Target: Hoxton Investment (N1)

Hoxton investment is a strong cash flow yielding property asset. BTL kings – charge!

Property Price and Valuation:

  • Hoxton investment - property investing London
    Ex-council gem

    This property is currently being marketed at £370k. Gone are the happier days when ex-council properties with 3 bedrooms or more could be snapped up at £250k in central locations. However, we note that £370k is relatively cheap given current market conditions. Purchasing around this level derives a c.£420 per square foot price. This is a healthy price level at a time when prices are comfortably over £600 per square foot for other similar property types in this area.

  • We expect abundant competition for this flat. There is currently limited decent stock available in London. Other BTL investors will swarm around this asset and be keen to diversify into the Hoxton territory to enjoy the general ongoing gentrification trend in the area. They will be attracted to the strong rental figures attainable in this Hoxton investment flat to young professionals. (see here for an excellent opening guide to Hoxton)
  • Despite this latter rental strength, we would not pay any more than £380k. Why? Because although this property is an excellent cash flow yielder going forward, we would hope to be exposed to greater potential equity gains as part of a speculative strategy (should we wish to recycle the invested funds in other new opportunities in the short to medium term).

Property Investing Strategy:

  • Hoxton investment - real estate investing London
    Hoxton / Haggerston location – an area still experiencing gentrification and growth

    The primary strategy is buy to let. The property’s current maisonette layout has 3 bedrooms. At close to 900 square feet, the internal size is generous as most ex-council properties typically are. We would exploit this fact and simply erect a new partition wall in the reception room.

  • There is an an additional window for the new bedroom, the creation of which will serve to hike the rental potential. The end user market targeted ought to be happy with this adjustment compared to more mature renters given they are young professionals. This slight development aspect is quick and easy, applicable for novice investors.
  • In the medium to long term, we would preferably refinance to extract any equity gains and still enjoy the solid net rental cash flow. Otherwise, we would sell at a higher value when this Hoxton investment reaches the £500k level.
Hoxton investment - real estate investing London
Easy conversion to a 4-bedroom property

Financial Analysis:

  1. £370k has been assumed as the winning bid given the expected competition for this Hoxton investment.
  2. 75% LTV assumed a healthy leverage ratio in order to benefit from the current sweet spot in mortgage interest rates. We have assumed an associated c.2.5% conservatively, which could be even less at the c.2% level.
  3. Resultant cash requirement is just north of the £100k mark including minimal development costs at £2k. Envisaged development works comprise the new wall and cosmetic refurbishment to raise appeal for letting out the flat.
  4. A 3 bedroom flat would typically go for £520 per week but the additional bedroom, which still leaves plenty of room in the reception area, would result in incremental rental of c.£80 per week. Total rental is expected to be around the £600 per week level, which is still at an attractive level for 4 young professional renters to be in this area.
  5. Given the deal structuring assumptions, the net rental cash flow is a strong £1.6k a month or 18.8% levered cash flow yield.
  6. We have assumed a sale in 3 years at £500k, which we assert to be more very achievable according to our property price forecasts going forward for London and this area.
  7. The resultant IRR is an excellent 42%, which beats our aggressive 25% threshold, and CoC is at 2.6x.
Hoxton investment - real estate investing London
Conservative assumptions still result in alpha investor returns

Link to this property

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