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BRRR-Yield Vs Capital Uplift

𝘞𝘩𝘒𝘡 π˜₯𝘰 𝘺𝘰𝘢 𝘡𝘩π˜ͺ𝘯𝘬 𝘒𝘣𝘰𝘢𝘡 π˜‰π˜™π˜™π˜™, 𝘠𝘐𝘦𝘭π˜₯ 𝘒𝘯π˜₯ 𝘜𝘱𝘭π˜ͺ𝘧𝘡?β €
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My take:β €
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 youβ €
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). β €
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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.β €
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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 isβ €
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 andβ €
compound interest to do their work.β €
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The critical number – 25% profit on GDV. If all costs come to 75% of GDV then you can recycle your cash.β €
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If you are interested in working with us then get in touch! on information@targetfive.co.ukβ €

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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.β €
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.β €
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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. β €
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Changes we have made: – β €
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πŸ‘‰ 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.β €
πŸ‘‰ Each property is CAT 5 & broadband ready, with USB ports located in the ‘useful’ places.β €
πŸ‘‰ Considered and thoughtful living spaces, designed to be practical for coliving homes.β €
πŸ‘‰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.β €
πŸ‘‰ 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.β €
πŸ‘‰ 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 asΒ @landlordfurniturecoΒ who offer fantastically designed furniture for all concepts and budgets.β €
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And much more!β €

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Projects Completed

LANSDOWNE PLACE, HOVE

Finally we can reveal our first projects since Covid-19, Lansdowne Place, Hove. Given a new life, 2 houses which were originally both 4 beds are now 7 beds each with en-suites making this a perfect professional sharers house with stylish and well considered spaces.

Both properties were sourced by Target Five and renovated for our returning Property Investor Clients.

As you can see the property is moments from Hove seafront – perfect

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Projects Completed

PRESTON STREET, BRIGHTON

We sourced and developed this property for a new investor.Β  This was a tricky development, as the property itself was a 4 bed flat over 3 floors above a restaurant, to access the flat you had to go through the restaurant itself!Β  So there was a lot of legal constraints to iron out during the conveyancing process re: leases and then obtaining planning permission to reinstate the separate entrance to the the property, which we cordoned off from the restaurant itself.

Target Five renovated this property in a six week time frame that our investor had to work to.Β  The property is now a stunning 6 bed HMO located in the centre of Brighton.

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Projects Completed

LANSDOWNE PLACE, HOVE

We are delighted to share our recent property renovation, the second of our two properties in Lansdowne Place, Hove.Β  Both properties were sourced and acquired for our returning Property Investor clients.Β  Although progress was slowed due to the Covid-19 lockdown, we have managed to complete both properties ready for the summer rental market.

The property was originally a four bed family home, which we have designed and renovated to an 8 bed/9 bathroom house.Β  The Target Five team also designed and furnished each room, maximising the space available by raising the beds in some of the rooms.Β  Each bedroom has it’s own en-suite bathroom, making the rental yield for this property fantastic!

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Never too old to share

What age do you think the average house sharer is in the UK? 18? 20? 25?

Recent data released from Build-Asset Management, shows the average age of renters living in shared properties in the UK has risen by 5 years since 2017 bringing the average age of co residents of shared houses to nearly 30 (28.2). Given this rise it make sense that the average time that renters remaining in shared residences has extended also, from 12 months in 2017 to just over 18 months in 2019 over a 50% rise.

As you may expect, the 18-25 age category still accounts for the largest percentage of all room share tenants, with 43% of those renting falling into this bracket. This starts to decline as the age increases:

  • 36% of room shares are aged between 25-35
  • 13% between 35-45
  • 6% between 45-55
  • Just 2% are aged 55 or over

It is clear however that there is a market in need of quality housing, professional sharer residents.

At Sussex Property Partnership and Target Five, we recognised this change in the dynamic of sharers last year when the student renters market in Brighton & Hove was left with many un-rented rooms following the start of the academic year.

We knew we needed to resolve this for our clients and also saw it as an opportunity to reassess our specification on projects, and make sure we were still offering the best quality we could to renters.

We immediately started sourcing and refurbishing investment opportunities for our landlord and investor clients to cater for this change in the demographic of sharer residents. This meant not only upgrading the remaining rooms on offer, but looking at a diversification of properties. Not only does this spread the risk and ensure the maximum rents can be achieved for our clients but also caters for the ever growing need of the local sharing residents market in Brighton & Hove.

It also, however, became clear very quickly through our research and development of the new properties on offer, that there were other emerging areas in the professional sharing residents market that needed a solution and therefore we extended our search area for sourcing opportunities to convert and develop to Worthing and Littlehampton.

We now have the first of these specially designed rooms available for sharers looking in Brighton, Hove, Worthing & Littlehampton. Stylish, beautifully furnished, functional, well located properties, with excellent facilities, bills included and additional extras on offer like cleaning and faster WIFI.

Unlike our competitors, our business model is based on us being incentivised by our clients success and as such this makes us focused and determined to not just sit back and let you deal with the problem of a un rented house or room. So when the very real problem of a reduced return hit our clients last year, it hit us to. This made us focused and driven to solve the issue and are constantly looking to diversify and evolve through assessing markets and demand areas.

If you have recently been left with empty rooms or houses and are just looking to diversify your portfolio with an upgrade to your existing properties or looking to invest to add to your offering as a landlord, we can help you contact me and I can discuss you individual requirements. We have great opportunities available to secure now.

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Are you in Property or in Money?

This is a question I ask clients when I first meet them to understand their motivation in getting in touch. Usually it draws a blank coupled with a glance towards the door. I then explain that it is a simple question and one that very quickly gets to the bottom of why they want to buy another property. Are they doing it because they are convinced of the long term fundamentals of property and are looking to hold it, or because they want to refurbish and sell it, to flip, or to sell in the near future? If it is the former, they are in or want to be in property, if it is the latter they are only using property as the vehicle to get money.⁣
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Investment Banks are primarily in money. They cash out their position at the end of the trade, they may be almost instant arbitrage type opportunities or longer term holds, but they will cash out once their prediction is realised i.e. stock goes up, or down if shorted. Few investors actually believe truly in the stock they are holding, but Warren Buffett is a good example (I Just read the Snowman – great read!) of someone who is in stocks, or in companies. He sees it as an investment in that company and its long term fundamentals – he has held shares for decades. He invests in his investments and keeps doing so because he believes in them.⁣
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It is important before setting out on a property journey to understand where you are. Neither are wrong, or right for that matter and it can be both or neither and you can of course have a dual strategy, which is what I personally believe in. McDonalds are to a large extent a property company that uses burgers as a vehicle to get occupancy on their real estate sites, but they have to make money from the burgers as well.⁣
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I have some friends who do rent-2-rent, subletting in old language. They achieve great cash flow and many see themselves as being in property, which they are, but in reality they are only using it as a vehicle to make cash flow. They benefit from the increase in rents over time, but most likely will have to pay higher rents in return to achieve these.⁣
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I went full time into property because I believe I am in property. I believe in the long term fundamentals and see property as any other physical commodity, it has value, you can touch it and there will always be a need for it. Since we came off the gold standard and moved to a fiat type currency – one that is not pegged to anything physical so just floats, tied to other floating things – we have seen constant inflation. Our Keynesian western economics relies on inflation. We all know with reasonable certainty that a cappuccino that costs Β£3 today will probably cost Β£6 in 10-20 years time. The other way of looking at it is that if you had sold the cappuccino and held the money, you would only then be able to buy half a cappuccino. Property generally outperforms the markets, which is not really a good thing, but it does not need to, it just needs to keep up with it and hold its value. Stocks and shares may rise or fall, companies come and go. Property stays. The great thing about it is that it pays really well along the way!⁣⁣
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Projects Completed

WESTERN ROAD, LITTLEHAMPTON

Target Five acquired this very rundown 7 bedsit property, with a separate studio flat in Western Road, Littlehampton.

Working in cooperation with the local licensing officer, Target Five renovated this property to legal requirements to a 6 bedroom, 4 bathroom HMO and a 3 bedroom, 2 bathroom self contained flat.

The property has been finished to the highest Target Five design specification, making this an attractive rental proposition to either students or young professionals.Β  This property has recently been revalued at nearly double the purchase price!

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Projects Completed

WILSON AVENUE, BRIGHTON

Target Five acquired this 4 bedroom semi-detached chalet bungalow for our investor and have competed the renovation by reconfiguration/subdivision of existing rooms to a 6 bed HMO (Large kitchen communal space, 6 bedrooms, 3 shower rooms and a back garden area)

The property has been finished to exceptionally high specification, with final finish and furnishings designed by T5.

This property is ideal for students/professional sharers, with great access links to the city centre, close proximity of Brighton Racecourse, Brighton Marina and local amenities.

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Projects Completed

COOLHAM DRIVE, BRIGHTON

Target Five acquired this 4 bedroom house in October 2019 for a new client, whom was recommended by an existing Target Five client whom has undertaken a number of property acquisitions and renovations with us.

Refurbishments works to turn this property into a 6 bed HMO included; building out the first floor bathroom encompassing the dead landing space and then split into x 2 new shower rooms. Splitting the downstairs lounge to form x 2 additional bedrooms and enlarge an existing bedroom.

Coolham Drive is located in East Brighton, ideal for letting to professionals working at The Royal County Hospital, American Express HQ, as well as having 24 hour bus routes intl and out of the city centre and Universities.