Derby investment properties – the eternal bedroom question!

Last week, a Derby landlord emailed me, after reading the Derby Property Blog, to ask if he should extend his terraced house, making an extra bedroom in the loft. He had a builder friend who owed  him a  favour, and thought it a good way to achieve an ‘inexpensive’ extension.

Having more useable space is generally thought to be consistent with better quality accommodation and homeowners and tenants are prepared to pay for it. If you added a bedroom to a two bed terraced to make a three bed terrace, it will add around 10% to the value of the property.  Turn a three bed terraced into four bed terraced, and approximately 9% will be added to the value. Looking at semi detached properties, and turn a two into a three bed and around 12% will be added to the value, whilst making a three bed semi into four bed will add 9% in value.

However, before you rush off to the planning department there are some important considerations, whether you are a homeowner or landlord.  What would be the cost of making that extra bedroom? The average value of a terraced house in Derby is currently £115,800 whilst the average value of a semi detached house is £145,900, meaning to make money the cost of the extension would need to be less than £11,001 on the terraced property and £15,319 on the semi detached house. 

Talking to a number of trade’s people in the City, most are booking up into the New Year. Also, no matter how good a friend he was, I know of no builders that would charge as little as that! Maybe the builder was just thinking of a bit pointing work on the chimney!

Well, that got me thinking about how bedrooms affect rental prices and rentability. Interestingly, you will see below that whilst bedrooms do have an effect on the rent that can be achieved and the rentability of the property – the difference does not really warrant the expense, hassle and trouble of extending.

18.8% of the one bed properties on the market to rent in Derby have a tenant paying an average rent of £411 per month

43.3% of the two bed properties, have a tenant paying an average rent of £541 per month

39.8% of three bed properties costs a tenant an average rent of £571 per month

21.5% of the four bed properties have a tenant with an average rent of £669 per month

Now, if you want to increase the value of your property, be you a Derby landlord or homeowner, there are things that cost a lot less than building extra bedrooms. Spruce up the exterior, decorate all the rooms, install fresh carpets and curtains. For homeowners, a matter of a few hundred pounds will add thousands whilst for landlords, these things can add an extra 10% to the rent that you can achieve.

If you would like to discuss this topic in more detail or anything related to residential lettings in the Derby area then please don't hesitate to contact me on:

07977 235545

or via email on:

simonj@professionalproperties.co.uk

Buy to Let in Derby. It’s all about Supply and Demand

I had a lot of enquiries and conversations following my recent article about the state of the Derby Property market and in particular what had happened to rents in Derby since 2008. If you recall, I said that rents in Derby are still 4.68% lower than they were in 2008. One particular Derby landlord rang me after reading the Derby Property Blog wanting to know more of the story of what was happening to rents in the City. The reason he asked was that his current agent hadn’t increased his rent for a number of years and he was questioning whether he was getting the best return from his buy to let investment.

The Derby rental market is all about supply and demand - isn’t it so in all parts of the economy? On the supply side, 565 rental properties have come up for let in the last 31 days in Derby. It sounds a lot doesn’t it until you consider there are 15,943 rental properties in Derby, that means only 3.54% of the rental stock of properties in Derby is coming onto the market and it is normally around 5%.  One reason for this lack of new rental properties coming on the market is the fact that tenants seem to be staying in properties longer.

With this lack of supply, newer tenants have to pay more to secure the property they want. This is the crux of the matter.. properties they want. Older properties in Derby, that haven’t been maintained, still retain their wood chip wallpaper from the 1970’s and thread bare carpets have seen their rents drop. Tenants want either modern properties with all the mod cons or older style properties that have been presented to an exceptional standard – and, generally, they are prepared to pay for the privilege. Rents for top quality properties in Derby have risen by 0.4% in the last month. Any properties, old or modern, put on the market in good or excellent condition will rent in a matter of a few days.

  

Interestingly, looking at Derby property values, the Land Registry has just released it’s latest set of data on property values. Throughout April 2015, the latest set of data, property values remained static in Derby, with 0% growth, meaning they are now 3.3% higher than they were a year ago.  When one looks at the regional picture, the East Midlands average property values rose by 1.4% in the last month. The difference doesn’t concern me, as the regional and local property values always even themselves out over the months.

 

Looking forward, after considering all the statistics and talking to other property professionals, I expect property values in Derby to rise by 3% to 5% over the coming 12 months, following the Election result.  In a forthcoming article, I will discuss how the number of properties changing hands each month has dropped considerably in the last 10 to 15 years in the City.

..and so back to my chat with the landlord.. Each property is unique and so, as his tenancy agreement allows him to inspect the property with notice to the tenant, we will be visiting the property next week!

Keep reading the Derby Property Blog or get in touch; 

Investing in Derby – Should you look further afield?

I was at a recent business networking event in Derby, when a landlord who already owned a couple of properties, bent my ear on where the next hot spot town or city is to invest his money in and where the best rental yields are. Now it can be tempting to just look at Derby when growing a buy to let property portfolio, but there can be big differences in the amount of rental income you receive and how much your property will appreciate by considering other locations in the country.

Now regular readers of my articles of the Derby Property Blog know of my love of the ‘buy to let seesaw’. On one side of the seesaw is return and the other, capital growth. Landlords should be looking for a high rental return so that they can comfortably cover any mortgage payments and make some profit from the income return, but you also want the property to rise in value over time so you can get some capital growth when you come to sell. However, high yielding property in such areas as the Pear Tree area in Derby - sees the seesaw return arm go up - will suffer from low capital growth - so the capital growth arm goes down.  The relationship works in reverse as well, so in such areas as Littleover, properties offer good capital growth, but at the expense of a decent yield.

  

The North East and North West of the UK are landlord magnets for great yields. The average yield in Derby today is around 4.64%, which when you compare with say Hartlepool in the North East, which achieves 7.73% or 9.43% in the Anfield area of Liverpool, doesn’t look too healthy. Now of course, these are only averages and some of my Derby landlords are achieving 6% to 7% on some of their Derby properties, but at the expense of capital growth. Anyway, after wasting a tank full of petrol up the A1 to Teeside or the M1 to Stanley Park,  that Liverpool property, would have dropped in value by 2.2% in the last 12 months and the Hartlepool property would have dropped by 1.4%.

When you compare the long term house price growth, it gets even worse. Looking at the graph, since 1995, property values in Derby have risen by 142.6%, compared with Hartlepool at 21.02% and Liverpool at 90.11% – it just shows you shouldn’t always chase the yield because of the poor increases in property values in those two places.

As I always like to explain to landlords when they either email me, pick up the phone or pop into my offices for a coffee, a decent yield is important, but when you come to sell your buy to let property it would also be nice to make a decent profit.

At the end of the day, as a Derby landlord, you want to be making gains from both your rent and house price growth, particularly when you want to sell, because when combined, the rental return and capital growth, that gives you the real return on your investment. 

Finally, do you know Hartlepool and Liverpool as well you know Derby? Do you know where the good and bad areas are in both those places? Are you happy that it would require you to take a day out of work if there was an issue with your property in the North? If you can’t answer yes to all three questions, then maybe you should be considering a property closer to home?

If you want to get in touch you can email me by clicking on the link below:

simonj@professionalproperties.co.uk

Or you can give me a call on the mobile:

07977 235545