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Best property types for South Africans investing in the UK

26 Nov 2018

Rental yield is an important factor when considering what type of property investment to make. It determines how much you’ll earn from a rental property compared to the property’s cost. If you’re looking to make money from your investment in the short- to mid-term, rental yield may well be your focus.

Investors in Liverpool are after cash flows with capital growth clicking in only in the medium to long term. Net yields are between 5.5% and 7% in year one, growing from there as rents go up and prices start from £48 000.

Craig Illman from Propwealth, a UK based property investment business, highlights the pros and cons of the various property types in which South Africans are now investing in the United Kingdom.

Upgraded Victorian and Edwardian flats 

“The easiest way to enter the market is by investing in one and two bed flats which are in established, regenerating, neighbourhoods and that have been totally upgraded,” Illman says. “Currently we are investing ourselves in Liverpool, in middle class, blue-collar areas, where tenants cannot afford to buy homes and therefore the tenant base is massive.”

Investors in Liverpool are after cash flows with capital growth clicking in only in the medium to long term. Net yields are between 5.5% and 7% in year one, growing from there as rents go up. Prices start from £48 000 and tend to be cash purchases. These are seen as the “bread and butter” style of properties for long-term investment.

Off-plan and new builds 

“In a market in which prices are increasing, like London was 6 years ago, it’s a good strategy to buy off-plan when the actual building completion might only be in a few years,” says Illman. “This generally means 10% -20% deposit down now and the rest at the end of construction. The investors get the benefit of capital growth and the property only needs to be financed later, generally 6 months prior to completion. Also an exit can be to sell on before the completion date. However, the negative is that if the market flat-lines or drops, then you could be sitting with a property valued at less than you paid.”

Currently Birmingham and Manchester are offering great off-plan deals, as there are major regeneration works underway and this means good capital growth in the medium term. Look at one-bed flats, as they are easier to tenant and sell on if one needs to.

Prices range from £180 000 upwards and can be mortgaged from around 60% loan to value subject to affordability.

Never look at real estate as a quick in and out scheme. It’s a marathon not a sprint, and that’s how you get the best from UK property

Houses of Multiple Occupation (HMOs) 

HMOs are two or three story houses that are divided into 4-8 bedrooms with a communal kitchen and shared bathrooms. These properties are strictly controlled and need council licenses. They offer higher yields than normal properties as rooms are let weekly but can be very management intensive.

Illman mentions, “We normally recommend HMO opportunities to experienced investors or people who live close by to the property. The crucial aspect here is one needs a very strong rental agent who specialises in this type of property.”

Prices range from £ 110 000 upwards with yields of 11% net, and are generally cash purchases unless the buyer is a UK resident who may be able to mortgage the property.

Student Developments 

There has been a deluge of student developments in cities like Leeds, Manchester and Birmingham.

Craig cautions, “Although these might have been good investments in the past, there are just too many developments occurring. Developers are jumping on the bandwagon and coming up with creative ways of selling them. Banks don’t finance them, resales are proving difficult and we caution people to stay clear of developers offering rental guarantees as the buyer is simply paying upfront for their own yield guarantee. Let this market settle and relook in a few years, as it will bounce back.”

The current market 

According to many property reports, it appears that there is still a window of 5 years to find great deals in the UK and until the market starts to increase and Brexit wears off. The current market is driven by low interest rates, an overheated London market and affordability issues with first-time buyers.

“The UK market is a goldmine for savvy investors who are looking at a balanced portfolio of capital growth and cash flow generating properties, as long as you are focused on cash flows, not capital at this time,” says Illman. “One can develop a long-term property portfolio that will generate excellent returns. Never look at real estate as a quick in and out scheme. It’s a marathon not a sprint, and that’s how you get the best from UK property.”

Craig Illman and Anthony Doyle, Propwealth directors, are in South Africa on 28 November until 5 December in Johannesburg, Cape Town and Durban with a selection of high yielding investment properties for sale in Liverpool and Birmingham. Visit the website or email for a one-on-one appointment.

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