I took a call from a client during the week who had asked for my advice on a buy-to-let investment project. They were happy to invest in a property requiring improvement - “a fixer-upper” - but nothing structural.
At that time we looked at the Belvoir Estate for him – great rental demand, surrounded by the A55 Dual Carriageway. Properties here naturally benefit from excellent access to main roads, south Belfast schools, facilities and lifestyle at a considerably cheaper price tag than, say, homes in BT9.
He secured an offer of £103,000 on a spacious three bed terrace with an unspoilt view of the Park. Considerably below the latest South Belfast market average for terraces and townhouses (£137,197)*.
According to the latest figures, South Belfast remains the highest priced sub-market of the city, with an average house price of £224,093*. However, its terraces and townhouses dipped significantly in price between the second and third quarter of 2016, so snapping up this type of house in this part of the city was a savvy investment.*.
Front and back gardens will make this rental property very appealing to families and appealing to this group can be a shrewd move.
These tenants tend to keep the property maintenance up and it typically follows that a family will stay for a comparably longer term as they will want to avoid the upheaval and logistical headache of moving an entire family; especially with children’s school exams never too far away these days.
From a property investor’s point of view, this means a saving of agency letting fees (paid to secure new tenants) AND an avoidance of voids (empty non-rent producing periods between tenancies).
So often we see landlord managing their own tenancies being caught out by voids, and because their mortgage doesn’t take breaks, they are losing significantly on what should be a planned-for and avoided drop in their investment return.
Let’s look at the figures:
Rent £600 pcm (per calendar month) = £7200 (p/a) per annum
So the gross achievable income is £7200 – let’s call this 100%.
If in Year One the property lets for a full year but then sits empty for a month before renting again next year (Year Two) AND the landlord has to pay a letting fee of say £450 plus vat:
£7200 less (£600 and £540) = £6060
If £7200 was 100% the maximum income its now dropped to 84% of what it could have been making. In Year Two this landlord lost a potential 16% of his potential return.
The point is emphasised when we look at how it affects the net rent – ie the rent once we take the costs away – such as rates, maintenance, agent management fees and tax. Let’s take £2000 off for these and see how these losses impact on the bottom line.
£6060 less £2000 = £4060.
Your net rent should have been £5200, so that’s a loss of £1140. Any further void would hit your income by 28% - not just 1/12th of your annual rent, as many mistakenly assume.
Too often I see property investors either failing to recognise the significance of this loss or failing to take the steps needed to avoid it.
In this light, it’s just good business to let a property well in advance of its next vacancy date, have reasonably priced, reliable cleaners and redecorators booked in advance for the quickest possible turn around - and don’t forget that fresh inventory.
I personally really enjoy this challenge and am happy that most of my clients’ properties are let in advance (typically several months before) with an average of 5 days vacant per year at most.
If I can help you maintain your return to its maximum potential, give me a call or call in – the kettle’s always on!
Pic credit: UPS
This end terrace is currently on the market with Ulster Property Sales for offers around £79,950 – not bad compared to that South Belfast average!
Investment involves risk and the value of capital and the income derived from it may go up as well as down. Past performance is no guide to future performance. Unless otherwise stated, the views expressed here are those of The Belfast Property Bulletin. Nothing in this article should be regarded as advice, it has no regard for the requirements of any particular person.
*Source: University Of Ulster Northern Ireland Quarterly House Price Index for Q3 2016