Excellent Kings Cross investment opportunity for an investor to make strong rental cash flows and potentially generate even stronger equity gains (versus the speculative increase) via a flat split.
- Price: Currently marketed between £625k to £650k. The instruction of this Kings cross investment property by no less than three agents clearly indicates the seller’s eagerness to sell. The question mark remains at what level. We note that this property is highly attractive (including period style, superb current rental being achieved, strong investment area and excellent central location factors). As a result, it will demand a purchase price north of the £600k mark given expected levels of competition.
- From a valuation perspective, such a price level is OK for the purposes of seeking strong alpha returns. In our financial analysis of this Kings Cross investment, we assume a winning bid of £615k. With considerable strength in the projected returns, we take comfort that a bid can be made at a higher level but there is no reason to stray too far.
- Strategy: The property’s current maisonette layout has 4 bedrooms, which cheekily omits the need for a reception room, thus hinting students or room-by-room letting basis. Nevertheless, it generates substantial rent of £700 per week, which offers excellent BTL returns.
- Besides the vanilla BTL approach, we note that the property may be sufficiently spacious to potentially permit a flat split that would allow for even greater equity gains, beyond anticipated speculative equity returns given the area’s prospects, via either a BTL refinancing in the short term or straight sale. Obtaining approvals will be cumbersome as will the work be too but certainly worth making an effort with regards to this property to tap into strong alpha investor returns.
- Should the development strategy be targeted, we recommend a simple division of flats by floor level. In order to have access to the lower ground flat, an installation of a staircase in the external front patio will be required. This will remove the need for the internal staircase, which will free up capacity for the existing bedroom / reception areas in both new flats and be a much more appealing case for the division for any approvers and prospective renters/buyers alike. Council approvals will be required in addition to those from the existing freeholder; the latter ought to agree given the overall value creation rationale whilst the former may present a little more of a challenge.
- The resultant properties will make excellent BTL refinancing candidates. Given the current property price environment and level of demand, we anticipate each flat will be able to sell around the £400k level given their individual sizes and floor levels (410 square feet for the lower ground floor flat and 360 square feet for the ground floor flat). To be conservative, approximate £375k valuations have been used for a BTL refinancing at the 75% LTV level.
- In the medium term, we would seek to potentially refinance once more or sell as Kings Cross further develops and drives local property prices further. We note though that strong consideration would be given to a hold position given the attractive current and prospective levels of demand, which will drive rental cash flows.
- Strong rental demand: The property is currently generating £700 per week. This alone enables an investor to snap up this flat and simply take the net rental cash flow each month. The level of demand is expected to simply grow as Google opens its UK offices locally, with plenty of student demand (from UCL, LSE, King’s, SOAS, Birkbeck universities) to fuel price increases – they won’t be disappearing in the future. We project in our financial analysis, net rental cash flows of £1.6k a month (with a healthy 75% LTV under a BTL interest only mortgage), thus 11.1% levered yield out of the gate. These opportunities are typically rare for such central locations.
- Potential to utilize excess space: At 766 square feet, it is just about right space for a potential split given the positioning of the accessible and demised front patio. With each resultant flat at 360 and 410 square feet, we believe the council will be amenable to two new 1 bedroom flats IF the case is put forward correctly. The subsequent rental cash flow will increase slightly but the real motivation is in the overall property price increase for a refinancing extraction or sale.
- Good improving area with excellent transport links: The central location near to shops, historic sites, universities, new corporate offices (demonstrated by Google’s corporate relocation decision), with fantastic transport links in the form of multiple London tube lines and Eurostar / UK trains. This area has the growth factor with plenty of development money pumped in. The restoration of St. Pancras station and hotel clearly stands out. The ‘dodgy’ perception has been banished and on a location basis alone, the investment case is very good.
- Period style: Considering the plethora of average properties on the market at excessive prices, this property is attractive with its period style and is expected to yield strong demand going forward, which will in turn fuel better property pricing.
- For a decent guide to Kings Cross, click here.
- Split not attainable: If the approvals are not obtained for the proposed development, the returns will naturally drop from those forecasted. However, we take immediate comfort from the substantial rental demand for this property and speculative equity gains in the future without the need for a split. An easier approach may be taken to simply buy, rent out and sell in the future. (Additionally, we do note that one rejection by the council can simply be a temporary spanner in the works. The overall trend is that London is getting smaller in terms of property sizes and development is being encouraged in order to provide additional housing to abate the clear structural supply and demand mismatch in the city).
Financial analysis: Click here to see the detailed financial analysis for this Kings Cross investment property. Both rental and development opportunities have been illustrated showing the attractiveness of this target
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