Private Rented Sector
By Brian Rubins, Executive Chairman
Can David survive against rental Goliaths?
It’s David v Goliath in the Private Rented Sector (“PRS”), with private landlords under threat of competition from Build to Rent (“BTR”) institutional landlords. We have to ask how small landlords, either with a few properties or even a small portfolio, will fare against institutional investors that are often able to market all singing and dancing, purpose built blocks with parking, swimming pools, outside space and concierge service.
First, none of those extras come free of charge and secondly they are London Centric. Recent research confirmed that tenants will pay more for properties with better facilities, but common sense says pockets are not bottomless and therefore they can only pay so much rent. Doubtless PRS is run by well informed professionals who will know how far they can go and that the add-ons may be limited in future purchases.
Will institutional investors manage their properties better, with improved service and greater care for tenants, with more capital set aside for ongoing maintenance? Possibly, but private landlords can do the same if they wish to. It is about priorities, cash in the pocket or capex to increase value and generate higher yields and less voids.
PRS is thriving, although there has been a reduction in total value notwithstanding the increase in the value of homes fuelled by the Stamp Duty holiday. Regardless £1,400,000,000,000 (£1.4 Trillion) is still a lot of noughts!
“…renters will pay more for improved properties”
The market research just published by Shawbrook threw up a number of significant facts including renters will pay more for improved properties, semi-detached houses, and larger living areas. Outside spaces are a priority and there is a demand for longer term tenancies at fixed rents.
So how will David face up to Goliath? Highest rents outside London are in the South East and East of England, however, highest yields are said to be in Scotland, Yorkshire and The Humber and North West with London almost the lowest. If this is the case, and you are seeking yield as opposed to capital growth, it is good news for local investors and an opportunity for others to venture out of their comfort zone.
Whether you are seeking capital growth or yield, each will be powered by providing better quality accommodation. This can vary from a repaint or new kitchen or bathroom, to an extension or full refurbishment. All of this needs to be paid for and if personal capital is used, it will limit the number of properties which can be owned. Sensible gearing through well designed loan products should enable the canny investor to both increase portfolio size and maximise returns.
ALTERNATIVE Bridging Corporation has recently introduced its Light Refurbishment Loan as an extension to its bridging offer and Heavy Refurbishment Loans within its development finance arrangements. Combined with a bridging loan for the purchase at 70% of value, additional funds are provided to meet the cost of improvements. Following revaluation at Practical Completion it is possible to generate a further loan to release equity, followed by a lower rate of interest plus ample time to negotiate the best terms when refinancing into the mainstream. We believe there is room for both David and Goliath!
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