Always know where the exits are – sensible advice when you’re on a plane, in a high-rise block or, crucially, when you’re thinking about investing in property.
It’s so easy to get carried away with identifying locations and viewing properties, not to mention dealing with the complex legal and financial processes, that people often forget the golden rule of property investing – plan for a change of plan.
Residential property comes with a significant price tag and in most cases it means that a substantial chunk of your capital is going to be locked away inside it.
Unless you have ready access to alternative forms of funding, the danger is that you might be left high and dry if your circumstances change overnight – as they sometimes can.
Residential property takes time to move on at the best of times; if the market changes for the worse it can take an age. Plus, if you need to sell in a real hurry, it’s unlikely you’ll get top dollar for it; buyers and agents can smell urgency and will exploit it to their advantage, have no doubts about that.
So, before you commit yourself to buying a property, you want to make absolutely certain it’s going to work for you 24/7 – from the moment you sign the contract to the day you decide to sell.
Make yourself market-proof
To be in control of your capital at all times, you have to be immune from the vagaries of the economy in general and should avoid the unpredictable residential property market in particular.
But until recently, there seemed to be little alternative.
Just a few years ago, Purpose Built Student Accommodation (PBSA) was pretty much a property industry secret. The average passer-by would assume that the new student residence they had noticed on the way to the station was owned by the local university – and think no more of it.
But by 2011 Knight Frank had rated PBSA as the UK’s highest yielding property investment and it’s remained at the top of the tree since then.
Slowly the word has spread about this new kid on the property investment block, with its relative affordability making it a viable opportunity to ordinary private investors across the UK and beyond.
The resale market for PBSA is especially buoyant; the Savills Student Housing Report 2016 noted that 80% of trading volume in the previous year represented an impressive £4.75 billion worth of operational student property bought and sold.
An offer they can’t refuse
Proven occupancy records and consistent rental income growth are music to the ears of property investors; an ongoing, contracted income stream unreliant on performance levels is a full-blown symphony.
And this is where the Emerging Property model stands head and shoulders above the rest.
Our sector-high NET annual yields of 8-10% fixed for 10 years are fully transferable at any point after purchase. This, perhaps paradoxically, makes our resale options one of our most popular selling points.
Our buyers find our properties attractive because they represent excellent value on so many levels.
Purchase prices are affordable because 100+ unit developments allow us to spread the land purchase and construction costs across multiple purchasers, while handpicked regional cities provide value for money.
Also, because they’re classed as commercial property, they are not liable to Stamp Duty below £150,000.
Additional economies of scale allow us to install 24/7 professional onsite management, at no extra cost to the investors, to handle every single aspect of our buyers’ property; indeed, once you’ve signed the purchase contract for your 250-year leasehold, there’s nothing you need to do regarding your investment for the next 10 years.
Because our developer retains the freehold and makes a profit from consistent rental growth, this long-term approach is reflected in our high (8-10%) NET annual yields and our long (10-year) fixed income periods.
You call the tune
But the clincher is the total control all this gives you.
As we’ve said, you can sell at any time during the 10 years, with the fixed NET income and remainder of the term fully transferable to your buyer.
But it’s you who sets the price, it’s you who determines your capital growth (or profit), and it’s you who sets a yield level to tempt the market.
NET yield is what a property investor is interested in, along with how likely it is to continue.
It is calculated by expressing a year’s rental income as a percentage of the property’s value. For a buy to let landlord, the formula is
NET yield = (Property price paid) ÷ [(total rental) – (operating costs)]
So for buy-to-let landlords with a £50,000 property, they need a rental income of £7,000 per annum (with no void periods) and to spend no more than £2,000 per annum on mortgage repayments and other running costs to earn a NET yield of 10%. Good luck with achieving that…
But as an Emerging Property owner, the NET income you receive is a fixed annual percentage of the price you paid for your property, with no other costs or outgoings.
Now, bearing in mind that a yield of 7% is universally recognised as a good return, you can manipulate the yield figure, and consequently the sale price, to suit your circumstances at the time, thanks to a technique known as ‘yield compression’ – we have a video which explains it and a yield compression gizmo for you to try out.
What is yield compression?
To keep the calculations simple, let’s say you bought your Emerging Property for £50,000 with a fixed income of 10% NET.
That means you’re earning £5,000 per annum. That sum doesn’t change – £5,000 per annum for 10 years. Fixed.
So if you sell, your buyer will now be the person receiving that £5,000 per annum. That sum won’t change.
The trick is to express that annual £5,000 as attractively as possible in percentage yield terms, while securing yourself a healthy slice of capital growth .
So let’s suppose you set a sale price of £60,000. That would provide you with £10,000 (20%) capital growth and, just as importantly, the fixed annual income of £5,000 works out at 8.33% of the sale price – a generously pitched yield which will attract a great deal of interest.
Or if you need to set your sale price higher, £70,000 will make you £20,000 (40%) capital growth with the annual income still offering a 7.14% yield – again, a tempting prospect to a would-be owner.
In fact, in many cases such an offer will prove more attractive than an off-plan property from some of our competitors because of their lower initial yields and shorter fixed income terms.
As you can see, the higher the price the higher your capital growth– but also the lower the yield you pass on.
Timing is everything
This may well affect the time it takes to sell your property, so you need to strike the right balance between capital growth and yield, depending on how quickly you need to exit.
Offering a 10% yield won’t make you money, but it should see you liquid in about a week.
Coming down to 8-9% will make you a profit within about 4-6 weeks, while 7-8% should take between 6-8 weeks.
Below 7% is a tougher sale to make, but if you’re not in any particular hurry, the reward for your patience could be capital growth of 40+%.
Of course, this has just been an example to explain the principle of yield compression. When the time comes, you will have a unique set of personal circumstances with a myriad of possible factors to be taken into account.
The yield that keeps on giving
You will, however, be in the very strong position of being able to offer buyers the remainder of your fixed rental term – and even if it’s just a year you’re passing on, that’s still a year’s contracted income with the option of contract renewal and every likelihood of a rent hike after year 10.
Student numbers have been rising steadily for over 20 years and currently stand at around 2.3 million; nobody who buys your property is ever going to run out of tenants.
We can be of considerable assistance to you at resale; because we don’t just sell to clients, we also sell on behalf of clients.
We have offices in London and Dubai, and have around-the-clock access to a global network of partner agents and interested investors.
We can advise you on your optimum capital growth and yield targets, while at the same time helping you find potential buyers who will fit your time frame.
Our partner lawyers and accountants can also help you with the administrative side of transferring your property.
So, when you’re looking at an Emerging Property investment, you’re looking at far more than an affordable price, generous NET yield fixed for 10 years, a full management service and 250-year leasehold ownership.
You’re looking at a top-quality, operationally proven asset in a critically undersupplied sector – for which there will be significant demand for years to come both from prospective tenants and prospective buyers.
Unrivalled flexibility in your resale options means you can control your capital in the way that suits you best; you need never be at the mercy of the market – because you made sure you knew where the exits were.
But of course, before that you’ll need to look at our range of available property investment.