London Investment Property

Hi,

I am from London now living in Melbourne.  We  bought a property in Harrow in London in 2001  for $117,000 pounds now worth $220,000.  The property is tenanted for $950 a month  and we pay $250 a month on an interest only mortgage.  I wish I could afford to buy more property in the UK as the cash flow i much better than in Australia. I am saving to get a 25% deposit together which is what out UK bank wants before we can buy again.  Hope this helps let me know how you go

Cheers Sarah

Ziv,

Australia is better for peace of mind.

1. Social issues is a factor when deciding which property to buy whether an IP or PPOR. Unfortunately London is quite unnerving at the moment.

London society is very protracted and I can feel escalating resentment from both the poor and middle class side. A lot of social issues, benefit / dole payments being cut, a lot of unemployment, immigration, big gap between poor and middle class, etc.
Remember the 2011 riot? I wouldn’t be surprised if it happens again.

2. Prices is also a factor. There are obviously cheaper areas in London, but your neighbours will be council tenants and the like. I am trying to be politically correct, but I also want to be honest. With neighbourhood of people the level of single mothers who live on benefit, then your tenants would be similar quality and usually these people don’t really care about your property. There are some decent people, but would you leave it to chance? The areas decent hardworking people live are usually more expensive as well… beyond my reach, really

3. The tax rule is such that the gain / losses from IP cannot be offset against your personal tax. You need to accumulate your losses and wait until it becomes positively geared before you can offset it.

4. Most of the new apartment I saw here were disappointing. I mean… the interior is flimsy, cheap and poorly done while the apartment price is high. Similar with Oz, UK govt subsidises purchases for new dwellings. So the prices of new units reflect this subsidy rather than the cost of building the units.

5. Other personal reasons.

Hope this answers your q.

Tx,
Catts

Hi Milliet

No sure who told you that UK Banks will lend with 25% deposit but i hate to say with 1 exception all UK lenders have pulled out of the Non Resident market even if you hold a UK Passport.

This particular lender only lends in selected Home Counties areas although has a maximum lvr of 60-65% and a minimum loan of 100 GBP.

I go back every year and up until this year we used to buy property for our UK clients living in Oz securing financing at excellent rates and lvr's.

A total withdrawal of funding for Residents living overseas has not helped improve the market.

Cheers

Yours in Finance

Not at all actually, just limited personal experience and that of family members and acquaintances – my forte is japan, as mentioned. in aus, my impression was that good locations seem to net app. 3-5% pre-tax. Sold our last family property in caulfield last year, after 5 years of almost zero growth and 3.8% cashflow p/a (so yes, positive – just). didn't see the point anymore. That same money is now spread over 9 properties (so far more diversity and hedging) around Japan, making an average of 13% or so p/a, with far less tenant hassles (not that they're that bad here, but they're much better there). Capital growth may still be zilch, probably less, but I prefer the monthly income over the speculation plays personally.

Again, though, my experience in Aus is very limited, that's why I'm asking. I'm sure there are people out here doing better, so trying to learn more about how they're doing it.

Yea, you are right about the 3-5% pre tax cash flow.
Reason for that, I think, is because everybody can count and wants profit. So sellers want to get higher prices and they know rent is a factor in determining price. The buyers also think the same. So market consensus seems to settle at 3-5% above which, sellers will increase the price and below which buyers think they are being ripped off and shy away.

Having said that, if you find something with more than 5% either the seller is stupid / desperate or there is something they know you don’t. Vice versa for buyers.

In terms of strategy, there is plenty of them. You just need to understand your own situations and build your own strategy. I understand that cash flow is important but don’t want to do a lot of work. A guy I know owns 4 properties and rents it out by room (total 12 rooms). So she has 1 lady who rents 1 of the 12 rooms. This lady gets a reduced rent, but she has to collect the money from the other 11 tenants and puts it in his account. She is basically the live-in land lady. The pre tax cash flow is closer to 30%!

So basically, the more you rent out the better. I think there is this imaginary rental floor where you can’t rent anywhere in Sydney for less than that. And size, convenience, luxury of your property add more layers on top of the rental floor, but not much. Also, the lower the rent, the more demand to it so price increase compared to the luxury accommodation. Another example of this is, given the same area and quality apartment IPs are usually more profitable than house IPs.

That’s certainly my case – for cash flow.
Oh, and here in London, real estate agents have started renting rooms rather than the whole flats. So watch this space, Australia (Sydney?) may follow suit soon enough.

Capital appreciation is a different story all together.

Please note, I am not a professional mortgage broker or whatever. So my opinions are personal. But then again, depending on your point of view, my opinion can be worth more simply because I’m free to say whatever I like and do not expect to gain money out of it.

Cheers,
Catts

If it tripled in the last year maybe the boat has already sailed?

Thanks