Strong Woolwich investment for able investor to deploy development and BTL combination strategy to generate market-leading yields and benefit from Crossrail-induced property price increases.
- Price: Currently marketed at £175k. However, this is too good to be true. Akin to a Scottish auction, this manufactured starting lower price has been craftily chosen to drive demand and provide greater certainty of sale and within a short time frame.
- From a valuation perspective, the bid has rightly escalated and currently stands at £207.5k. The successful winning bid will have to be greater than this.
- The sales process is a relatively more risky one compared to a ‘normal’ trade sale and you must note that the property will stay on the market until exchange of contracts. To avoid frustration of being gazzumped and losing money along the way, it is best to engage financing parties to push as many upfront costs to the debt, and engage and legal parties to act on a no completion no fee basis.
- In our financial analysis of this Woolwich investment, we assume a winning bid of £210k. With substantial strength in the projected returns, you can comfortably invest at a higher price. We would not invest further north of £240k.
- Strategy: The property is generously spacious and offers relatively easy development potential, suitable for a novice investor.
- We recommend simple development via erecting new internal stud walls to create bedrooms (not just 1 but 2 additions). This will drive the potential rental available going forward.
- Additional cosmetic surgery to refurbish the property such as a fresh coat of paint will be also cost-efficient and rental value-enhancing. The envisaged works ought to take no longer than a few days to complete. Conservatively forecast one week.
- The resultant property makes a perfect BTL refinancing candidate to extract initial equity. After which, we would enjoy the net rental cash flows per month (just shy of £1k per month). In the medium term, we would seek to potentially refinance once more or sell in the run up to 2018’s Crossrail station target completion date when forecast property prices are higher, driven by this landmark project, and expected to generate stronger equity gains for this Woolwich investment.
- Space: At 800 square feet, the space is perfect for an internal reconfiguration. One man’s living area is another man’s living area; we take a communist approach via redistribution of square footage to convert the 2-bedroom property into a 4-bedroom one. Each bedroom will be a double bedroom and maintain a comfortable reception / living area for future renters who are expected to be sharing young professionals seeking relatively cheaper rent and priced out of zones 1 and 2.
- Period style: This Woolwich investment property is technically period style and it is a pub conversion, which is desirable to many. Resilient demand will be useful in achieving strong equity gains via property price increases.
- Excellent regeneration prospects: The Crossrail project is a landmark transportation and infrastructure project for London. Woolwich was surprisingly named as a central station and that status is impressive and key for growth in the area in many ways inclusive of property price expectations. The opening of the Woolwich station in 2018 will substantially improve transport links and minimize travel times; namely, 8 minutes to Canary Wharf, 14 minutes to Liverpool Street, 19 minutes to Tottenham Court Road and 22 minutes to Bond Street. Thus, the Crossrail project will fuel a further shift in excess buyer and rental demand from more central locations to Woolwich. Given the recent boom in property prices in London, there is already a displacement in demand from Central London to zone 3 and 4, which are in turn expected to yield strong alpha property gains going forward. We also note the general aspect that North and West London has typically been historically more developed versus South and East counterparts; there is an increased strong focus from a regulatory development perspective and also the general property market on the latter in recent times and expected to grow going forward.
- For a decent initial guide to Woolwich, click here.
- Risk of bidding process: This process is open and there is little room for you to make a bid demanding the property is taken off the market upon acceptance. Thus, it is likely for competing bidders to increase their prices initially. Additionally, should you still win, another surprise bidder may attempt to gazzump you later down the line. You must be prepared to be both flexible in this process and sensibly set a cut-off price.
- Poor London: Though noted as a regeneration area and improving, you must note that this area is still relatively run-down versus other parts of London. Its incumbents are typically in the lower wealth bands demonstrated by plenty of social housing. The area is notoriously apt at maintaining its petty crime levels. Thus, it will take time for gentrification to take place and for some of those ‘bookies’ and ‘doner kebab’ shops to be replaced with Starbucks and Waitrose shops.
- Risk of default: In addition to the above comments, the area will attract those priced out of more central zone 1 and zone 2 locations going forward. As part of a future BTL strategy, we suggest incorporating a default risk. The laws are clear in terms of being able to recoup any missing cash from renters but you ought to ensure sufficient cash holdings to cover mortgage costs in the interim and good working capital management. We take comfort from the fact that the mortgage is relatively cheap.
Click here to see the detailed financial analysis for this Woolwich investment target. It is critical to get the right deal structure initially and on an ongoing basis in terms of refinancing for this Woolwich investment to be successful
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