Thursday, 3 April 2014

Investors Guide to Sunderland (SR1)

I was speaking to an investor from the Southeast last week who had been tipped off that Sunderland was a ‘Hot Spot’ for picking up Buy to Let bargains but needed local expert advice on the City, what to buy, where to buy (and crucially what to avoid!)

We had a good chat and following the conversation it struck me that whilst ‘locals’ might think they know the areas well, some of the information I found when carrying out research into the various areas for this investor was quite surprising & worth sharing
With this in mind we’ll take a look at each postcode area in turn, starting logically with SR1
SR1 includes the City Centre so is predominantly made up of flats & apartments rather than houses, with just under 2,300 dwellings in the postcode area, with 56% being flats/apartments and only 5% being detached houses
As you’d expect, the average age in the area is a relatively young 31 and single people make up over 54% of the population in SR1
I was surprised to find that only 20 property sales went through in 2013 in SR1 (to put this into context there were over 1,500 sales in Sunderland last year with 293 sales in SR2 and 290 sold in SR3) and unsurprisingly over half of these were apartments. My interpretation of this is that many investors who bought prior to the economic downturn in 2007/8 (in developments such as Echo 24 built in 2007 and River View built in 2005) are holding on if they can as they would incur significant losses if they sold now
The data backs this up, in that whilst a River Quarter apartment sold in 2013 for £122,000 (an increase of 16% since the previous sale in 2009 – this really surprised me!) the majority of flats and apartments were sold at significant losses such as a Mowbray Buildings apartment sold for £71,000 at a loss of £154,000, a River View apartment sold for £54,000 at a loss of £118,000 & a Post Office apartment sold for £68,500 at a loss of £59,000
What this does mean is that bargains can be had for an investor wishing to capitalise on what must be distressed sellers exiting the market – I would always advise seeking expert advice prior to embarking on this strategy as tenant demand for such properties cannot always be guaranteed, churn rates are typically high, costly service charges need to be taken into account, parking provisions considered etc
Clearly the financial pressures on an investor who had bought in 2007 at £150k or above will be very different to an investor buying now at a much lower price; this has led to the frankly unrealistic and unachievable rents being sought for such apartments in recent years
Rents do appear to be moving towards a more sustainable, affordable levels but this is clearly going to impact on those investors who bought prior to 2008/8 and have correspondingly high monthly mortgage payments to make – I’d suggest this will mean more bargains to be had in the next couple of years as a number of current owners will throw in the towel if they cannot afford to subsidise their investments in the medium to long term
Current market rents for a typical 2 bedroom apartment in one of the developments mentioned above would be around £495pcm, which based on the above sold prices means the investors who bought the 3 apartments above last year will be getting very respectable 8% to 10% Gross Yields
Clearly yield is not the only consideration and investors should be mindful of the long term picture – a steady trickle of distressed sales will ensure that values remain flat for many years to come and capital growth will be a very distant prospect
I would also suggest that anyone considering investing in SR1 cannot overlook the impact of the 26-acre Vaux development. 
Timescales are typically hazy on when this will eventually see the light of day (however work is underway on remodelling St Mary’s Way and a recent Sunderland Echo article suggests funding has been secured to take the development to the next stage )
It is hoped this will eventually bring 1000’s of new jobs into the City Centre (which should increase tenant demand from those wishing to live close to work) but will also bring with increased competition in the form of hundreds of new apartments being built

Please call on 0191 567 8577 or email for objective & impartial advice on all aspects of property investment in Sunderland

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