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Buying Below Market Value

I have always disliked BMV as a concept. For too long, it has been the focus for so many training companies and has become people’s strategy, essentially buying anything as long as it’s cheap. Exploiting people’s situations for profit, but also buying in a haphazard way without any real strategy. Basically: lose-lose. Sellers feel short changed and buyers end up with a hotpotch of properties without any unifying goal or aims (as well as being impossible to manage).

BMV is coming about though in a way that is win-win. There is turbulence at the moment and where there is turbulence and uncertainty, then comes buying opportunity. Some people are nervous and exiting the market voluntarily, having made money on their properties. Many long-term landlords are voluntarily exiting. This creates an arbitrage opportunity and where, potentially, the real value is to be found. This means that we are now seeing the chance to buy great quality, central properties in our chosen area with great value. A win for all!

T5 have just started a crowdfunding raise for one of these properties and would love to take as many as possible on the journey. To find out more please visit https://www.leocrowdfunding.com/property/detail/west-buildings-hmo-development-by-targetfive-t5 or on our Opportunites page.

Investment in property related assets puts your capital at risk and returns are not guaranteed. Please read the full risk warning at https://www.leocrowdfunding.com/riskbefore deciding to invest.

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Permitted Development

We have always looked to avoid planning where possible. Why?…⠀

Planning is slow, cumbersome and not always predictable – especially in Brighton and Hove, a council known nationwide for its restrictive approach to planning. So we have used Permitted Development (PD) opportunities. For many years this has taken the shape of C3-C4 out of A4 areas, box-dormers, 3m rear extensions etc. Adding square footage to create yield. With A4 for HMO moving city wide, and the over saturation of investors moving in to this market, we have looked to utilise other PD opportunities. ⠀

It is likely that more PD will come in addition to what has been announced in the past few weeks. This will no doubt include conversion of the new E Class of properties in non protected areas to C3.⠀

What are we looking at? Mostly Light Industrial to resi and 2 flats above commercial, in areas where we believe further PD will come. We were focussing on other things during the office to residential rush a few years ago, but this will come again with reduced reliance on office space – so we are looking at this too, where the conversion costs work and where it will make good quality and appropriate accommodation.⠀

Years ago it was all about commercial for yield and that group of landlords are now selling up or in some cases dying off! There are opportunities to be had and this could be a great few years for PD – if we do it right. Relaxed planning laws is no excuse for exploitation and profiteering!⠀

 

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Commercial To Residential – Doing It Right

In years passed the value has been turning residential into commercial property, especially in central locations. Now the tide has turned and it could be explosive. Retail has been under threat for years, but with the Covid-19 we will see all manner of commercial properties no longer become viable. This combined with a chronic under-supply of residential property we will see a huge switch.⠀

Government led relaxation of planning laws and increased Permitted Development (PD) rights will act as the facilitator.⠀

We have been moving this way for some time and plan to ride the wave but we are determined to ride it well and where possible consult with local planners even where it may not technically be needed. ⠀

We are going to be careful to keep our own ambitions in check and manage expectations of clients. With deregulation comes increased responsibility. Will we be doing as many deals as we can – yes! Will we put quality over quantity and try to do it right as well? Yes, we must.⠀

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BRRR-Yield Vs Capital Uplift

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My take:⠀
For a long time the key to portfolio building has been the ability to recycle cash. This means adding value and achieving a refinance sufficiently high that once you⠀
refinance onto a new longer term product, as much of your initial deposit, refurb costs and other fees is pulled out for the next purchase. This is now referred to as BRR, BRRR, or even BRRR (depending on how many Rs you want to add). ⠀

The key to making this happen therefore is capital uplift rather than yield created. Whilst the Yield – the income from the property, is important, it only needs to be sufficient to drive the loan. It is the capital uplift against the capital employed – the profitability of the project that drive the ability to recycle cash.⠀

My recommendation? Create an arbitrary figure for Yield that works for you. For us it’s 10% Gross Yield – this means we know it will make good cashflow. Our main focus is⠀
on Capital uplift – creating value. This is what allows us to keep moving our money, creates sensible equity, de-risks the project and allows the wonders of leverage and⠀
compound interest to do their work.⠀

The critical number – 25% profit on GDV. If all costs come to 75% of GDV then you can recycle your cash.⠀

If you are interested in working with us then get in touch! on information@targetfive.co.uk⠀

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Estimating Build Cost – How Do You Do It?

My take on it:⠀

Perhaps the hardest thing when evaluating a deal and the bit most likely to go wrong iis the unknown element, the cost of refurbishment. The price, within reason is fixed, costs, (Stamp Duty etc) are fixed, the rent and end value are not fixed but entirely predictable. ⠀

Add to this the need to act swiftly and make quick decisions and you need to have a methodical approach that enable you to get this right. How often have you underestimated the costs? I have done it loads of times and our PMs biggest gripe with me is that I can sometimes do this. ⠀

How am I doing it now? Put simply for £200k refurbs or less I use A 2 phase approach. Firstly look at £/sq ft spent on SIMILAR refurbs THAT YOU OR SOMEONE YOU KNOW AND TRUST HAS DONE, allowing for all costs, and apply that. Then Secondly add up the component parts, create a price list and add it up. I.e. ensuite – £4k. Dormer Loft – £30k etc. Then look at the two and take the higher plus 5% contingency. THEN sanity check it.⠀

For £200k or more AND ALL LAND DEALS I employ a QS. For £250-£1000 you will get far more certainly and peace of mind.⠀

If you are interested in working with us then get in touch on information@targetfive.co.uk

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Target Five Property Consultants – HMO Journey So Far

Since our formation in 2013 we have established ourselves as experts in the HMO property development field having undertaken 350+ renovations.⠀
It has been interesting putting together this post and pictures to see how far we have evolved from what was; I guess we shall call ‘standard & compliant’ HMO renovations that were similar across the country.⠀

The type of HMO being offered to let now has vastly changed due to the changing needs and expectations of the tenant, who want and deserve a level of luxury in their shared accommodation. Taking the above into account, we have had to evolve and adapt our model quickly and with consideration. ⠀

Changes we have made: – ⠀

? We view every new property as an opportunity and challenge to shake things up. With each new property we hold interior design brainstorming sessions, which we then develop into mood boards.⠀
? Each property is CAT 5 & broadband ready, with USB ports located in the ‘useful’ places.⠀
? Considered and thoughtful living spaces, designed to be practical for coliving homes.⠀
?Casual spaces such as hallways and landings are not forgotten and are given a little extra something, whether it be a feature wall, amazing paint effect or vinyl art.⠀
? En-suite showerrooms: this change we feel is a must given the current climate of the coronavirus, being able to offer your tenants as much of their own safe space as possible! not to mention the end rental figure achieved for our investors.⠀
? Bespoke furniture: here we focus on our interior design and what will work within budget but also be durable! Using companies that specialise in landlord furniture packages, such as @landlordfurnitureco who offer fantastically designed furniture for all concepts and budgets.⠀

And much more!⠀

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Challenges With Refurbs

What mistakes do you make with refurbs?⠀

After 20 years of doing this, and making every mistake there is to make (I hope). It comes down to 3 key things.⠀

Finish before you start. Get all reports, all specifications, make a plan that achieves the aim, cost it properly, get the right contractor in, agree contracts. THEN start.⠀

Make a plan and stick to it. Yes there will be deviations and alterations, but remain faithful to the plan in point 1 and execute it. You can do something wildly different on the NEXT refurb.⠀

Do all work on a price basis. NEVER leave an open cheque book and NEVER pay on day rate. ALL extras costed and agreed.⠀

If you are interested in working with us, get in touch! information@targetfive.co.uk

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Multi Exits Identified

Following on from our focus on Risk is the need to assess your exit. If you do not have multi exits identified in the following key areas, DO NOT BUY!

  1. Use:  The more versatile the better. There will always be an A plan, the one that is projected to return the most profit, but B, C and D plans must also be potentially profitable. If only plan A is financially viable then DO NOT BUY!
  2. Rental Market: The critical R in BRRR (Buy, Refurbish, Rent, Refinance) in my view is Rent. If you are a long-term hold then it needs to produce good income. This means it needs to be robustly rentable and attractive to multiple markets. The best way to ensure this is spacious, well-proportioned and central properties. They are not always the cheapest but they are generally the easiest to rent! If you are banking on one tenant type to make money – DO NOT BUY!
  3. Sales or refinance: You have to ensure there is a market for your property. Too often people are over reliant on a commercial valuation to refinance a deal. Ensure you have a product attractive to multiple lenders and attractive to buyers. If it is not attractive to both then DO NOT BUY!

We will aim to do £30M plus worth of deals this year as we have each year for the past seven years. We are always looking for the best way for our clients to potentially achieve success through investing. Through our partnership with @LEOcrowdfunding we feel we have found an interesting and considered way to invest small and potentially build to bigger returns. We are excited to be working on our first project with them and although we are not quite ready to ‘lift the lid’ on that yet, we have some similar recent project case studies on their website now. (https://www.leocrowdfunding.com/property/detail/case-study-hmo-preston-street-brighton-by-target-five)

Get in touch to find out how you can get involved 01273 525656 or email information@targetfive.co.uk

Investment in property related assets puts your capital at risk and returns are not guaranteed. Past performance is not a reliable indicator of future success.  Please read the full risk warning at www.LEOcrowdfunding.com/risk before deciding to invest.

 

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We Love Commercial & Mixed-Use Properties

T5 love mixed-use and commercial conversion to residential!

I have always found it impossible to understand why residential investors ignore commercial and mixed-use property. Why? Whilst there are many reasons, I have distilled this down to three key reasons why I feel they create a true arbitrage opportunity:

Price per sq/ft: If you are not already valuing everything on a price per sq/ft or sq/m basis, then start now. It is how commercial and development opportunities have always been valued and is the easiest way to assess value, potential uplift and to show value to a valuer. Put simply these properties offer the best 3/sq ft rate around.

Locations: Mixed-use or commercial and ancillary use properties are historically located in busy, central and well-connected areas. Perfect for renting to every type of market.

Permitted Development rights: Build, Build, Build! You heard the man!  With the extension of Permitted Development rights, it is not only just the case that you can often add two flats above, but in many cases the entire building can be converted under Prior Notification, which means a simple planning process and no need to comply with space standards – ideal to create yield in central locations!

We will aim to do £30M+ worth of deals this year, as we have each year for the past 7 years. We are always looking for the best way for our clients to potentially achieve success through investing. Through our partnership with @LEOcrowdfunding we feel we have found an interesting and considered way to invest small and potentially build to bigger returns. We are excited to be working on our first project with them and although we are not quite ready to ‘lift the lid’ on that yet, we have some similar recent project case studies on their website now. (link to bio/ case study for Preston Street)

Get in touch to find out how you can get involved 01273 525656 or email information@targetfive.co.uk

Investment in property related assets puts your capital at risk and returns are not guaranteed. Past performance is not a reliable indicator of future success.  Please read the full risk warning at www.leocrowdfunding.com/risk before deciding to invest.

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Target Five Property Selection Process & How We Do It

My view is that making property work is knowing when to say no, which is almost all of the time, and knowing when to say yes, with certainty. The best way to do this is to develop a rigid criteria, selection and offer process.⠀⠀
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I will share ours. As an ex-military chap, I love a process and I love a phased operation. Our selection process has 3 phases, each one more complex than the last.⠀⠀
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Firstly our SELECTION. What we are looking for. We only deal in certain locations. For the High Yield properties we hold, it is central Brighton, Hove, Portslade, Worthing and Littlehampton. These are defined on a map, down to the street. The type, mixed use, single let and HMO. Any other issues, article 4, listed or conservation, flood areas. If it doesn’t fit it is deselected at first sift. We don’t even view.⠀⠀
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Secondly is the CRITERIA. Price per square foot, rooms sizes and ratios, number of windows, parking, garden. All are defined. Some are must haves, some are nice to haves and effect the OFFER process below.⠀⠀
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The final phase is the OFFER process. This only takes place once the property is viewed and the CRITERIA logged. This process is very similar to valuing land. It starts with grading the property by location, A, B or C for its location and then by using known sales and revaluation data to create end value per sq ft, which in turn allows us a justified GDV. This is real value not hope value. We then allow for 20% profit minimum. From here we assess the price of the work on a sq ft refurb price and any other costs and fees. All of these figures create a BUY price, which we try to beat. If we dont beat it we move on!!! ⠀⠀
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If you are interested in finding out more about pur selection process and how Target Five work for our investors, please DM us or email information@targetfive.co.uk⠀