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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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The future is bright, or perhaps a little less dark?

An announcement is expected imminently according to This is Money Magazine from the Royal Institute of Chartered Surveyors (RICS) that it is readying itself to begin valuation on properties again.

Could this mean the housing market will be back up and running again soon? What does this mean for investors, and homeowners?

The inevitable suspension of valuations and house moves due to the social distancing guidelines that were essential to the fight against COVID-19 meant that the housing market all but stopped. This resulted in lenders pulling mortgage deals overnight and subsequently a lack of confidence set in and immediately affected house prices .

A spokeswoman for RICS told the magazine that the return to valuing properties will come with a set of new guidelines for valuers and we suspect it will be a minimised service, but this is good news for the property market.

It is likely that the government advice not to move will remain in place, and the impact on business’ and employment will be significant.

It is unlikely that the market will be a buoyant one, but for us and our investor clients that is no bad thing.

This means we are seeing a number of investment opportunities surface and our local contacts in Brighton, Hove, Worthing and Littlehampton have already started to approach us with excellent off market property investment opportunities. Now is the time to invest and maximise returns. OK, these returns may take longer to show in terms of capital value gain, but our success model of adding value, size or design will means that your money could work harder than ever for you. Even if you don’t want to own an entire property or only have a small amount to invest, we have property investment opportunities for you to invest in. Now is the time to contact us to be involved in our next project.

We are also starting to see some of the darkness lift, our constructions sites are starting to return (safely of course) and our suppliers delivering again which means we will again be able to offer excellent quality accommodation in shared living environments.

All of this means that slowly, steadily but most certainly surely, the future economic picture is looking a little less dark. Actually no, a lot less dark and almost bright.

Tina Wenham – Director of Target Five

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A Blended Approach To Property Investment

Choose your favourite partnership or team. Cagney and Lacey, Torvill and Dean or Scholes and Keane – we all have favourites. Long term property investment needs to be a partnership between holding property and trading property, one for long term income, and one for short term capital growth.

Much is made nowadays on the need to focus – to stick to one thing and do it well. In a previous article, I discussed the need to choose if you are in property – to buy and hold for yield – or in money – to use the property as a trading vehicle to build cash reserves. I also intimated in that article that you should not be fully in one or the other. You need a blended approach. There should however be one central strategy built around one of these, with the other supporting.

To be in property and investing in property, you need money. You may start with money and get into property investment, or you may start with nothing and use property investment to build money up. From there you decide to build a portfolio for income or to continue to trade and make that your core strategy.

The need for a blended approach is both a practical one and a risk-related one. Practically in order to continue to build up a portfolio, there will at some stage be the need to put more capital in. Assuming property investment is what you do well and is your main vehicle to make money, you should then look to use this to build the cash reserves up. Having a blended approach also mitigates risk. No one really knows what will happen post-Covid 19 in the property market. We do not know whether a period of inflation will drive down the value of money and property up, or we will see a market correction or even collapse. Money and property are to an extent a hedge.

The likely outcome is that in the short-term being cash-rich will be good to take advantage of bargains. In the long term, however, it is likely that the fiscal measures the government takes to right the ship, Government Bonds or Quantitative Easing, will result in a devaluation of money. Holding assets in that situation will be beneficial as they will naturally gain value-  if the value is measured in monetary terms!

In my next post I will talk about the need for a layered approach to long term property investment and the importance of creating an inner circle.

At T5 we have two clear strategies – income strategy – high yield property refurbishment and onwards rental and capital return strategy – land planning and development and resale. If you want to know how you can work with us or have any questions get in touch!

Andy Babbayan – Director of Target Five

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Target Five & Knight Support, Helping the homeless of Brighton & Hove

Our charity partner Knight Support is a great service for the homeless and rough sleepers in Brighton & Hove. We are aiming to offer further support this year and need your help too

“Service to others is the rent you pay for your room here on earth.” Mohammed Ali

The Housing, Communities and Local Government Committee in the UK Parliament today announced the launch of an enquiry into the effect of COVID-19 on homelessness and the private rented sector, designed to review how effective the Government support has been and take a look at the proposed strategies that will be put in place to support the sectors in the long term. They are inviting written evidence for review by 1st May 2020 to ensure that the support is sufficient and continuous after the current measures in place expire.

This made me stop and think. This is a weird, stressful and troubling time for all of us, but just think how different it would be for you if you had nowhere to go, if you were a street sleeper or perhaps in between homes and been sofa surfing.

At Target Five and Sussex Property Partnerships we have had a long standing commitment to give back to our local community and have been working closely over the last 12 month with our charity partner Knight Support. https://www.knightsupport.co.uk/

We previously have held events to support and provide a safe space for the most vulnerable of our community and try and use our contacts, network and business position to help Knight Support. Our Boxing day curry party was a great success. Held in one of our clients empty properties and supported by our contacts making donations, providing food and generally just being an ear to chat. We were intending on continuing these events through the year but of course the social distancing measures have prevented this. We will start these again as soon as we can.

We provide a store free of charge to the service to help keep costs down, the generous donations that people of Sussex provide need to be sorted, distributed and where possible sold. This storage area helps with that huge task. We are hoping to help with more permanent premises for this in the near future.

We provide administration support to founder Lynne Knight and her team, to make sure the applications for grants, funding and general flyers etc can be completed in the most cost effective way.

Just this week we have had ‘virtual’ meetings with Lynne about how we can help further and make sure the street sleepers, homeless or nearly homeless are supported during this worrying time. We are aiming to apply for full charity status and my business partner Andy Babbayan and I are intending on becoming trustees of Knight Support.

For now all we can do is keep supporting in any way and we can and ask you to do the same. If you want to help us support this amazing service, get in touch and we can discuss the best way you can help.                                                      Tina Wenham Director Target Five

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Why Yield Is Everything

Long term holding of good quality property is profitable and logical, provided it is beneficial for the owner and the resident. Profitable because in the longer-term any lending stays the same or drops away as values and rents increase, so over time it becomes more profitable. Logical because you may as well – the barriers to entry are high, taxes, refurbishment costs and property set up, it is logical to hold it to see a return on investment. For a long time the play was to hold property and for it to ‘wash its face’ – but this makes no sense. Given that in the same geographical area property levels rise and fall at broadly the same rate relative to each other, why buy a property that only ‘washes its face’ when you can have one that cashflows well from day 1. It also massively de-risks the property.

Price rises instantly are not guaranteed, but usually some movement will be seen in 5 years, at least in line with inflation. In a post-Covid 19 world it is likely to be a higher increase only because there will be a dip first, a dip to take advantage of. Either way fiscal policy is uncertain, interest rates could rise, lenders could become more nervous. The higher the yield the less exposed an owner is to these changes.

Yield has to be created though. There has to be a value add at every stage of the process. I never listen to an estate agent when he gives me a yield for a property at a certain price. Firstly because it needs to be calculated first hand, but secondly because it will not reflect the potential of the property.

There are 6 points at which yield can be maximised, as per the attached infographic –

  1. Knowing the Market – is it right to achieve not just what you want but what the market wants.
  2. Buying at the right price – this impacts everything but it still needs to be right, negotiate hard but be fair!
  3. Scoping the property – there is a correct solution and balance to every property, this means extra rooms and ensuites, but also communal space and a flow to the property.
  4. Correct licensing and planning – this is a value add as well as a compliance issue.
  5. Cost-effective refurbishment – use professional investment property contractors – right quality, the right speed and right spend.
  6. Achieve rents and Occupancy. The market will dictate the rent, but a good agent will get you good rents, good occupancy AND look after your residents!

At T5 we have two clear strategies – land planning uplift and development for CAPITAL GROWTH and high yield property development and conversion for LONG TERM INCOME. Once the rest falls away it is these long term high yield investments that will remain and will see us into a retirement few could dream of. The subject of this article is getting this right! This links closely to our first Crowdfunding raise starting soon – SO WATCH THIS SPACE!      Andy Babbayan – Director of Target Five

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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.⁣

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.⁣

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.⁣

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.⁣

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 £3 today will probably cost £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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