Selling specialist residential properties to cash investors.

Selling specialist residential properties to cash investors.

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13m

Original Poster:

26,271 posts

221 months

Tuesday 17th November 2015
quotequote all
Help me with some thinking out loud chaps, please.

We own a number of small blocks of flats in the Midlands. Each block is 3 flats in a Victorian house and has a single set of energy supplies, so we rent them with bills included to "blue collar" professionals.

We've recently been approached to sell one, which we have done because it was a bit of an outlier geographically. The buyer is an elderly lady who has cash in the bank. She'll get 10% gross yield from the property and I think her son in law intends to manage it.

I have also this afternoon had a call from the agent we bought the property from originally, asking if we wanted to get it valued for sale.

It has got me to wondering whether there is currently cash out there looking for a home and whether we should consider selling some more - we've done well out the one that's sold.

Does anyone have a feel for this?

Countdown

39,686 posts

195 months

Tuesday 17th November 2015
quotequote all
Definitely. I sold a BTL with sitting tenant recently to a friend. It's a lot less risky for them if they know that there is a quality long term tenant in place.

13m

Original Poster:

26,271 posts

221 months

Tuesday 17th November 2015
quotequote all
Countdown said:
Definitely. I sold a BTL with sitting tenant recently to a friend. It's a lot less risky for them if they know that there is a quality long term tenant in place.
Was it a boggo BTL type house?

Whilst the properties we have earn well, they are each a little business in their own right really, requiring someone to stump up circa £200k in cash or commercial finance.

anonymous-user

53 months

Tuesday 17th November 2015
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Yes, there are always cash buyers out there looking for a good return on their money, especially with interest rates set to stay low for the foreseeable future. Also, thanks to the new pension freedoms, there are a now new breed of people now taking a chunk out of their pension, looking to invest in BTL.

Selling is attractive at the moment due to the buoyant property and rental market, but only really makes sense if you have an alternative use in mind for the capital that you are freeing up.

13m

Original Poster:

26,271 posts

221 months

Tuesday 17th November 2015
quotequote all
Inkyfingers said:
Yes, there are always cash buyers out there looking for a good return on their money, especially with interest rates set to stay low for the foreseeable future. Also, thanks to the new pension freedoms, there are a now new breed of people now taking a chunk out of their pension, looking to invest in BTL.

Selling is attractive at the moment due to the buoyant property and rental market, but only really makes sense if you have an alternative use in mind for the capital that you are freeing up.
I do have other uses for it. Though the business does have quite a lot of cash in it at present. On which subject, I am wondering whether to redeem only the borrowing secured on the property or use the profit to pay down other portfolio debt. I suppose I need to ask myself how confident I am that banks will still be lending when I want to borrow again.

Countdown

39,686 posts

195 months

Wednesday 18th November 2015
quotequote all
13m said:
Was it a boggo BTL type house?

Whilst the properties we have earn well, they are each a little business in their own right really, requiring someone to stump up circa £200k in cash or commercial finance.
Yes it was. I needed the cash for deposit on a new house. He's building up a BTL portfolio, he paid slightly over the odds because it had a good tenant and prices in that street seem to be rising at slightly silly levels. He was a cash buyer.

JustinP1

13,330 posts

229 months

Wednesday 18th November 2015
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Is it near any of the Unis?

I've got a friend who has renovated 3 properties in Fallowfield, Manchester.

I had a chat to him about his margins only last week. He was buying a place for £160k, mortgage of £350 a month, converting a downstairs room to a bedroom, and getting £400 a month per student from a 3 bed - now 4 bed house.

I was asking him how he chooses his properties. He told me now, he can't. No properties of that type in the area even get online, and if they do they are gone in hours. He's even offered agents 'finders fees' of a couple of grand to find him properties before they hit the market.

There are people waiting (with cash) to buy them.


13m

Original Poster:

26,271 posts

221 months

Wednesday 18th November 2015
quotequote all
JustinP1 said:
Is it near any of the Unis?

I've got a friend who has renovated 3 properties in Fallowfield, Manchester.

I had a chat to him about his margins only last week. He was buying a place for £160k, mortgage of £350 a month, converting a downstairs room to a bedroom, and getting £400 a month per student from a 3 bed - now 4 bed house.

I was asking him how he chooses his properties. He told me now, he can't. No properties of that type in the area even get online, and if they do they are gone in hours. He's even offered agents 'finders fees' of a couple of grand to find him properties before they hit the market.

There are people waiting (with cash) to buy them.
Some of them are nearish to both Nottingham universities.

cerberaperv

443 posts

214 months

Tuesday 24th November 2015
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I've been doing this for the past 8yrs. I source discounted properties for clients who want to invest their cash and require better returns than banks.

Most require a hands off investment where I source, project manage the refurb, then manage tenants. Some projects are short term flip deals where the property is bought, refurbished then sold. Most investors don't even step foot in the property, it's all about the returns.

13m

Original Poster:

26,271 posts

221 months

Tuesday 24th November 2015
quotequote all
cerberaperv said:
I've been doing this for the past 8yrs. I source discounted properties for clients who want to invest their cash and require better returns than banks.

Most require a hands off investment where I source, project manage the refurb, then manage tenants. Some projects are short term flip deals where the property is bought, refurbished then sold. Most investors don't even step foot in the property, it's all about the returns.
What sort of rental yields are people looking for?

cerberaperv

443 posts

214 months

Tuesday 24th November 2015
quotequote all
The best answer for this is it depends !

Most will be happy at 6-7% but it depends on the investors personal circumstances and how long they want to invest. If it's a long term BTL 6-8% is ok. This week i've just sourced a student let in Liverpool which gives 15% once refurbished and full. I will project manage refurb, then source tenants and manage each month. The buyer has just moved abroad so I doubt he'll ever step foot in it.

If it's a short term flip deal, I normally JV with an investor if my funds are tied up, this can give a better return eg. Last one I did was a PP of £105k, spent £3k on decor and carpets, then sold for £135,000. Investor put in cash then we split net profits.
Alternatively on some deals I flip, the investors are happy with a 1% mth return while funds are out which could be as long as 10mths pa.

13m

Original Poster:

26,271 posts

221 months

Tuesday 24th November 2015
quotequote all
cerberaperv said:
The best answer for this is it depends !

Most will be happy at 6-7% but it depends on the investors personal circumstances and how long they want to invest. If it's a long term BTL 6-8% is ok. This week i've just sourced a student let in Liverpool which gives 15% once refurbished and full. I will project manage refurb, then source tenants and manage each month. The buyer has just moved abroad so I doubt he'll ever step foot in it.

If it's a short term flip deal, I normally JV with an investor if my funds are tied up, this can give a better return eg. Last one I did was a PP of £105k, spent £3k on decor and carpets, then sold for £135,000. Investor put in cash then we split net profits.
Alternatively on some deals I flip, the investors are happy with a 1% mth return while funds are out which could be as long as 10mths pa.
So, with reference to the sort of stuff I mention in my OP would I get them away at 9%?

cerberaperv

443 posts

214 months

Tuesday 24th November 2015
quotequote all
Yes you should be able to.

Make sure they are properly marketed and not made to look like a landlord trying to offload a headache, you should be fine.

13m

Original Poster:

26,271 posts

221 months

Wednesday 25th November 2015
quotequote all
cerberaperv said:
Yes you should be able to.

Make sure they are properly marketed and not made to look like a landlord trying to offload a headache, you should be fine.
So by this you mean pretty them up and use a good agent? They already look pretty good but the latter point is more challenging.

I was contemplating this last night. I am not sure which the right agent is for them. We've got the "retail" outfits like Haart who are quite aggressive but them employ kids and I don't want to annoy our tenants with endless pointless viewings. Then we have the surveyors who are generally gloomy and a bit lazy.

Do you think rent guarantees for three years would help or would that look too contrived?

cashmax

1,099 posts

239 months

Wednesday 25th November 2015
quotequote all
The problem with high yield stuff tends to be that the capital appreciation is lower. Rarely do you get to have your cake and eat it.

Since you have a few of these properties and if there is any decent level of capital growth, I would be considering setting up an investment vehicle where people could invest at any level with zero aggro. If you were about to offer a 7.5% return with little risk (secured on the bricks) then that would be attractive to many investors. As mentioned, the market is awash with cash looking a home where it can be put to work right now.

My only question is why on earth would you want to pay down the borrowing on these? Surely it's only worth doing if you can use the cash to expand the portfolio?

13m

Original Poster:

26,271 posts

221 months

Wednesday 25th November 2015
quotequote all
cashmax said:
The problem with high yield stuff tends to be that the capital appreciation is lower. Rarely do you get to have your cake and eat it.

Since you have a few of these properties and if there is any decent level of capital growth, I would be considering setting up an investment vehicle where people could invest at any level with zero aggro. If you were about to offer a 7.5% return with little risk (secured on the bricks) then that would be attractive to many investors. As mentioned, the market is awash with cash looking a home where it can be put to work right now.

My only question is why on earth would you want to pay down the borrowing on these? Surely it's only worth doing if you can use the cash to expand the portfolio?
Investment vehicle? Wouldn't I need to have a licence or be registered with the FCA or some such?

With regard to securing the investment on the bricks are you thinking second charge behind the lender on those with debt attached?

Why would I sell them? Because firstly it's not my profession, I amassed them during the financial crisis to provide an income - which they have done very well. Also I have other fish I want to fry and being in cash will help me.


cashmax

1,099 posts

239 months

Wednesday 25th November 2015
quotequote all
13m said:
cashmax said:
The problem with high yield stuff tends to be that the capital appreciation is lower. Rarely do you get to have your cake and eat it.

Since you have a few of these properties and if there is any decent level of capital growth, I would be considering setting up an investment vehicle where people could invest at any level with zero aggro. If you were about to offer a 7.5% return with little risk (secured on the bricks) then that would be attractive to many investors. As mentioned, the market is awash with cash looking a home where it can be put to work right now.

My only question is why on earth would you want to pay down the borrowing on these? Surely it's only worth doing if you can use the cash to expand the portfolio?
Investment vehicle? Wouldn't I need to have a licence or be registered with the FCA or some such?

With regard to securing the investment on the bricks are you thinking second charge behind the lender on those with debt attached?

Why would I sell them? Because firstly it's not my profession, I amassed them during the financial crisis to provide an income - which they have done very well. Also I have other fish I want to fry and being in cash will help me.
I was thinking more along the lines of a limited company with share capital. This deals with most of the issues in one go, the debt reduces as the business shareholders equity increases.

In your first post, it wasn't clear if you had another home for the cash. Hence the question. A safe 10% return is a dream for most investors right now.

13m

Original Poster:

26,271 posts

221 months

Wednesday 25th November 2015
quotequote all
cashmax said:
I was thinking more along the lines of a limited company with share capital. This deals with most of the issues in one go, the debt reduces as the business shareholders equity increases.

In your first post, it wasn't clear if you had another home for the cash. Hence the question. A safe 10% return is a dream for most investors right now.
I see. It's a plan possibly.

With regard to safety. I would say it's pretty safe, but would caveat that with "if you know what you're doing". I do know what I am doing, and have someone who works for me that I could leave in the business, but I don't want to remain hands on personally outside of occasional advice.





mmracing

42 posts

190 months

Saturday 28th November 2015
quotequote all
I have just had a very similar 'what to do' discussion with an accountant.I have been converting cash into bricks for some time now.What started as an interesting investment has grown into a small business.So from reading others posts on here I sense we all give BTL a thumbs up all round as an investment tool, regardless of your approach and needs.
My approach has always been 'a lower/ average yield is acceptable in sacrifice for a higher level of capital appreciation in the medium to long term.
Now however,r I am beginning to think that there is, depending on your needs,a point somewhere between 0% and100% funding that is the most effective means of creating,maintaining and expanding a portfolio. The $1m question from me is : is there a reliable and sound method table or set of formulae that can be used. I accept there are dozens of variables upon more variables but I wondered if there was a way of getting an mathematically underpinned answer based on broad risk principles as simple as low,wedium and high ,as opposed to my approach of 'thats the way we have always done it based upon some fag packet calcs and my stubbornness when it comes to borrowing'.
Interestingly though I do not consider BTL as a such a strong investment in the longer term.I am concerned that in the long term we are more likely to see a downturn in capital returns as well as lower yield, due to a reverse in the availability v demand balance, similar to what happened in coastal spain and other parts of europe and even this country to an extent when people could buy council houses for the first time.At some point the government have got to make significant changes to greenbelt planning restrictions.the whole debate aboutLow cost housing is simmering away in the background,when rather than if, relaxation does occur landlords will find themselves having to reduce the investment exposure they have on BTL. I don't believe that many if any at all will have forecast this in their plans.Im not suggesting a downturn worthy of panic ,but a most definite shift . I know a few people who have not faired that well in this countries commercial property market over the last couple of years, whereas for the 5 to 10 previous years they were booming.From what I've seen happen there, the bigger your borrowing the harder you feel the shift, this makes you think carefully especially if I decide to use current equity to expand.
This will probably sound like a load of S... when I read it back in the morning.So I apologise in advance.

13m

Original Poster:

26,271 posts

221 months

Saturday 28th November 2015
quotequote all
mmracing said:
I have just had a very similar 'what to do' discussion with an accountant.I have been converting cash into bricks for some time now.What started as an interesting investment has grown into a small business.So from reading others posts on here I sense we all give BTL a thumbs up all round as an investment tool, regardless of your approach and needs.
My approach has always been 'a lower/ average yield is acceptable in sacrifice for a higher level of capital appreciation in the medium to long term.
Now however,r I am beginning to think that there is, depending on your needs,a point somewhere between 0% and100% funding that is the most effective means of creating,maintaining and expanding a portfolio. The $1m question from me is : is there a reliable and sound method table or set of formulae that can be used. I accept there are dozens of variables upon more variables but I wondered if there was a way of getting an mathematically underpinned answer based on broad risk principles as simple as low,wedium and high ,as opposed to my approach of 'thats the way we have always done it based upon some fag packet calcs and my stubbornness when it comes to borrowing'.
Interestingly though I do not consider BTL as a such a strong investment in the longer term.I am concerned that in the long term we are more likely to see a downturn in capital returns as well as lower yield, due to a reverse in the availability v demand balance, similar to what happened in coastal spain and other parts of europe and even this country to an extent when people could buy council houses for the first time.At some point the government have got to make significant changes to greenbelt planning restrictions.the whole debate aboutLow cost housing is simmering away in the background,when rather than if, relaxation does occur landlords will find themselves having to reduce the investment exposure they have on BTL. I don't believe that many if any at all will have forecast this in their plans.Im not suggesting a downturn worthy of panic ,but a most definite shift . I know a few people who have not faired that well in this countries commercial property market over the last couple of years, whereas for the 5 to 10 previous years they were booming.From what I've seen happen there, the bigger your borrowing the harder you feel the shift, this makes you think carefully especially if I decide to use current equity to expand.
This will probably sound like a load of S... when I read it back in the morning.So I apologise in advance.
It doesn't sound like a load of S, you make some good points, but it IS difficult to read. When your hangover wears off, put some paragraphs in. wink