DIARY OF A PROPERTY INVESTOR – DAY 5

I am called by a property broker who has a 9 flats available for sale in Sunderland. They are flats above a parade of shops. They catch my attention for a number of reasons.

But wait I hear you say?  Sunderland is not in the North West. Do you not only Invest in the North West as you state in your newsletter?  Well I do not ” only” invest in the North West. I primarily invest in the North West but we can access properties in any area across the North from Liverpool to Sunderland.  I am focused on the North West for reasons that will become clear if you follow this blog but if the right opportunity comes up then we will consider it.

So the flats in Sunderland.  Why do I like them so that I am prepared to go outside my normal investment area? What has caught my attention about these flats?  Here are my reasons:

  • There are 9 flats with 7 one bed and 2 two bed. The price is £275,000 with rents of about £28,000 a year So it is a good return but not exceptional. But there are some flats unlet so there will be potential to increase that. Based on the average current rents if all the flats were let out then the rents would be £33,000 which is better
  • They are in a bad state of repair but close to the centre of town.  That could be an advantage if you could upgrade the flats.  Having said that they do seem to be in a part of town that is not particularly salubrious.  One thing you quickly learn is that In the North of England there are many towns and villages where being in the centre of town is a  minus and not a plus (as in London) for the local population so that the properties are lower priced than those in the outskirts of town. They are therefore dominated by DSS tenants.
  • It is above a parade of shops which means it will be a leasehold which is a disadvantage because we do not like leaseholds. You always have the problem of dealing with the Landlord and we prefer to control things ourselves.
  • It is good that there are 9 flats because if you are going to move into a new area it is useful to have a few properties rather than just one. One property on its own is difficult to justify if it is not in an area that you access regularly.

So far so unspectacular.

However, our research shows a critical fact. The DSS rate for a one bed flat in Sunderland is £390 per month. So it would seem that the flats are occupied by DSS tenants who are paying far less than the going rate. That is not entirely unusual. Sometimes Landlords will have tenants in situ paying rents which the landlord does not increase in line with the increase in DSS rates

The point is though that the potential rent for these flats should actually be more in the region of £40,000. Now that should catch your attention as a property investor who focuses on yield.  It certainly catches mine so I decide to go and have a look.

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