Property Investment in the UK – International Investment Opportunity

updated 15th October 2016

For investors interested in buy-to-let ex-local authority property investments, selecting the right property in the right areas can yield excellent profits

UK ex-local authority property market turns hot

With average rental returns surging to around 10%, properties around the UK are in hot demand for investors. One segment that’s generating a lot of excitement is the ex-local authority council property market. John Moore, president of the Property Investors Association of Australia (PIAA) reports on why it’s one of the hottest sectors in the UK at the moment.

The demand for ex-local authority types of properties in the UK is increasing rapidly. From first homebuyers looking to break into the property market to property investors wanting to diversify their portfolio, these pre-owned homes are popular with almost everyone.

While they haven’t been associated with high capital growth previously, buyers are becoming increasingly aware of the potential of these properties as a good investment.

Investment opportunities

Popular areas in London such as Camden Town, Kensington Gardens, Fulham, Pimlico and Chelsea contain ex-local authority flats in areas usually associated with much more exclusive property.

The capital appreciation of these types of properties is likely to match if not exceed inflation in the near future. Properties that are bought for less than the price of similar private sector properties can achieve rents close to those of property that costs almost twice as much as these ex-local authority flats.

Many property investors to date have overlooked London’s East, but with the Olympics coming to London in 2012, these areas are likely to be increasingly sought-after. Even less attractive areas provide excellent investment opportunities.

The ex-local authority blocks contain a combination of one, two and three-bedroom flats and can be five or more stories high.

The three-bedroom flats appear to have the greatest potential. Renovating the flat by converting the kitchen into a bedroom and rearranging the living area to accommodate a kitchen provides excellent potential for renting. The flats are completely repainted and fitted with modern appliances and furniture that suit the lifestyle of a temporary resident on a working visa. Three-bedroom flats in the central areas of London Clapham, Fullham, Pimilco and Chelsea sell for a price of around £250,000.

Financial considerations

Financing of ex-local authority property is done through buy-to-let mortgages. Lenders know that the yields from this type of property are good as long as the location is right.

Since the Housing Act of 1988 and 1996 letting is considered an investment in the UK. A joint incentive of the ARLA (Association of Letting Agents) and mortgage lenders helps private landlords to invest in property they intend to let out without paying commercial rates of interest.

Their view is that buy-to-let makes the private rental sector healthy and is good for the advancement of the economy.

The properties are purchase with an 85% LVR (loan to value ratio) and have a term between 5 and 45 years.

The flats are sold on a freehold basis by councils to owner occupiers and investors. Investors need to consider that many buildings are old and need major repairs so the choice needs to be made carefully. Some are in buildings that require extensive renovation and can end up costing the investor significant amounts in on going maintenance and repairs.

For investors interested in buy-to-let ex local authority property investments, selecting the right property in the right area can yield excellent profits. However, as buyers become more aware of the huge potential of ex-council properties, prices are inevitably beginning to rise.

It’s considered by many investors already in the market that it is only a matter of time before ex-local authority property prices catch up with the rest of the property market in London.

In fact, the recent surge in demand for ex-council properties have in London’s West have already seen prices increase up to £50,000- good news for those who have already invested.

Success story: Aussie investor taps ex-council properties for big profits

Creating a cash flow of more than £240,000 net cash flow per year from 21 property investments over a period of 3 years in the UK is no mean feat. Australian investor Justian Goode has been in the UK for the past 3 years buying ex local authority flats in the South area of Central London and renting them out to Anglophiles to create a great cash income.

It costs about £5,000 to convert the three-bedroom flats into four-bedders. They’re rented out at £150 per room per week to Australians, South Africans, Americans and others who are visiting the UK on a working visa of for a long stay. There are usually four tenants per flat. That’s £600 per unit per week or about £2,600 per month. Each property nets around £1,000 per month after costs.

Justian looks for flats in low-rise blocks (preferably three floors, but no more than five) with large bright rooms, plenty of storage space and with shops, restaurants and possibly even a gym within walking distance.

The property must have three bedrooms in order for it to be used as a shared let. It should also be within 10 minutes’ walk to the nearest tube station. Additional features such as a balcony and larger than average size living rooms are a bonus, but not a necessity.

The flats are advertised on well-known websites as single room accommodation and are suitable for anglophiles with work permits or visas. Demand is high and there’s a continuing shortage of accommodation. It can cost £100–150 a room in these areas that have good access to transport and facilities.

This article has been republished with permission from Your Investment Property magazine. Try our Loan Repayment Calculator and find the best repayment strategy for you.

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