High yielding properties, is this too good to be true?
Discussion
These figures are based on a new block of flats in Birmingham. No somewhere I'd love to invest but I keep hearing and reading how Birmingham will be a transformed place in the next 10 years (for the better...). Lots of investments, HS2, HSBC, Goldman sachs etc.
I could also invest in Manchester and get the same sort of figures. To anyone in the know, is this believable??
Price & Returns:
Price: £276,982
Time frame of payments:
09/12/2024: £2,500 to reserve a unit
28 days later (07/01/2025): 25% deposit to exchange: £69,245.50
Q3 2025: Stamp Duty: £15,198.20
Finance the rest by mortgage which we will sort for you or cash purchase
Rent (AST): £1,300 pcm
Forecasted property value by completion: - £300k
5 year forecast:
Rent profit: £78,000 gross rent (not considering rental increases year on year)
Capital Growth: £420k – £143k profit
Total 5 year profit: £221k
STL returns:
Birmingham has an average occupancy rate of 90% pcm, The apartments are in the higher end of this with it’s locality and quality compared to the rest of the short term let options on the market, so investors should expect minimum 90% occupancy
90% Occupancy @ £111 per night = £3,096.90 pcm (13.42% Gross yield)
85% Occupancy @ £120 per night = £3,162 pcm (13.70% Gross yield)
(Taxes will be applied to above which will make it less however this will be your gross profit from the investment)
I could also invest in Manchester and get the same sort of figures. To anyone in the know, is this believable??
Price & Returns:
Price: £276,982
Time frame of payments:
09/12/2024: £2,500 to reserve a unit
28 days later (07/01/2025): 25% deposit to exchange: £69,245.50
Q3 2025: Stamp Duty: £15,198.20
Finance the rest by mortgage which we will sort for you or cash purchase
Rent (AST): £1,300 pcm
Forecasted property value by completion: - £300k
5 year forecast:
Rent profit: £78,000 gross rent (not considering rental increases year on year)
Capital Growth: £420k – £143k profit
Total 5 year profit: £221k
STL returns:
Birmingham has an average occupancy rate of 90% pcm, The apartments are in the higher end of this with it’s locality and quality compared to the rest of the short term let options on the market, so investors should expect minimum 90% occupancy
90% Occupancy @ £111 per night = £3,096.90 pcm (13.42% Gross yield)
85% Occupancy @ £120 per night = £3,162 pcm (13.70% Gross yield)
(Taxes will be applied to above which will make it less however this will be your gross profit from the investment)
If I said "this will be your gross return" when assisting a private individual to buy a financial product where the return was actually just an estimate based on a bunch of assumptions ... I'd be looking at fines, losing my job, regulator banning me from working in financial services. And that's before anyone judged whether my assumptions were realistic or wildly optimistic.
If you've quoted the advice/pitch verbatim, then all you can conclude is that you can't take anything that individual says at face value. It might be a good investment, it might not. That bloke isn't helping you to make that judgement.
If you've quoted the advice/pitch verbatim, then all you can conclude is that you can't take anything that individual says at face value. It might be a good investment, it might not. That bloke isn't helping you to make that judgement.
I know the Birmingham market very well so if you are able to name the development then I can give you a better view on the 'quality' aspect of the commentary.
However, at that price point off plan I assume it is a one-bed property. If that is the case, then £1,300 pcm is toppy but not unheard of for the very best developments. I would query whether you would make £25k between reservation off plan and completion, and the capital growth over 5-years looks very optimistic but you could easily do some high-level analysis yourself on that point using historical growth rates in Birmingham City Centre.
As with all of these things, best to stress test the reported returns using a series of less optimistic assumptions in order to inform your decision.
However, at that price point off plan I assume it is a one-bed property. If that is the case, then £1,300 pcm is toppy but not unheard of for the very best developments. I would query whether you would make £25k between reservation off plan and completion, and the capital growth over 5-years looks very optimistic but you could easily do some high-level analysis yourself on that point using historical growth rates in Birmingham City Centre.
As with all of these things, best to stress test the reported returns using a series of less optimistic assumptions in order to inform your decision.
anotherbigspender said:
I know the Birmingham market very well so if you are able to name the development then I can give you a better view on the 'quality' aspect of the commentary.
However, at that price point off plan I assume it is a one-bed property. If that is the case, then £1,300 pcm is toppy but not unheard of for the very best developments. I would query whether you would make £25k between reservation off plan and completion, and the capital growth over 5-years looks very optimistic but you could easily do some high-level analysis yourself on that point using historical growth rates in Birmingham City Centre.
As with all of these things, best to stress test the reported returns using a series of less optimistic assumptions in order to inform your decision.
South CentralHowever, at that price point off plan I assume it is a one-bed property. If that is the case, then £1,300 pcm is toppy but not unheard of for the very best developments. I would query whether you would make £25k between reservation off plan and completion, and the capital growth over 5-years looks very optimistic but you could easily do some high-level analysis yourself on that point using historical growth rates in Birmingham City Centre.
As with all of these things, best to stress test the reported returns using a series of less optimistic assumptions in order to inform your decision.
The £221k profit quoted is a joke and particularly misleading.
It doesn't include any mortgage interest, stamp duty, management fees or maintenance, and assumes 50% growth over 5 years.
My estimate is close to zero rental net profit, the capital growth is anyone's guess.
It doesn't include any mortgage interest, stamp duty, management fees or maintenance, and assumes 50% growth over 5 years.
My estimate is close to zero rental net profit, the capital growth is anyone's guess.
Edited by archie456 on Thursday 19th December 16:20
Leicesterdave said:
This company quoting those figures appears reputable. They've been in the Financial Times, are on the FTSE 100...... I just don't get those figures though, they really do appear unbeatable
They may be capable of building a building. It's just that that style of sales pitch would see an investment company getting the most almighty b
king from the FCA and they'd be handing out compensation to their clients/marks because they've said "will" instead of "might" and they've failed to describe what other outcomes are perfectly possible ... like property market goes sideways ... and they've made no effort to tell you what your net return would look like, e.g. an illustration based on the tax rates applied to an average UK private landlord.We've got quite a few industries that have totally normalised behaving like complete charlatans to the extent that the people behaving like charlatans genuinely don't think they're doing anything wrong. In these sectors "good reputation" is based entirely on ranking one charlatan in a list of other charlatans.
Leicesterdave said:
This company quoting those figures appears reputable. They've been in the Financial Times, are on the FTSE 100...... I just don't get those figures though, they really do appear unbeatable
If you really think that a £278k property in Birmingham will be £420k in 5 years time then by all means, fill your boots!Shaoxter said:
Leicesterdave said:
This company quoting those figures appears reputable. They've been in the Financial Times, are on the FTSE 100...... I just don't get those figures though, they really do appear unbeatable
If you really think that a £278k property in Birmingham will be £420k in 5 years time then by all means, fill your boots!A tribunal in Scotland ruled against a property auction company who had stated what the achievable rental value would be, and in favour of the landlord who was gullible enough to believe it.
The STL figures are unbelievable as legislation is moving against STLs.
I wouldn't touch this but your attitude to risk may differ.
The STL figures are unbelievable as legislation is moving against STLs.
I wouldn't touch this but your attitude to risk may differ.
Leicesterdave said:
This company quoting those figures appears reputable. They've been in the Financial Times, are on the FTSE 100...... I just don't get those figures though, they really do appear unbeatable
If the figures were that good, and guaranteed, do you think they would need to punt it around private investors...?These are what they're basing their figures on:
Birmingham house prices will increase by 19.2% between 2023 and 2027 compared to the predicted UK average of 8.9% in that same period.
HSBC, PwC, Deutsche Bank, BT, Barclays, RBS, and KPMG have all made the move to the city.
JLL predicts Birmingham to have the highest rental growth in the UK from 2023 to 2027, with a projected increase of 21.6%.
The second city is also among the most youthful cities in Europe, with 60% of its population aged under 35, as reported by Knight Frank.
Birmingham house prices will increase by 19.2% between 2023 and 2027 compared to the predicted UK average of 8.9% in that same period.
HSBC, PwC, Deutsche Bank, BT, Barclays, RBS, and KPMG have all made the move to the city.
JLL predicts Birmingham to have the highest rental growth in the UK from 2023 to 2027, with a projected increase of 21.6%.
The second city is also among the most youthful cities in Europe, with 60% of its population aged under 35, as reported by Knight Frank.
Leicesterdave said:
LooneyTunes said:
If the figures were that good, and guaranteed, do you think they would need to punt it around private investors...?
I don't disagree. But to lie to that extent and get away with it? I just don't understand!ETA: just looked up the development. 166 units? How many of those do they think can be STL without causing oversupply and/or materially impacting occupancy. I bet the gross occupancy returns will be net of servicing costs too…
Edited by LooneyTunes on Thursday 19th December 16:18
Leicesterdave said:
LooneyTunes said:
If the figures were that good, and guaranteed, do you think they would need to punt it around private investors...?
I don't disagree. But to lie to that extent and get away with it? I just don't understand!blueg33 said:
Leicesterdave said:
LooneyTunes said:
If the figures were that good, and guaranteed, do you think they would need to punt it around private investors...?
I don't disagree. But to lie to that extent and get away with it? I just don't understand!BoRED S2upid said:
Ignore the increase in value as that’s crystal ball stuff.
It’s essentially £1300 pcm for a £278,000 property which isn’t mind blowing.
£1300 minus the inevitable service charges. Of course they’d prefer to overlook those and have people focus on STL figures instead!It’s essentially £1300 pcm for a £278,000 property which isn’t mind blowing.
Leicesterdave said:
These are what they're basing their figures on:
Birmingham house prices will increase by 19.2% between 2023 and 2027 compared to the predicted UK average of 8.9% in that same period.
HSBC, PwC, Deutsche Bank, BT, Barclays, RBS, and KPMG have all made the move to the city.
JLL predicts Birmingham to have the highest rental growth in the UK from 2023 to 2027, with a projected increase of 21.6%.
The second city is also among the most youthful cities in Europe, with 60% of its population aged under 35, as reported by Knight Frank.
I work for KPMG. Birmingham house prices will increase by 19.2% between 2023 and 2027 compared to the predicted UK average of 8.9% in that same period.
HSBC, PwC, Deutsche Bank, BT, Barclays, RBS, and KPMG have all made the move to the city.
JLL predicts Birmingham to have the highest rental growth in the UK from 2023 to 2027, with a projected increase of 21.6%.
The second city is also among the most youthful cities in Europe, with 60% of its population aged under 35, as reported by Knight Frank.
It should be noted that KPMG have not just moved to the city, we have had an office there for many years, however our HO is, and will continue to be Canary Wharf.
We previously had a number of floors at Snowhill but over the past few years have reduced our footprint. WFH is the key driver here. Only this year we completed a refurb of our space and have now created more modern collaboration spaces, and in doing so, dropped a further floor. We now have just two floors.
A friend works for BT. Well until today as she is being made redundant. BT have a strategy of closing smaller offices and consolidating in larger regional city hubs. Their office at Snowhill is one of them. It is true that they are investing in real estate and are mandating office time for their employees. As is the experience of my friend, those who don't want to commute long distances, and/or work in the office are being offered redundancy.
That gives you a view on two of those companies.
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