This article aims to teach the reader on the 5 fundamentals of professional property investing specifically focused on the city of Hull in the East Riding of Yorkshire
The topics covered
Return on Investment
When you buy property you can benefit by borrowing through the bank using the power of leverage. Typically, a buy to let mortgage requires you to put a 25% deposit down and the bank will provide the rest of the 75% of the purchase price with the property. Where else could you get them to do that? Banks will lend you money to buy property. They're less likely to lend you money to grow your business and they also definitely will not lend you money to buy stocks and shares. They do know that property is still a safe secure asset despite what the media says. To inform you the power of leverage lets teach you an illustration. You have 100,000 to pay on an investment property. These scenarios show how you can spend that money
Scenario 1 - Buying 1 property worth 100K with all your cash
Buying 1 house without having a mortgage. Put down 100K and buy the property outright. The year after inflation raises the price of that property by 5%. The home is now worth 105K. You now have a property worth 105K and an equity of 5K in this property.
Scenario 2 - Buying 4 properties each worth 100K with a mortgage on each
You set a 25K deposit recorded on each property along with a mortgage for the remaining 75K, spending all your 100K across 4 properties not just 1 property on this occasion. The following year inflation improves the prices of that property by 5%, the same as scenario 1. Each property owner now worth 105K. However, now you must 4 of them so take advantage of the 5K equity in each one. Which means you now have 20K equity as opposed to the 5K in scenario 1. You might have still spent the same amount of money but have took advantage of leverage of money through the Bank.
2-3 bedroom properties in Hull are available for between 40-100K. They offer a superb opportunity to leverage your cash
Return on Investment
The roi is defined below
Roi = Gain of Investment - Expense of Investment / Tariff of Investment
In basic terms, how hard can be your money working for you. You can pick to invest in a new business, shares on the stock trading game or property. Each wealth creation channel possesses his own return on investment together with its potential risk. As a professional investor you must weigh up your appetite for risk and potential value for your dollar. Lets revisit the two leverage scenarios and examine the return on investment
Scenario 1 - Buying 1 property worth 100K with all your cash
Return on investment (ROI) is 5% e.g. 5K/100K
Scenario 2 - Buying 4 properties each worth 100K using a mortgage
Return on investment (ROI) is 20% e.g. 20K/100K Hull is a good place to start your professional property investing career as a result of great return on investment. The reason is that property prices in Hull are among some of the cheapest in the UK. So, the expense of your investment is lower. Therefore not only can your money go further ie. you may buy more properties but each of those properties will go up in price if you've leveraged your investing with mortgages your return on investment will be even greater.
Hull provides a better return on investment than more expensive cities in the UK because property costs are lower
Needless to say, an investment property only becomes a good point if you are able to rent it out. If you can't, that asset in a short time becomes a liability. An instant reminder on the concept of an asset and liability
Asset = Puts take advantage your pocket
Liability = Takes money from the pocket
So, to make certain your investment property remains an asset you need to be confident that it is in an area of high rental demand. Hull is often a hidden gem of a city. It is the gateway to Europe via ABP ports and P&O Ferries and so has a thriving export/import industry. Siemens will certainly locate a large wind mill manufacturing plant there cementing it's status as a centre of excellence for Renewable power technology. It is well connected from the M62 and has a broad manufacturing base. The Deep, the UKs only submarium has generated itself as a tourist destination too. The University of Hull keeps growing and has a healthy student population around 25,000. However, due to the relatively low salaries in the area, affordability to buy a property is low. This consequently has resulted in a high demand for accommodation.
The following post codes in Hull are wonderful rental areas. HU5 is near to the University for students. HU7 and HU9 are perfect for families.
If the aim is to own 10, 20 or 30 properties and still provide the deposits for each and every one you would soon use up all your your own cash just how do the Professionals get it done? Well, the answer is Other companies Money (OPM). They buy their properties on the right price. Profit property is made when you buy the property NOT once you sell it. Buying with the right price i.e. below monatary amount or BMV as it's called enables you to refinance with the mortgage lender at the Open Market Value and pull out your main deposit cash. This allows you to recycle your pot of cash to purchase another property. However, in this market, the Council of Mortgage Lenders have imposed a Couple of months rule that prevents you remortgaging unless the house has been held for about 6 months. If you can demonstrate added value then you've got a better chance of achieving the valuation you desire. Typically Property Prices double every 11 years. This means a 100K property is worth 200K in 11 years time. When you sell this property you spend off the original 100K mortgage and then have approximately 100K profit. This means if you bought 2 properties you can sell one and remove the mortgage on the other and still have 1 cash flowing property with no mortgage on it. By using this principle it can be scaled as much as any number of properties you would like to buy. Getting a mortgage can be challenging in this current economic climate but not impossible. The money hasn't disappeared. It is in different places. The key is to find the people with the cash.
Buy for cash
Some properties wanting refurbishment in Hull can be obtained for as little as 20K. Which means you need to buy them with cash as mortgage providers generally do not lend below 40K. Additionally, it means you can take appropriate steps swiftly and not have to involve Lenders and Valuers in the purchase. When you have refurbished the property after that you can get a surveyor to value the home with a view to locating a mortgage on it and acquire most if not all of your cash returned.
You'll be able to help people with cash earn over they are getting in the financial institution by offering them a better interest rate for borrowing their funds to fund a deposit. Then you're able to return their money after refinancing.
Folks who wants get a mortgage then find someone else who can and gives to share the cash flow from your property. Get a lawyer to draw up an agreement between you and your host. Because property cost is relatively low in Hull, there is certainly more chance of finding investors who're willing to lend you 10-15K for the deposit. Risks are reduced since the amounts on loan are less. Once you've done 1 cope with an investor and made them more income they will be happy to do another cope with you.
Hull property cost is low which leads to lower risk for money Investors when funding an agreement.
With any of your investments we advise stress testing your investing at higher rates of interest. Whilst we enjoy historically low interest it's tempting to buy lots of property deals. However, interest levels have only 1 best option and that is up. Test that your particular investment still produces cash flows at higher rates of interest so it remains an asset and not a liability.
Try out your investments at higher interest levels. Hull investment properties still positively income at 8-9% interest rates at current rental values.
With any investment it is crucial you know your exit strategies. By having an aeroplane knowing in which the exits are is important in case of an emergency. Similarly, with investing you have to know where your exits are for getting out of the investment offer an emergency.
Selling your investment
If for any reason you need to come out of an investment marketing a property. The properties that is to be easiest to sell would be the most popular type in that area. If you own an expensive, executive detached house within a desirable area the amount of buyers is reduced and constrained to residential buyers. However, for those who have a cheaper, investment property you can sell to both investors or residential buyers. This is very important when considering your investment.
Know at the very least 2 exits when entering an investment deal. There are lots of investors in Hull these types of low prices they are cost effective for residential buyers too.
Last updated 403 days ago by titwalaproperty2