Thursday, 23 July 2015

How to Achieve Over 10% Gross Yield in Sunderland (Without Renting to Students or DSS)

Investors who buy well in Sunderland can achieve consistently better Gross Yields than in many parts of the UK but what if that isn't enough? How do you make +10% Gross Yields in Sunderland without entering the risky Student market or the potentially more traumatic & costly Housing Benefit sector?

Renting a property out on a room-by-room basis to non-students is not new in the UK (I first became aware of the growing trend in the Southeast & Midlands back in 2010 and spoke about it as a possible strategy to get better yields at the 'Future of BTL in Sunderland' event in 2011) but it does seem to have taken a while to take hold in Sunderland


The benefits are obvious - taking this approach with a 3 bedroom, 2 reception room property in Sunderland that would return around £600 - £650pcm rented to a family could return £1,560 if rented out at just £90 per person per room per week to 4 tenants (using 1 of the reception rooms as a bedroom)

There have been early-adopters who've had success in Sunderland - I've personally been involved in finding professional tenants for Multi-Let properties in Thornhill and Roker and both Landlords have continued to have success with this approach

There are dedicated websites such as www.easyroommate.com or www.spareroom.co.uk which I've successfully used in the past and are used by agents, private Landlords and also tenants looking to fill a gap (or to find a new tenant to take over their tenancy)

You need to tap into the tenant mindset that they'd rather pay around £400 for an ensuite room in a very good shared house (with all bills included) in a decent area than £400 on a not-too-great 1 or 2 bedroom flat on their own


With this in mind this isn't a low cost strategy - to work out the property will need to have at least 3 double bedrooms and given decent working tenants will want some shared space, if there isn't a good sized dining kitchen as a minimum then it will be necessary to retain a reception room (rather than succumb to the temptation to "stick another bedroom in")

Ensuite shower rooms and wall mounted TV's in each bedroom (with the cabling chased into the wall rather than hanging down to a plug socket!) will increase appeal and rental return and you shouldn't overlook the outside space - an attractive, useable (but low maintenance) garden or yard will extend the living space and make the property feel that little bit more homely

I often hear this approach being described in investor circles as "Boutique HMO" and whilst I personally dislike the 'Boutique' term it does serve to correctly position the sort of quality approach that will be required in the decoration, fixtures & fittings, furniture and the 'service' provided (Landlords paying for and arranging regular cleaning is very much the norm)

On the subject of HMO's you'll also need to be aware that the property will be classed as an HMO (House of Multiple Occupation), with all the additional paperwork & regulation this entails (but the worst of this is reserved for HMO's with 3 or more useable stories and 5 or more bedrooms), so going for 3 or 4 rooms will minimise the impact of this and is certainly what I'd advise for the novice or relatively inexperienced Multi-Let Landlord

It won't work in all areas & with all properties - infact the outlying ex-council areas I regularly suggest Landlords look to in order to secure long term working family tenants are exactly the wrong areas for this approach!


You'll need to look to the 'better' areas, near the Hospital on the Chester Road rather than the Hylton Road side will be good (High Barnes & the 'ABC Streets'), near the Metro will be a bonus (as you may be appealing to cost-conscious tenants who may work further afield) so around Thornhill, Roker and Seaburn could also work well - but this will increase the property price

With that in mind it's not a cheap or easy solution for the student Landlord who's suffering due to students turning to self contained 'Student Pods' en masse 

It will be interesting to observe what happens as I can already see that some student Landlords in Sunderland are trying this on the cheap and ending up with a not-much-better-than-a-student-property, and I see it staying empty as a result...


There are other downsides

You'll need to work out your returns based on 100% occupancy being a rarity, given tenants will be coming and going at different times (but the upside for a stressed out student Landlord is that there won't be the manic annual obsession with securing tenants for September 1st each year)

The upside of this is if you do it right you'll benefit from word-of-mouth and could find that you have a waiting list ready to take a room when one becomes free

There will be more wear and tear

You'll need to do it Bills Included and take the hit on the excessive use of utilities or introduce a Fair Useage Clause (which may be accepted by students but less so by professionals), you'll also need to throw in a tip top broadband & Sky or Cable TV package

Overall this is a big leap from the run-of the mill letting to a single person, couple or family and it won't be for everyone...but for those willing and able to make the leap it could be a lucrative way to diversify

Give me a call if you'd like to discuss this investment strategy in more depth, call me on 0191 567 8577 or email neil.whitfield@belvoirlettings.com




No comments:

Post a comment