Wednesday, 20 August 2014

One House versus Two Flats

I often see investors who want to buy the biggest house they can find with their available cash.  But in the world of property investment we often find it is the investors who have divided their cash among as many properties as possible that benefit the most.  As an example I have seen that Mansell McTaggart are currently advertising this great family home in Three Bridges for £280,000

It has all the hallmarks of being a great rental property, driveway, garage, close to Three Bridges Station & some of the best schools in Crawley.  If I listed this house to rent the phone lines would go into meltdown with the amount of enquiries we would get.  Based on a buy to let mortgage of 75% the deposit would be £70,000.  A conservative rental valuation would be £1200 per month giving a yield of 5.1%.

However if you had £70,000 cash I would be telling you to increase your yield by 11% simply by buying two smaller properties.  I have seen two 1 bedroom maisonettes on the other side of town being advertised at £140,000 each.  Neither are as attractive as the house, there are no garages or driveways but the office phone would still ring & we would have tenants for them very quickly.  The £70,000 will buy both with a 25% deposit and I would give a conservative rental figure of £675 on each.  Combine both rents & that gives a rental yield of 5.7% - 11% higher than the yield for the house.

I would have guessed the house would win with its capital appreciation but I may have been wrong.  The current marketing price is 24% higher than the last sold price from 3 years ago.  There were fewer property sales in 2011 but the data that is available would give a 2011 valuation of £110,000 to the maisonettes.  Based on the marketing price their capital appreciation is even greater than the house at 27% higher than 3 years ago.  Both maisonettes have already had their asking prices reduced and a few months after they have been sold I’ll be able to check the land registry data to see if the maisonettes met the current asking price and achieved a greater capital increase.

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