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omar mirza

Area and Type of Property Dilemma!

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Hi All,

 

Ive been part of the Property Hub for around 6 months and have really enjoyed listening to the podcast and attending the meetups. Thank you Rob and Rob for everything!

 

My dilemma is that I have a bit of capital to invest and would like to get a sweet balance of rental yield and capital growth. I have been given a proposal from my friend to go to the outer skirts of South Wales and buy in auction for a small cost and rent out the property, with the rent being split. Or even flip and sell. As an investor it makes sense to buy as a cash buyer but the location isn’t great.  I am a bit apprehensive because the properties in this area are not in easy reach of a big city (Cardiff) and the rent is very low in comparison to other parts of UK and if we split the rent between us it becomes even lower, the capital growth isnt great either. 

 

The alternative is to go on my own to a place like Liverpool, Manchester, Nottingham or Sheffield and buy with a mortgage, with yields going up to potentially 8-10% and getting back 100% profits, rather than 50/50. The problem lies with having a mortgage and paying the extra for taking it out. Also, in these cities I can only afford 1 or 2 bed apartments (plus ground rent and service charge), whereas in South Wales my friend and I can get a 3 bedroom house.

 

What would your advise be regarding the location and whether I should buy cheaper in auction as a cash buyer but split the profits between me and my friend, OR go alone and buy somewhere more established but pay that little bit extra?

 

I hope I've explained my dilemma clearly, if not, please ask and ill try to explain better :)

 

Your thoughts and comments would be very much appreciated.

 

Thank you 

 

Omar

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There is very little thats appealing to me about the wales proposition. Surely the starting point in any venture is fundamentals and you seem to be suggesting that the wales property fails on most counts. There is a reason why you can pick up the property cheaply and it doesn't sound like the fundamentals will be any better over the coming years.

You are much better to go to the places in the north outside the big cities like preston/crew/etc where there is future potential and you can get better deals than the likes of manchester etc where gains are already priced in..

Partnerships can make sense where you have differing attributes such as one person has finance and the other has building skills or other skills needed - otherwise i would say go it alone

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The only reasons for a cash purchase are that it's too cheap to mortgage, or it's initially cash for a quick purchase, e.g. an auction and then you'll mortgage at a later date.

If the Wales option has cheap rents and limited appeal ask yourself who is going to rent it? Have you looked at other rental properties in the same areas - are they renting quickly, is there a demand, what is the rest of the local area like i.e. boarded up etc? If it's a decent area where younger families will struggle to get mortgages, it may still have potential.

But you're missing out on leverage and it's compound effects. However, that's a long term strategy, so does it match your strategy? Add in to that how well do you know any of the areas you've mentioned? I live in Manchester and yet couldn't tell you what all of it is like, so how are you going to evaluate Manchester Vs Nottingham? No idea what a 3 bed in S Wales costs, but I bet I could find you a 3 bed in Manchester you could get on a mortgage for the same cost to you. Whether the net rent would be better is a further question. 

You said you've listed to all the podcasts, but it seems you're still not clear on what you're trying to do. I'd suggest doing some of the courses on the site and maybe reading Rob D's book. Taking another couple of weeks to firm that up will have no impact with the market slowing, but getting it wrong could have long term implications, not least that your cash will be gone

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Thank you all for your returned comments - there are some very good points here. If I went into partnership with my friend then he would be based there and will be able to handle the management of the property, which I wont be able to do on a regular basis, as I am based in London. However, I suppose this can be done up north too but with a fee. Theres also the uncertainty of the right type of tenants and some,if any capital growth of the properties in Wales. I think I will keep searching up north for 3 Bedroom houses for the price range of £70-£90k and if I can get a yield of 8-10% I would be happy, particularly as this will be my first investment property. 

 

Any other comments would be appreciated.

 

Thanks again!

 

Omar

 

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