An Investors Guide to 31 Nile Street, Sunderland

I've taken a couple of calls in the past few days from investors who've been offered the chance to buy studios or apartments in the 31 Nile Street development

Whilst I'm more than happy to chat through this in some depth with anyone who may be considering buying here I thought it worth outlining my views on the blog in case there are more potential investors out there who may be offered the chance to buy one or more of the apartments and would appreciate a bit of background information from someone who knows the market

I know the development well, having been given the VIP guided tour when it was nearing completion around 2008 with a view to finding tenants - unfortunately the developer ran into problems due to the financial crisis and as is often the case, the development changed hands quickly after that

Since the ownership changed hands I've not had any direct dealings with the building but given it is a stones-throw from the office and apartments often come onto the rental market I've kept a close eye

I noticed that 14 of the 16 apartments were being sold as a block last year (the other 2 apartments are owner occupied and were excluded from the sale) for Offers In Excess of £800,000 and understand it's been bought up by a developer or property group with a view to selling off to individual investors

There are 12 one bedroom studios and 2 two bedroom apartments and from what I understand the studios are being offered at a "Below Market Value" £60,000 with a promised rental of £525pcm

Firstly I think that the rental amount being promised is too ambitious...for a start I have a real issue with anything ending in '25' the logic for this being that people searching on Rightmove, Zoopla etc will search in £100 bands and therefore something at £525 will only be seen by those searching 'upto £600'

Sunderland being Sunderland £500pcm is the magic number and significantly more people will be searching in this price bracket than any higher price bands...furthermore if someone has £600 to spend they'll be able to get something bigger, better or in a better area than what is essentially a £500 property where the Landlord is being a bit optimistic/greedy

Secondly as I've previously stated in this blog there is a lot of competition out there in the City Centre with far more 1 or 2 bedroom flats/apartments than the current tenant demand requires, meaning City Centre rents are falling and tenant expectations are rising - not a great combination for Landlords

All in all I'd say work your calculations on £450pcm for a studio and you may get a pleasant surprise rather than basing your calculations on £500 or £525 and getting a nasty shock when you can't let it

Based on £450 and £60k it will return 9% Gross Yield which on the face of it is not to be sniffed at

But don't get too excited just yet...market conditions for flats/apartments in the City Centre also means that there has been a dampening effect on sale values 

Sunderland should always be viewed as a Yield city rather than a Capital Growth city but the constant drip, drip, drip of flats/apartments being put on the market to sell (by owners who bought prior to 2008 and cannot afford to subsidise their losses any longer or in the worst-cases properties being repossessed) means that in the short to medium term there is likely to be very little increase in value, if any at all

Looking specifically at the development I remember thinking that they were finished to a very good standard but a major negative was that compared to other comparable apartments they were very small

Most have been let for the past 5 or so years so it would be worth working on the basis they may be looking a bit tired and in need of TLC and budgeting accordingly

There's no car parking and whilst there is a (unsecure) open car park right opposite the Council charge £50 per month for a residents car permit - this isn't going to be a deal-breaker as I'd suggest may potential tenants wouldn't have a car, but it's worth considering nonetheless

You'd need to factor in service charges, I don't know the exact figure but I do know who the block management firm is and know their normal scale of charges, and given there are lifts in the building you'd need to work on at least £100-150pcm

I'd want to check out who else was in the building - the development will attract both working, local young professionals and students but I would want to check that at some point in the past 5 years Landlords haven't moved in DSS tenants as this could upset the balance and could negatively affect your  ability to attract professionals 

I say this as whilst Estate Agents may describe the area as 'Up & Coming' it's actually in a pretty grotty end of the City with a lot of industrial units on Nile Street (some in use, some not), and nearby there are a number of hostels, a drug rehab centre and a 24h pharmacy dispensing methadone that can lead to the area attracting some dodgy characters, especially at night 

For balance, there is also the HQ of cable TV channel GOD TV round the corner...

Finally, whether they are working or students this sort of a property is very likely to attract short-term tenants who will stay 6 months or a year at most, which is likely to increase costs (in terms of letting fees, redecoration etc) and increase the worry & uncertainty which comes with the dreaded void period 

There are decent long term investments to be had for around £60k in Sunderland but I'd suggest you could get a better investment elsewhere - I've just posted this 'Ready to Let' 2 Bedroom Flat Near Nissan & A19 on the blog which is a prime example of what you can get a bit further out from the City Centre - it may not be quite as 'sexy' as 31 Nile Street but offers far better prospects in the short, medium and long term

Alternatively, if you're determined to stay near the City Centre something like this 2 bedroom Another 2 Bedroom Riverview Apartment (9.1% Gross Yield) may cost a few grand more but represents a much better long term investment

For a free, no obligation chat about the Nile Street development or any other investment opportunities in Sunderland feel free to give me a call on 0191 567 8577 or email neil.whitfield@belvoirlettings.com