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 –
- Knowing the Market – is it right to achieve not just what you want but what the market wants.
- Buying at the right price – this impacts everything but it still needs to be right, negotiate hard but be fair!
- 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.
- Correct licensing and planning – this is a value add as well as a compliance issue.
- Cost-effective refurbishment – use professional investment property contractors – right quality, the right speed and right spend.
- 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