In 2022, we closed different types of deals: from finding an apartment to rent in one day, to facilitating complicated purchase and sale transactions with long chains and mortgages. This December, we closed several such deals in one month, and we once again proudly shout out: we are not afraid of even the most difficult tasks!
As part of one of our projects, we sourced several apartments to buy for our client, with an average price of about £500,000. The project is still in progress and new transactions are planned for the next year. This client came to us with a request to create a portfolio of buy-to-let properties in order to generate income. He has been living in London for a long time and knows his area well.
Initially, the criterion for his search was the area in which the client already lives. Also, the client was in favour of a terrace and a garden. As a rule, such elements increase the price of the property, but this premium is not directly reflected in the rental rate of the apartment.
We demonstrated to the client that prices are higher in areas where owners-occupiers live – because people are willing to pay more when they buy their homes. At the same time, the rental rate does not directly depend on the price of an apartment or a house. The maximum market rental price on average will not exceed certain values, even if the property has some advantages (often because it is the lowest rental budget).
As a result, we discussed the criteria with the client and adjusted them by moving the search to other areas of London where there are fewer owners occupiers and more tenants. In such zones, profitability is increased for buyers-investors. Firstly, because of the current rental rate of return (we considered annual gross yields only above 5%). Secondly, in terms of the prospect of capital growth – because prices have not risen here as fast as in more family areas.
Our client focused on two-bedroom apartments but for investment purposes, two-bedroom apartments, on average, give a lower return – again, due to the fact that the property price and rent do not directly correlate. Quite often in London the price of apartments with a larger area or more bedrooms becomes higher per square meter/ foot due to the fact that there are fewer such apartments in a particular area or block. And this growth in demand affects prices.
Transactions for this client involved mortgage funds. We introduced him to a mortgage broker who promptly prepared applications for various lenders and our client managed to get a lower mortgage rate. Also, the client bought these properties in the name of his company and took an additional mortgage on the apartment he already owned. He used the equity release which made the profitability of the entire project and his portfolio as a whole even more attractive due to the use of leverage.
For any questions related to real estate in London – contact us, and we will be happy to help!
Published 16 December 2022