Is there money to be made in 2nd/3rd properties?

Is there money to be made in 2nd/3rd properties?

Author
Discussion

red_slr

12,482 posts

153 months

Tuesday 2nd March
quotequote all
FHL is the new BTL.

I know several people who have gone into the FHL game in the last couple of years.

If you can stomach the agents fees then it can be a much better overall investment.

I think the only other people who are making money out of resi lettings are cash buyers.

But honestly, its not worth the hassle even then. IMVHO.

Groat

5,042 posts

75 months

Tuesday 2nd March
quotequote all
What hassle? Finding proper management?

Eric Mc

114,638 posts

229 months

Tuesday 2nd March
quotequote all
blueg33 said:
I agree, there is virtually no room for compression, the reliance is on CPI and pension fund return levels. As you say for PE hat tends not to work so they aggregate and gear a portfolio
Do you use English often?

blueg33

26,112 posts

188 months

Wednesday 3rd March
quotequote all
I may sometimes slip into common parlancesmile

Typos don’t help

Translation

Returns can be improved where their is scope for yields to reduce. Ie buy at a yield of 4% sell to someone looking for 3%. By demonstrating rent flow you can de risk the property so buyers can be more aggressive on yield. The closer you get to public sector loan rates the less room there is for yield to move. Public works loan board rates are circa 2.6%.

CPI inflation clauses increase the rent and there is often a CPI plus 1% indexation. This grows the rate of return. Plus pension funds take low rates of return but buy low risk assets. Private Equity (PE) looks for higher rates as the other poster alluded so they need to take s view across a range of assets and often borrow (gearing) which enables them to increase the margin through borrowing at a lower rate and releasing cash to use elsewhere.

In summary. Plenty of money to be made in real estate investments but it’s not necessarily simple.


Edited by blueg33 on Wednesday 3rd March 05:38

Eric Mc

114,638 posts

229 months

Wednesday 3rd March
quotequote all
Thanks for your explanation - at least it was closer to the English the rest of use.

I sometimes wonder do the "experts" do their best to ensure it ISN'T simple.

NickCQ

4,094 posts

60 months

Wednesday 3rd March
quotequote all
Eric Mc said:
Thanks for your explanation - at least it was closer to the English the rest of use.
I sometimes wonder do the "experts" do their best to ensure it ISN'T simple.
rolleyes Yes, it's all a con to make ourselves feel clever and keep outsiders out. Of course there are no terms of art in your profession.

blueg33

26,112 posts

188 months

Wednesday 3rd March
quotequote all
Eric Mc said:
Thanks for your explanation - at least it was closer to the English the rest of use.

I sometimes wonder do the "experts" do their best to ensure it ISN'T simple.
I dont think so, its is complicated and I only learnt by doing some deals with different funders, you end up having to understand the lingo and the differences between things like debt, sub-debt, equity and all the talk about yields and coupon.

My translation shows that you can say it in fewer words using the jargon.

I am currently trying to explain how it works to my global CEO as funding is a new business sector for us, he is a bright bloke but I keep having to step down to levels of simplicity that in reality are then misleading.

Sad as I am, I find it very interesting, there are lots of tunes you can play on a deal to make a return from property. My first deal in this space was only £2.5m my last one £200m but the structures can be very similar

Eric Mc

114,638 posts

229 months

Wednesday 3rd March
quotequote all
The problem is that over use of jargon makes it sound like you are deliberately showing off and/or trying to confuse.

I'm not singling you out specifically but I work in a profession (accountancy) where over use of jargon and "in-house" terms can render what we are saying totally incomprehensible to a person outside the confession.

When I am talking to my clients I definitely try not to talk down to them and I try to use normal words and not jargon or buzz words when I am trying to explain things to them.

My clients aren't stupid (well, most of them aren't smile) but since they aren't tutored in the arcane phraseology and acronyms of my specific, I feel I have a duty to talk to them properly and not bamboozle them with what sounds to them like a foreign language.

ElectricSoup

7,619 posts

115 months

Wednesday 3rd March
quotequote all
red_slr said:
FHL is the new BTL.

I know several people who have gone into the FHL game in the last couple of years.

If you can stomach the agents fees then it can be a much better overall investment.

I think the only other people who are making money out of resi lettings are cash buyers.

But honestly, its not worth the hassle even then. IMVHO.
WTF is FHL?

blueg33

26,112 posts

188 months

Wednesday 3rd March
quotequote all
Eric Mc said:
The problem is that over use of jargon makes it sound like you are deliberately showing off and/or trying to confuse.

I'm not singling you out specifically but I work in a profession (accountancy) where over use of jargon and "in-house" terms can render what we are saying totally incomprehensible to a person outside the confession.

When I am talking to my clients I definitely try not to talk down to them and I try to use normal words and not jargon or buzz words when I am trying to explain things to them.

My clients aren't stupid (well, most of them aren't smile) but since they aren't tutored in the arcane phraseology and acronyms of my specific, I feel I have a duty to talk to them properly and not bamboozle them with what sounds to them like a foreign language.
I was mainly replying to NickQC who came across like someone in the sector.

NickCQ

4,094 posts

60 months

Wednesday 3rd March
quotequote all
Eric Mc said:
When I am talking to my clients I definitely try not to talk down to them and I try to use normal words and not jargon or buzz words when I am trying to explain things to them.
Perhaps it's a difference in approach between client service and principal roles but generally I find myself talking to a clued-up audience (blueg included). Taking the real estate chat as an example, there is a lot of shared understanding in the terms "net initial" and "equivalent" when describing a yield that would take several paragraphs to define in a satisfactory way.

Eric Mc said:
The problem is that over use of jargon makes it sound like you are deliberately showing off and/or trying to confuse.
Not sure what to say to this apart from it's not the case. The comment stimulated an interesting conversation and you've learnt some real estate jargon so we all win.

Gary29

3,273 posts

63 months

Wednesday 3rd March
quotequote all
ElectricSoup said:
WTF is FHL?
Furnished Holiday Letting, so Air BnB and the like I believe.

NickCQ

4,094 posts

60 months

Wednesday 3rd March
quotequote all
blueg33 said:
NickQC
Order! judge

blueg33

26,112 posts

188 months

Wednesday 3rd March
quotequote all
ElectricSoup said:
WTF is FHL?
Furnished holiday lets

The model is interesting. Our £300k purchase will generate a revenue of circa £22k - £25k pa compared with a similarly priced BTL which would have revenue of around £8-10k. But FHL has much higher running costs. For us it works because

Profit will be about £2k pa
We can use it for holidays FOC
No CGT when we sell
Hopefully growth in value - we offered in August, completed in Feb and the agent valuation has gone up by £25k which covers our purchase costs - we expect to hold for 5-10 years

Eric Mc

114,638 posts

229 months

Wednesday 3rd March
quotequote all
NickCQ said:
Not sure what to say to this apart from it's not the case. The comment stimulated an interesting conversation and you've learnt some real estate jargon so we all win.
Only because I had to ask.

People from all walks of life and levels of understanding read these threads. I do my best to make my posts as understandable to all my potential readers. I'm not saying I succeed - but I try.

Eric Mc

114,638 posts

229 months

Wednesday 3rd March
quotequote all
blueg33 said:
Furnished holiday lets

The model is interesting. Our £300k purchase will generate a revenue of circa £22k - £25k pa compared with a similarly priced BTL which would have revenue of around £8-10k. But FHL has much higher running costs. For us it works because

Profit will be about £2k pa
We can use it for holidays FOC
No CGT when we sell
Hopefully growth in value - we offered in August, completed in Feb and the agent valuation has gone up by £25k which covers our purchase costs - we expect to hold for 5-10 years
Why do you keep saying there is no Capital Gains Tax (CGT) on the sale?

blueg33

26,112 posts

188 months

Wednesday 3rd March
quotequote all
Eric Mc said:
blueg33 said:
Furnished holiday lets

The model is interesting. Our £300k purchase will generate a revenue of circa £22k - £25k pa compared with a similarly priced BTL which would have revenue of around £8-10k. But FHL has much higher running costs. For us it works because

Profit will be about £2k pa
We can use it for holidays FOC
No CGT when we sell
Hopefully growth in value - we offered in August, completed in Feb and the agent valuation has gone up by £25k which covers our purchase costs - we expect to hold for 5-10 years
Why do you keep saying there is no Capital Gains Tax (CGT) on the sale?
Because I will not be paying CGT on the sale as discussed previously

Groat

5,042 posts

75 months

Wednesday 3rd March
quotequote all
sbk1972 said:
These dudes that have 5/10 flats, or 2 additional houses, how di you guys make money ?
Make money?

Hmmm

I might buy this:

https://www.rightmove.co.uk/properties/78270363#/

Wouldn't even bother going to see it or have it surveyed.

I'd get £150 a week for it. £7.8kpa. Let to local single parent on benefits. No voids. Fully managed. No jargon.

Worst case scenario, I'd expect to bank £6-£6.5kpa from that.

There's yer dinner!! laugh


Edited by Groat on Wednesday 3rd March 11:55

superlightr

10,942 posts

227 months

Wednesday 3rd March
quotequote all
blueg33 said:
ElectricSoup said:
WTF is FHL?
Furnished holiday lets

The model is interesting. Our £300k purchase will generate a revenue of circa £22k - £25k pa compared with a similarly priced BTL which would have revenue of around £8-10k. But FHL has much higher running costs. For us it works because

Profit will be about £2k pa
We can use it for holidays FOC
No CGT when we sell
Hopefully growth in value - we offered in August, completed in Feb and the agent valuation has gone up by £25k which covers our purchase costs - we expect to hold for 5-10 years
£8-10k is a bit low.

BTL - On £300k you should get a revenue of about £12k We do on the properties we let out and look after. Plus the capital grown on top. https://www.rightmove.co.uk/properties/85087819?ut...

https://www.rightmove.co.uk/properties/74855826?ut... we let out one identical around the corner at £1240.

I bought this 10 yrs ago https://nethouseprices.com/house-prices/street-det... for £207k now worth about £300k and we are achieving £1240pcm.



rental prices are increasing in the good areas where I work and demand is through the roof which is pushing up prices again - we look after about 300 properties.

Edited by superlightr on Wednesday 3rd March 11:59

ziontrain

252 posts

85 months

Wednesday 3rd March
quotequote all
blueg33 said:
Because I will not be paying CGT on the sale as discussed previously
You do of course realise that the beneficial FHL treatment means that a gain would be taxed at a lower rate rather than a rate of zero?