Fees, Fees, and More Fees …

Taking a commercial view pays dividends in the long term, writes Rupert Smith, founder of Complete RPI

Where and What to Buy?

If I knew the answer to this question I would be sipping cocktails on my private yacht somewhere in the Caribbean right now! That said, having worked through two recessions I have a pretty clear view on which locations have performed better than others.

One of the most important questions to ask yourself is: why are you investing? How much can you realistically afford then ascertain whether you can obtain a buy-to-let mortgage. This can be done very easily and an “offer in principle” can be obtained from the lender. This will put you in a stronger negotiating position and you can hit the ground running once a suitable property is identified.

Some investors are wooed by high yield, generally in the north of the UK where capital values are lower and capital growth less likely. It is wise to include higher yielding properties within any portfolio but be very careful as a high yield does not necessarily mean a good buy! I have advised many investors over the years who were tempted by high-yielding student investment schemes which no one can argue weren’t producing excellent yields. BUT these could not be geared (finance raised to acquire) and more importantly were very hard to sell. Circumstances change and you need the asset to be liquid; selling a student room appeals to a very limited audience and are notoriously hard to fund, if at all.

There are better options! Leasehold apartments can be acquired at a similar value as a student accommodation; CRPI recently acquired 24 apartments just outside Manchester city centre for £60,000 each, with a tenant under contract generating an 11% yield – very simple to raise mortgage finance and very saleable in the future. By way of example, mortgage funding was available at 70%, thus a capital injection of £18,000, borrowing at 4% left the balance costing £1,680 per annum with an income of nearly £6,000. Much more attractive than an 8% yield and tying up £50,000 in a student room which will be very hard to sell, don’t you think?

The majority of portfolios (which can consist of just two properties) should, in my view, consist of a mixture of both capital growth and yield-driven investment. So where is the growth? Having been involved in the property industry for nearly 30 years I have seen consistent capital growth in central London (no surprise there then!) and indeed more so of late, commuter towns within a 45-minute commute of central London, such as Kingston upon Thames, Teddington and Addlestone.

Key university towns and cities have also proven to be excellent performers, such as Cambridge, Oxford, Guildford, etc. In the immortal words of many a television pundit, it’s all about “Location, Location, Location”.


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