Property Investing in the United Kingdom – Why I Invest In Milton Keynes – The Good, The Bad and The Ugly

I invest in property in the UK, because I think it's one of the best places to invest in the World! I also invest in other countries, but the UK offers optimum investment conditions which really can't be beaten anywhere else at the moment.

Why invest in the UK property market?

• It's an island with a growing population, and they ain't building any more land.
• It's the European centre of Finance and the Service Industry.
• The economy has historically been relatively stable in comparison to other countries.
• There has been huge amount of immigration, and although this has abated slightly due to the global slowdown, it will start to increase again in coming years.
• There's been an increase in single parent homes and people living alone later in life.
• The UK has a very “flexible” financial system when it comes to property investment and financing of assets. This advanced state the financing industry lends itself to property investment.
• It's still relatively easy to get mortgage financing in the UK.
• It's easy to get you money out of the UK, this is not the case in many countries.
• It's relatively easy to understand the tax system.

So where to invest within the UK property market?

• Everyone has different investment preferences, and I prefer to invest fairly close to home. I live in London so want to be able to see my properties easily. I get calls all the time offering investments all over the UK, Scotland and Wales. Often these have very little cash flow and though they sound attractive, they're in areas I'm completely unfamiliar with.

• I cannot emphasise knowing you market enough! It is vital to become a specialist in a particular area, the economics of the local supply and demand, what sells and what doesn't, what type of accommodation people want and what they don't. Also, if you focus on one particular area you get to know the rental agents, tradesmen, etc., and this can be incredibly valuable when problems crop up!
• London is great to invest in, but also very expensive, so rental yields in comparison are small. The satellite towns surrounding London are great and somewhat cheaper. I've chosen an area just North of the London Commuter Belt, Milton Keynes.

Here's why I've chosen Milton Keynes
 

• Second fastest growing city in UK.
• It's targeted for huge development
• Relatively low property values when compared to London, with relatively high yields. It's all to easy to buy a property that has negative cash flow and becomes a liability. This is not the case in MK.
• Milton Keynes is the UK's second fastest-growing urban area; In just over 41 years, Milton Keynes has grown from a rural area embracing three towns and 13 villages to a cosmopolitan city with a population of 228,400 people. Clearly has unrivalled growth potential.
• Milton Keynes is set to be one of the largest cities in England by 2031, competing economically and culturally with the world's elite.
• 96% of Londoners who move here love it. 87% of the city's existing population think the city keeps getting better and better.
• House prices are around 50% less than in London, but rental yields better.
• Close to the M1; just an hour's drive to Central London, the city stands on the West Coast main line and is close to London Luton airport. It's also a 30 minute train commute from London.
• Yes, I know it's got 14 roundabouts but traffic flows and the city's unique road system means traffic jams are rare and you can move easily from one side of the city to the other. 20% of the city is open space with parkland, woodland, rivers and lakes.
• Investment projects to the value of at least £1 billion are currently under way in Milton Keynes.

Buy Below Market Value in Milton Keynes

• Most people buy from estate agents, and buy at the going market price and then hope that in time the price to go up. This is a risky proposition. I only buy below market value, and so my strategy for buying is determined by whether I can buy at the right price, in order to make profit, rather than the aesthetics of the property I am buying.

What is Below Market Value (BMV) financing?

• In a nutshell it works like this. We source good rental properties, 25 – 30% below market value from people who need to sell in a hurry. As there is a fair bit of equity in the deal, the deal is structured in such a way as to finance itself.
• The advantages of this are, immediate equity and no money is required to fund the purchase. This is completely legal and tax implications are considered before a particular strategy is suggested.
• More information on Below Market Value financing can be found here.

Armchair Investing at your Leisure

• We can handle the whole process for you – sourcing the property, negotiation with the seller, checking all the legals, the entire financing process, we even guarantee the property is in a lettable state, and if not we undertake renovations included in the cost. We will even hand your property over to the letting agent, for them to manage. So it's pretty much a “hands-free” deal.
• Have a look at these typical deals, which will illustrate why MK is such a good investment area:

Typical Deals – The Good, The Bad and the Ugly

• Generally speaking, the “prettier” a property is the better the capital growth will be and the “uglier” a property is, the better the rental return. Not always the case, but a generalisation.

• It’s all about cash flow. Personally, I am looking for “Extreme Yields” and so are focussing on the Good – the Ex-Council. for me Capital Growth is a bonus but not my main objective.

• You may have a different real estate investment objective, and that is fine. Perhaps you prefer to invest in the smarter looking properties, that is completely your choice.

The Bad - High Rise Blocks

First the Bad - High Rise blocks.  They are very difficult to get a mortgage for, the quality of life experienced by the tenants is not great and the rental yield and capital appreciation are both bad.

We don't touch them - enough said!

The Ugly (And Very Profitable)

• We love these properties. They are mostly ex-council freehold 3 bedroom homes. Very much underrated, with their generous proportions and sturdy build.

• These produce superb rental yield and decent capital appreciation. Checkout the typical monthly cashflows below:

Typical Property Values:

Market Value £120,000

Below Market Value (Purchase Price) £80,000

Instant Equity £40,000

Typical Cashflow:

Rental Income £775

Interest Only Mortgage Payment £375

Management Fee 10% £77

Insurance £20

Emergency Fund £33

Gross Profit £270

• That means a Potential Annual Return of £3,240, so realistically, you are recovering your initial investment in 3 years; and have a fantastic property asset which would have increased in value on top of all that!

The Good - A bit Smarter Looking!

• These are slightly better looking and thus might appreciate in value quicker than The Ugly, but as you can see the rental yield is lower, meaning your margin for error is not as great.

• This means that if interest rates went up and thus the mortgage payments, you would have less monthly profit. That's because The Good property costs more for the rent it generates than The Ugly!

Typical Property Values:

Market Value                                                    £175,000

Below Market Value (Purchase Price)          £125,000

Instant Equity                                                     £50,000

Typical Cashflow:

Rental Income                                                         £850

Interest Only Mortgage Payment                          £550

Management Fee 10%                                               £85

Insurance                                                                   £20

Emergency Fund                                                       £37

Gross Profit                                                               £158

That means a Potential Annual Return of £1,896, so realistically, you are recovering your initial investment in 5 years.

The Very Good - A lot Smarter Looking!

• These are better looking and may appreciate in value quicker than The Ugly & The Good, but as you can see the rental yield is even lower, meaning your margin for error is not as great.

• If interest rates went up and thus the mortgage payments, you would you may have to subsidise the cashflow from your own pocket. That's because The Very Good property costs more for the rent it generates than The Ugly or The Good.
  

Typical Property Values:

Market Value                                                £250,000

Below Market Value (Purchase Price)      £187,500

Instant Equity                                                 £62,500

Typical Cashflow:

Rental Income                                                £1250

Interest Only Mortgage Payment                   £781

Management Fee 10%                                     £125

Insurance                                                           £20

Emergency Fund                                               £50

Gross Profit                                                       £274

• That means a Potential Annual Return of £3,288 so realistically, you are recovering your initial investment in 3 years.

• However, remember that you are taking on more debt for the same rental as The Ugly, and in an economic downturn people tend to downsize their expenses, and may opt for cheaper accommodation.

• Then again, maybe you are more comfortable with a property that will tend to appreciate in value more quickly than The Good and The Ugly.

Armchair Investing - What are our costs?

• Of course a service like this is not free; we charge £10,000 per property. But think about it, for £10,000 you get a prime letting property, with 25% built-in equity (you don't have to wait for the market to rise!), which is cash flow positive immediately.
• Essentially you’re buying a fantastic property for £10,000, where can you buy property these days for that kind of money?
• Furthermore, once the market turns around, you will be able to release equity sooner, so in reality this amount is small in comparison to what you're getting for a pretty much “hands-free” deal.

Send me a message if you want more information, and I'll email/call you back. If you interested in just the BMV finance or the Ready to Go property deals; drop me a line.

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