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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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Estimating Build Cost – How Do You Do It?

My take on it:β €
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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. β €
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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. β €
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How am I doing it now? Put simply for Β£200k refurbs or less I use A 2 phase approach. Firstly look at Β£/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 – Β£4k. Dormer Loft – Β£30k etc. Then look at the two and take the higher plus 5% contingency. THEN sanity check it.β €
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For Β£200k or more AND ALL LAND DEALS I employ a QS. For Β£250-Β£1000 you will get far more certainly and peace of mind.β €
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If you are interested in working with us then get in touch on information@targetfive.co.uk

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Projects Completed

CENTURION ROAD, BRIGHTON

We are excited to show you our recent renovation completion, Centurion Road, Brighton.Β  We pushed on during the lockdown with a bare minimum team to complete this renovation for our returning Property Investor client, who has now completed 4 properties with Target Five.

Target Five sourced the property for our client, with works starting at the end of February 2020 and completing (with a slight delay due to Covid-19 lockdown and the difficulty in obtaining building materials).

The property was originally a 3 bed family home and is now a stunning 5 bed (planning for 6 bed) with 3 shower rooms.Β  The property has been finished to a high specification and the interior design was undertaken by the T5 team, to create a top end rental property, creating a fantastic yield for our client and was let off plan!

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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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Blog

What is freedom to you?

We all have goals. Not all are life changing some are simply to be better at something or learn from challenges, but I believe we all have one common goal and that is to be free.

Freedom. What does it mean to you?

It is commonly perceived that money equals freedom, in fact our experience is freedom is achieved by gaining more time. More time for family, for fun, for learning. Our aim is to find ways to offer our clients that valuable commodity of time, and in turn freedom. Does this sound appealing to you? We can help, but first we have to understand a few things about your goals.

Being able to live free from your financial restraints can seem impossible, we all have bills to pay, mortgages to cover, school fees due perhaps. To help you to start on the journey to becoming less beholden to these constraints we have to first understand these costs and work out what your ‘ passive income’ figure is.

Passive income is the amount of money you would need to receive from your investment to cover the cost of living for you. Passive income by its very nature is income received without having to work. Consider how much you need every month to live comfortably and ensure all your obligations financially are met. When we know this figure it allows us to start to focus and hone in on what type of property investment is right for you. This isn’t a ‘one size fits all’ situation and we are very committed to making sure we really listen to your needs and end goal and tailor the search and investment for you.

Our next step is to consider how much you are looking to invest. It doesn’t always have to be large sums of money for us to be able to offer you a return on your investment. We are look at the best way to make your money work hard for you.

We also need to consider your appetite for risk, there are varying options for investing and some offer more risk than others. For example buying a plot of land unconditionally without any planning on hope that you will get the planning for development you are hoping for can be risky if you haven’t considered all the elements that could go wrong, however this comes with a larger reward if handled correctly and bought well.

We offer a range of investment opportunities and can help you choose the right one to give you the freedom you are looking for;

  • Standard Buy-To-Let Investment – this is a ready made option, usually buying a small one or two bedroom apartment in a central location offering an immediate monthly rental return to you.
  • Small Conversion Opportunity – Purchasing a lower value apartment, or small house where we have identified an opportunity to add value through refurbishment, extension or conversion into multiple units.
  • Large Block Investments – Purchasing a larger block that can be converted through a planning process or change of use to form large HMO’s or flats.
  • Mixed Use Investments – these have a commercial shop, office or restaurant on the premises but with a residential element usually found above. This allows a spread of your risk as the commercial space can be rented out on a longer lease. The residential spaces can often be converted and extended and the allowed permitted development rights make these slightly easier than standard residential opportunities.
  • Land with Planning Uplift potential – Our experience, knowledge and team of specialist make these opportunities the most existing for us. We can often identify opportunities where others have not been able to and working along side our award winning planning consultants, Whaleback we are actively sourcing these opportunities right now for investment. The added value to property like this can be extremely profitable if done well.
  • Funding Investment – We can offer returns for investments of varying sizes through standard lending agreements, crowdfunding opportunities, joint ventures and other ways you can invest small to start to build up to a larger investment.

We work with you to consider which option is best for your needs and then we get to work on sourcing the right opportunity for you.

We get the most amazing sense of satisfaction helping you achieve financial freedom and our incentivisation is based on the success of the opportunity sourced.

If you having been thinking about a plan for your future, start now, get in touch to learn about our different options and let us help you embark on the journey to financial freedom. Send me a message, email me on Tina@spp.agency or give me a call to discuss how we can help you be free.

Tina Wenham – Target Five Director
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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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Making Risk Work To Your Advantage In Property

If you can master the risks by building expertise in certain niche areas you may make profit by treading where others dare not. Knowing the enemy can be the biggest commercial advantage you have.

My specialist area, when looked at my career as a whole, is risk and risk management. My MSc is in Risk Management. I am an ex Bomb Disposal Officer and I have held several risk-management positions in and out of the military. Then I moved into property full time. At first, it felt like a complete change; my favourite hobby became my vocation and I celebrated just how different it was to the slightly stuffy world of working in commercial defence or being an Army Officer. Then I started to notice the similarities.

Geeky bit. Risk is calculated as probability x severity/impact. How likely something is to happen, multiplied by how bad it will be if it does happen. Imagine it presented on an x and y axis; top right is high for both. Imagine playing Russian roulette with an automatic pistol (please don’t actually try this) – the severity, certain death, is as high as it gets. The probability – it’s an automatic which ensures there will always be a round in the chamber- is also very high. This is maximum for both. Bottom left is low for both; perhaps the nominal chance of a paper cut when reading the glossy section of the weekend broadsheet. Everything else is in between. The art to risk is understanding where each risk sits and finding ways to mitigate or reduce that risk. The commercial advantage comes from identifying risks that are viewed irrationally – where people perceive a risk to be higher than it is, usually because they do not understand the probability. Examples are easy – fears around shark attacks and air travel are mostly irrational, yet they are incredibly unlikely. It is these areas that you want to focus on, areas that people feel are so risky when in reality, they are not.

The key thing in property is risk versus reward. For many the perceived risk associated with property development is too great.Β  The papers and social media are full of failed ventures and people who got their numbers wrong. For others, the rewards of property, financial and in perceived status, draw them in and blind them to the risk. As with most things in life the key to success is about finding the balance. The more work you can do in understanding the risks associated with your area of property, the closer you can sail to the wind. The closer you sail to the wind the fewer people there are racing with you. You suddenly find yourself trading fresh ground. Some may consider you foolhardy, but if you are able to navigate choppy seas that others cannot, the crowded spaces of open houses, busy [pre-COVID] auction rooms, and Rightmove launches become a thing of the past.

Our areas of interest are High Yield centrally located properties to hold, and land and planning opportunities to sell. Fairly mainstream in many ways. The key for us is to carve out niches within that. For High Yield I love mixed use properties. Generally speaking, the upper parts are large and versatile; we buy everything on calculated sq. ft price, and the best value per sq. ft in our chosen area is almost always mixed use or commercial with Permitted Development rights. Also, there are numerous Permitted Development type opportunities both present and anticipated that can make them far more interesting. A lot of people don’t like them and a lot of lenders don’t like them. By understanding the risks involved you can manage them and then turn them to your advantage. One of our key strategies is taking mixed use properties, dealing with the issues, maximising the space and value and then making them attractive to both the rental market and future lenders. For example, hot takeaways built into properties on the margins of existing retail areas. They look horrible: pictures of Canton Dragon, last refurbished circa 1980 spring to mind. They are great! PD rights to convert to C3 residential and 2 further units above if the accommodation is ancillary. Centrally located too (or no one would have used the takeaway). We have tonnes of these little hacks.

Land is just the same. I dealt with my first Japanese Knotweed property 2 years ago. It was a headache and we spent almost Β£40k getting it sorted to ensure it did not hit end sales. Now I would actively seek those opportunities out. Why? Most people would be put off so the price at entry will be lower. We did not take full advantage of the tax advantages, but in many cases, you can claim back 150% of the remediation costs. PLUS, you then get a reputation for dealing with those issues so opportunities literally seek you out. A perfect scenario from a less than perfect starting situation.

I actively encourage you to understand the risks associated with your craft and rather than turning away from them, turn in to them. Master them and make them your friend. The cleanest air and the fewest people are at the top of the mountain. Why? This is because it is where the most risk is perceived to be. If you can overcome and manage those risks (risk never goes away) you can get to the top of the mountain in your area. Property is full of lots of mini mountains for you to master. If one looks crowded, find another and master it!

We are always looking for the best way for our clients to potentially achieve success through investing. Through our partnership with @Leopropcrowd 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. Take a look and ask any questions you have through the forum or message us directly. β €

You can see an example by clicking the link – lhttps://www.leopropcrowd.com/property/detail/case-study-hmo-preston-street-brighton-by-target-5

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.

Β – Andy Babbayan Director 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-Β  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