by spending money it could be considered a good thing on that basis? Not to mention if you give someone a goood home and look after them the chances of them looking after your home increase.

 

I understand your sceptism though as you see these 40k shoesboxes with incedible yields and even bigger headaches so you have to be careful.

 

Greg

 

Link to post
8 hours ago, mrmoore said:

 

What do you mean? is 20% BMV AND 10% ROI a myth? (myth= yes, maybe there's a one-off here and there, but it will bre very rare). If so, what IS realistic? 10% BMV? 8% ROI? I'm trying to understand what I should be aiming for, what is the "goal" in terms of returns.

 

Hi Moore

Not wishing to seem pedantic, but to be specific, what I said in full was: Combining 'BMV' AND  high yield AND professional tenants with NO remedial work is a bit of a unicorn in truth. In other words, looking for a discount without undertaking works and also high yields with 'professional tenants' (usually defined as 'white collar workers' and so usually also excludes 'blue collar workers') is difficult to find in total.

 

Many of the other comments made in this thread have borne this out to some extent.

 

That said, recently I have personally reviewed BTL properties requiring no or very little work in respectable areas such as the city suburbs and satellite towns in these regions: north-west: such as Manchester, Liverpool, & Warrington, north: Leeds, Bradford & Sheffield, east-midlands: Nottingham, Leicester & Derby, Staffs: Stoke, west-midlands: Birmingham. I could probably add some areas in the north-east, Scotland, Wales, and south-west to that list quite easily, but I am not looking there in a big way right now. Oh, I also invested in properties in Chicago & Cleveland in the USA with 15% gross yields with single lets too!

 

There is a big debate about returns and how to measure them. Personally, I prefer ROI as it measures net returns (usually pre-tax) as a % of the total cash invested (rather than the total cost of the property, fees, works, etc.). The deals I referred to here, all achieved at least 10% ROI and as said required no or very little work.

 

How to find them...well, I have a system and if you want to know more just drop me a line and I can share more on it but in the meantime, here is a link to a podcast episode on property sourcing that covers many of the sourcing methods and ways to look: http://www.thepropertyvoice.net/property-sourcing-101/

 

Personally, I love the value-adding strategies and so prefer BRR to BTL, as it makes my money work harder for me...after a little bit of effort at the front end. But it's 'different strokes for different folks' here and what is one person's elixir can be another's poison. In other words, decide what is right for YOU personally. It could be ready-to-rent BTLs with mid-to-high yield to working tenants, or low yield with potential for capital growth, an added value project, such as a flip or BRR, conversions & developments, short-term / holiday lets and so on. The deals are out there, just that they can take some digging up at times.

 

Best

Richard

Richard W J Brown a.k.a. The Property Voice

Property Investment Strategist

10%+ ROI property deals every week: check out PROPERTY DEAL TIPS
Amazon best-selling author Property Investor Toolkit & #PropTech, YPN Magazine columnist & PODCAST host

Web & Blog: The Property Voice | Curated property news & insights feed

Facebook Page | TwitterLinked In

Let's connect...mention The Property Hub :)

Link to post

So would you consider a 12.2% ROI and 3.9% net yield at asking price, (potentially 14.2% ROI and 4.6% net yield cash offer at 10% BMV/Asking Price) a good investment? I'm currently looking at one such property in Notts and am wondering whether to take the plunge. I could get away with minimal to no work and let to LHA tenant. Council will pay the rent direct, no letting fees and low risk void. I would self manage. If I went for a private tenant I could get a bit more (£550pcm)

 

Asking Price = 87,500k

Rent £500-525 pcm (tenant pays one off top-up to rent in addition to LHA)

Tenant Profile: LHA family

Refurb: None needed but I'd look at putting in a combi boiler and some additional kitchen storage. Say 2-3k (5k furnished?)

 

 

Whilst I would buy cash I would then get a mortgage, so these figures are based on a LTD Company Mortgage at approx 3.2%, 10% maintenance pot and £200 pa insurance (its a small 2 up 2 down). It's close to the city centre, excellent transport links and facilities, good rental area and is showing some signs of improvement being in a possible 'ripple' area.

Link to post
On 20/04/2018 at 2:27 PM, t barratt said:

So would you consider a 12.2% ROI and 3.9% net yield at asking price, (potentially 14.2% ROI and 4.6% net yield cash offer at 10% BMV/Asking Price) a good investment?

 

Whether it's a good investment or not is down to you to decide BUT one thing I noted is that some of the assumptions in your calculations are potentially providing a false read of the ROI here, as per the attached screenshot.

  • Purchase price - this will of course depend on where you land with the negotiations, but I have assumed 5% off the asking price, which is average.
  • Buying costs - don't forget the SDLT, legal fees, mortgage costs and survey - I used some typical numbers for these.
  • Works - £2k for a combi boiler and kitchen units might be doable if you are tagging onto the existing GCH system, but it's not recommended. Needless to say, I allowed £3k plus £750 for 'white goods' as a middle ground
  • Rent - I went with your LHA rent at the top end
  • Management - I know you said you will self-manage but that does not mean it is free ;) Your time has a value and when you come to re-let, you may have some actual costs as well. You could choose to remove this but in which case, I think self-managing should carry a premium to allow for your time then...debatable but that's my view at least
  • Voids - you show perhaps an initial view here, but there will be voids over the period of ownership. For example, there will be an initial void as you do the works and then time between tenancies. According to Upad the average tenancy is now 15 months and according to the NLA the average void period of their membership is 3 weeks per year. Best to budget some in then I suggest.
  • Sundry - you picked up insurance, but there are other costs, such as the gas safety certificate, property inspections, deposit protection fees, advertising, PAT test, Legionella test, DPA/GDPR compliance, licensing fees (if applicable), accountant contribution and so on. You might argue that many of these do not apply if you are self-managing but as with the management point above, better to provide for something than not, or allow a premium to cover for your time.
  • Contingency - Or maintenance; I went with my own assumption of one months' rent per year for a fully refurbished or ready-to-rent property, but in truth your 10% is probably a better bet and I should have used that.

So, using these assumptions, I make the ROI 8.1%, which you should decide if that;s good enough for you or not.

 

We can probably debate some of these points until the cows come home, but the main thing is not to deceive ourselves as to the true cost of a BTL. Self-management is also a very active and hands-on approach and don't forget that over the long-term of say 10-25 years, there will be lots of activity to manage (re-letting, arrears, repairs, updating, refurbishment, mortgage renewal, year-end books, etc.), which does have at least an 'opportunity cost'.

 

It's not meant to pull your deal apart; I'm just trying to show the complete picture of a BTL...I hope that helps perhaps others as well.

 

Best

Richard

TPH Notts Deal Example 5% Discount.JPG

Richard W J Brown a.k.a. The Property Voice

Property Investment Strategist

10%+ ROI property deals every week: check out PROPERTY DEAL TIPS
Amazon best-selling author Property Investor Toolkit & #PropTech, YPN Magazine columnist & PODCAST host

Web & Blog: The Property Voice | Curated property news & insights feed

Facebook Page | TwitterLinked In

Let's connect...mention The Property Hub :)

Link to post

Hi Richard

 

Thank you this is very helpful, however, I am still in analysis paralysis as I can make this and potentially more on a S&S ISA... and that's not taking up my valuable time! As such I am very hesitant about taking the plunge :wacko:

 

In terms of costs I did have quite a few of those you have accounted for hidden away in my s/s but others not, so good to have those pointed out e.g. survey and gas certificate etc., costs. What are the 'other costs' (£3750) for though? I'm not planning on using a sourcing agent or buying through auction. Would this be the initial letting fees (which I wouldn't have with LHA...)?

Link to post

I bought my residential property BMV. Paid 100k and it’s worth 145 after spending 15k on it. Not quite 25%, but there’s a deposit there when my fixed rate ends. 

 

Then I bought 2 flats, one for 54 and one for 62. Both around 10% BMV but both above 12% ROI - 10% is my minimum target. Both are cash flowing nicely so although not mind blowing, they were good entry level investments! 

 

I also have have an equal amount of money used as deposits in a S&S ISA...I like property, but at the moment I’m spreading my risk. 

 

Im currently looking for a BRR deal, and although I’ve seen some that would give me a return, I’ve not seen anything that will allow me to pull all my money out! Although I’m sure they exist, I haven’t found any yet! 

 

 

Link to post

Hi Mr Moore

 

I am starting out as well althought I have done 2 house upgrades on family houses. This market is very hard to find deep value unless its a wreck or in a bad area. I think the key is to find the right locations and concentrate on those which means you will need to set rightmove to send you updates of all property coming into your search zone. I know everybody is tired of it but always RUN the numbers as the front end is cost heavy and go up and visit the areas ( location, locatio. location) you are interested in as the numbers can only tell you so much. The property hub area reviews are great but there is also loads on the web and the members are always helpful. In Southampton where I am there are very few BMV's and the competition in the auctions for the promising ones is fierce.   

 

Hope it helps

Paul

 

Link to post

The concept of below market value is a misnomer: unless you're buying off your mum and she's doing you a favour, there's no such thing. Property is a highly competitive, mainly open market: prices are determined by supply and demand, as in any other free market. When you go to an auction, for example, you are competing against dozens of people with a very good knowledge of the local market and of what the various lots are worth. Don't confuse BMV with adding value: you can occasionally (though even this is rare) find a property where, by renovating it, you can increase its value beyond your total spend, but I repeat that even that is very rare, as there are many developers and builders looking every day for such opportunities, and at auctions, the price tends to be bid up to the point at which the purchase price + renovation costs = market value. As for ROI, it's very rare indeed to be able to get 10% or more gross. I bought a big place last year at auction where I thought I was going to make 16% renting it by the room, only to find that there was a reason why no one bid higher than me on the day: the market had changed for single-room lets, and to be competitive I would need to renovate it and refurnish it to a much higher spec: total additional cost = 40k. At that point, even if everything was to work out as planned from then on, the best I could hope for was 10%. My advice is not to get hooked on meaningless concepts such as BMV, but to look for properties in areas that are coming up, due to regeneration or gentrification. Again, thousands of other investors are doing the same, so you will not "beat the market", but with a bit of luck and good local knowledge you may benefit from a rising market. But don't forget that even then, you are speculating - a case of "do you feel lucky, punk?" So, above all, focus on rental yields to calculate your ROI, not on capital growth, and try to avoid speculation. 

Let me just give you an example of something that went well for me: last December I picked up a 4-bed house in Liverpool for 50k including auction fees. I renovated it for 27k and now it's been valued at 110k. Now you may think I bought that at below market value, but I didn't - that is what the market regarded that run-down dump as being worth at the time: it was a police repossession, previously used for criminal activity, it was in a terrible state and not in a good area, and so the "market" regarded it as risky, which it was. So, instead of below market value, I would say there was a "risk premium" attached to it, which I was prepared to take on. The price was severe headaches and a lot of time spent on the legalities and administration. Would you be prepared to do that just to make a few extra quid, rather than just buy a nice apartment or family home and start getting rent money for it straight away? The market builds these considerations in to the price.   

Link to post
On 4/30/2018 at 10:49 AM, adiel stephenson said:

The concept of below market value is a misnomer: unless you're buying off your mum and she's doing you a favour, there's no such thing

Thought it was just me who didn't entirely agree with concept of BMV - thanks for the clarity!

Link to post

As an example I am going to view https://www.cubittandwest.co.uk/for-sale/2-bedroom-house-in-portsmouth/41631415/?utm_source=propertyemail&utm_medium=email&utm_content=viewdetailslink&utm_campaign=new_properties

 

in Portsmouth along with 100 other peole according to the agent.

 

Its a blind tender which will be at least 25% above that guide.

 

The refurbished value based on what is currently for sale is about £160k to £175k so the margins could be very thin when you factor in all the expenses.

 

As you can see there is going to be a lot of competition.

 

Regards

Paul

Link to post

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...