It’s not the size of the step, but the direction it’s taken

Wednesday 05th April 2023 08:17 EDT

Recently, we met a client who had what most would consider a highly paid job. The purpose was to start off investing into property; prompted partly by her family into making this move.  


They were in the midst of agreeing a deal in North West London, directly with the vendor, consequently they were getting the property at a very slight discount to market value. The deal had not been agreed, it seemed there was some tussling regarding the final figure.  


The aim of the investment is capital growth, given that income with current yields are pretty much non existent. When I asked what was the purpose of the investment, the answer was just to get the first step on to the ladder.  


Often this is the vague objective, which is the foundation for investing. The aim was to go for a five year plan, which would provide good growth at the end of it.  


Just because you purchase a property, it does not mean it will go up in five years. What’s going on in this location for prices to rise? There is often the conception it is better to invest close to where one lives, perhaps to deal with maintenance issues. However, this is not the criteria to define how to invest a few hundred thousand pounds, but this is the yard stick which is actually used by many.  


Though the purpose of the meeting was to sort out the mortgage, I suggested she relooks at her investment, and perhaps considers a location which has more going for it. I proposed an area that we are focusing on for our clients, which is backed by a very thorough inhouse report. She was open enough to consider this option and took on board the spanner we threw into her plans.  


The aim for the investment was to obtain the most aggressive capital growth possible, in a riskless manner (well as low risk as possible). The proposed investment, whilst local, did not achieve this.  


The other consideration was the structure in which to do this investment, whether in a personal name or a company structure. Being a high tax payer, the latter would likely be a better set up to get this done given the current environment. 


There is a bigger picture to ultimately set up a portfolio as time goes on. Perhaps even some small lease extensions and refurb projects.  


Since we have been focusing on the suggested location, rentals have increased from £900 per month to £1,400 per month, over a 50% increase. We believe there is more growth to go, and this is one of the few boroughs in London where the yields are still peaking over 5%. This combined with a purchase price of sub £300K for a two bed apartment means there are many boxes ticked when investing in this location.  


In order to make the investment even more secure, we suggest a rent guarantee insurance, which means if the tenant is unable to pay the rent, the insurance policy kicks in to cover the rental. Doing this in such a way ensures the investment is as riskless as possible. Therefore, the deal is simply reduced to how well the area performs, in the coming years. 

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