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Peter
January 26th 2012

Street of the Week - Hamilton Court BS1

Buy to Let - A cautionary Tale

Imagine that you live in Telford and you are looking for an investment, you notice that there is a property investment show at the local Holiday Inn. You go along. You meet a nice gentleman on one of the stands who has a model of a very smart block of flats with plans and he tells you 5 facts. These are:

Bristol is booming

This block is in Bristol

I have bought all the flats in the block at a discount

I am passing the discount on to you

You can resell the property immediately and make 20% return on your investment

You have never been to Bristol, and have no knowledge of property investment

Do you:

Think, "What a pleasant man but if it sounds too good to be true it probably is." You thank him for his time and walk on

You think, "What a pleasant man and this is the opportunity of a lifetime, I’d be mad to miss it" and hand over a cheque for a deposit on a flat immediately.

Because you are reading this blog, I know you are an intelligent wise and sensible person and therefore your answer is a), and you are probably thinking that this is a made up story. This is not a made up story. In 2003/4 a very nice man travelled the country visiting property investment shows and sold 100 flats in a development called Hamilton Court to people who thought b) was the right answer.

100 people bought flats in Hamilton Court with no intention of living there but to resell immediately. You do not have to be an economist to work out what happened next. Buying and selling property is pure market economics if demand outstrips supply prices rise and if supply outstrips demand prices fall. 100 identical properties come to the market at once all at a premium price; potential buyers are aware of over supply and make low offers. These offers are not just below the asking price they are below the price the very nice man sold the flats for in the first place. Our 100 people now have a property in negative equity in a property boom. What do they do? They rent of course, and this is where Accommodation Unlimited came in. Because if you have a property you can’t sell, why not let it out and at least pay your mortgage

Just because a property is not attractive to a buyer does not mean it is not attractive to a tenant and Hamilton Court is very attractive as a rental opportunity, and here's why

Location –

Quality –

Price –

Compared with other city centre developments the rents are good value with a 2 bed coming in at £800 and a 1 bed at £650 The flats are modern and well presented with wooden floors white goods and excellent bathrooms. The 2 bed apartments have parking and some have balconies

Hamilton Court is now a success story 7 years on. Flats are letting quickly, voids are negligible and rents are going up, what’s not to like. There is a sizeable minority of the original 100 who now have no intention of selling as the flats are providing a good second income. However some are now thinking of selling on and this is why it is our street of the week. If you are looking to buy a rental property surely buying one with a proven track record is a good start, and these properties now have an excellent track record, and we can provide seven years of accounts for potential purchasers

So what does a flat in Hamilton Court Cost to buy. We have a client looking to sell a 2-bed apartment on the 6^th floor, which currently gets £800 pcm. The asking price is £170,000, which gives a return of 5.6% on investment, which is pretty good when the base rate is currently 0.5%

We know what rent a property should achieve and we know what it will cost to buy so how much will the mortgage cost? We asked mortgage guru Fiona Bolt of Vivid Financial Services to look at the numbers. She told us: we have looked at the market and we would be able to get deals from 3 different lenders which goes to show how competitive and attractive the buy to let market has become for lenders over recent months.

With a 25% deposit you could be looking at:

1 year fixed at 3.49% making a mortgage payment of £383.79 PM

2 year tracker at 3.39% above Bank Base Rate given a current rate of 3.89% and a payment of £419.79 PM

2 year fixed at 3.89% giving a monthly payment of £415.91

So there you have it, an £800 a month flat for a £400 a month outlay, just because the property isn’t popular for homeowners doesn’t mean that it isn’t attractive for tenants and therefore buy to let investors.

Comments

Steve Bolt says: Great blog as usual Pete. Certainly made me smile. The content is very true. I know of several of my clients who have lost money investing in "off plan" buy to lets, in places such as Sunderland. As the saying goes. "all that glitters isn't gold" and reinforces to deal with someone that really knows the market, andisn't looking to make a quick turn from their clients.

Nick Crocker says: Very interesting blog Peter, just shows there are some really good ways of investing a bit of money for retirement funds.

Martin Davies Jones says: Hi Peter! I think you're quoting the gross return. What about the service charge and insurance? Regards Martin

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Street of the Week - Hamilton Court BS1

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