Here at Fabrik Invest, we keep our ear close to the ground when it comes to the kinds of property investments that are being offered. Of late, there’s been a lot of talk about secondary houses and houses in multiple occupation (HMOs) being offered with yields in the region of 8-12% in cities such as Glasgow.
A tempting headline, perhaps, but we wanted to look at the real story behind these kinds of properties and see how they held up when compared to newly built buy-to-let opportunities. Fabrik’s CEO, Steve Jacob, owns both secondary houses and buy-to-let apartments, so we called on his investment experience.
“It’s surprising how different investing in a secondary property and a brand-new buy-to-let apartment can be. I think a lot of investors underestimate just how hands-on secondary properties can be, as well as how much it costs to maintain them. Older properties certainly carry more risk in terms of their potential need for repairs.”
Steve Jacob, CEO, Fabrik Invest
Issues such as broken boilers, damp, cracks and general, age-related wear and tear can quickly mount up with secondary home/HMO investments. Not only are they often costly to deal with, they require plenty of time and effort on the landlord’s part – or else on the part of a management company (which comes with its own cost attached). It’s not unreasonable to budget 10% of your annual income to cover maintenance costs with an older property.
Newly built homes come with a 10-year warranty and insurance guarantee, meaning that investors in buy-to-let properties are unlikely to have to worry about maintenance issues becoming either a financial or a time drain.
“HMOs certainly suit some investors. Their focus on maximising income by providing as many bedrooms as possible is tempting if the investor is happy to commit plenty of time and energy to the property. Those looking for a more hands-off investment, on the other hand, might be better suited to a buy-to-let apartment.”
Dale Anderson, Managing Director, Fabrik Invest
The potential for capital appreciation also requires careful consideration. Houses and apartments can differ substantially in this respect. Liverpool provides a good example of this. Over the past five years, according to Zoopla, terraced houses in Liverpool have increased in value by 2.71%. Apartment prices, meanwhile, have gone up by 7.47%.
One of the most exciting buy-to-let developments in Liverpool at the moment is The Roscoe, where one-bedroom apartments are available from £135,950, with 6% net yield guaranteed for two years. Located in the affluent Georgian Quarter – flagged by The Times as one of the best places to live in the UK in 2020 – the homes are just half a mile from the L1 shopping district.
With any investment, an exit strategy is always important. Apartments tend to have the upper hand in this respect. Investors looking to sell up have the potential to sell the property as an investment or to an owner-occupier. HMOs, on the other hand, will likely appeal only to fellow investors, thus limiting the pool of potential buyers significantly.
“It’s great to have plenty of choice as to how and where you can make your money work for you. However, when it comes to property investment, there’s a real need to be cautious of the headline yields that HMOs seem to present. Newly built apartments tend to present a safer investment option for hands-off investors.”
Dale Anderson, Managing Director, Fabrik Invest
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