Investors paid 57.71p per share in the New Listing for this property, and it became available on the Resale market July 28th 2017. Based on this share price, and third party forecasts for the region, the estimated total return is 46% over 5 years.
Owing to 0.5% stamp duty being applicable to Resale Market purchases and not New Listing purchases, investors on the Resale Market would need to purchase at an average price of 57.43p per share to achieve these same returns.
By agreeing to buy eight flats in a single transaction, we secured a 10% discount to the price of the individual flats. The exit strategy for this investment will be to sell the units individually to realise the full discount for investors.
With leading employers including Rolls Royce and Toyota, Derby is amongst the fastest growing economies in the UK. The flats themselves are just under a mile from Derby railway station, offering direct line services to Nottingham, Sheffield and Birmingham New Street in around 30 minutes. With the area's good transport links and large local employers, Derby should continue to experience strong demand from working professionals and help underpin rental and capital values going forward.
View a short video from our Director of Property to learn more.
- The investment comprises 8 flats in Norman House, Derby. We purchased the properties at a 10% discount by buying in bulk. The discount more than covered the purchase costs of 7.7% (stamp duty, mortgage fees, etc) on acquisition providing a platform for above average capital growth and a degree of downside protection, in addition to the dividend
- Our exit strategy is to sell the flats individually rather than as a single investment, thereby realising the discount that we secured at purchase from buying in bulk. Being 8 flats within a larger development in a city centre location, they lend themselves to individual sale
- Leading research agencies Savills, Knight Frank, JLL and CBRE, have predicted house price growth in the East Midlands over the next 5 years of 14%, 17.6%, 12.5% and 14.8% respectively. The average of these predictions is 14.7% and once geared by the mortgage debt would deliver 5-year capital growth of 26.6%, based on selling the units individually. Once a dividend yield is added, this would equate to a total return of 46% over a 5-year period based on the New Listing price of 57.71p per share and after deducting all costs of purchase (including the initial Property Partner transaction fee) and accounting for corporation tax on the capital gain, if the property were sold at this value. Owing to 0.5% stamp duty being applicable to Resale Market purchases and not New Listing purchases, investors on the Resale Market would need to purchase at an average price of 57.43p per share to achieve these same returns
- Derby has undergone substantial regeneration, with future planned projects set to take place through to 2030, including a £200m redevelopment of Derby railway station set to complete in 2023
- The property is mortgaged at 50% loan-to-value (LTV) of the purchase price. The mortgage gives enhanced exposure to property price movements, and the potential for amplified returns; though investors must note amplified negative returns if prices fall
Our investment comprises 8 two-bedroom flats. By purchasing the properties in a single transaction, we were able to offer the vendor a fast and professional service from an experienced buyer. This, combined with our previous track record enabled us to secure a reduced purchase price of £993,500 for these properties versus a Chartered Surveyors Valuation of the units if sold separately of £1,104,000. By purchasing these properties at a bulk discount investors will benefit from a higher dividend yield than would be achieved by purchasing individual units.
The total rent forecast for the 8 units is £69,600 per annum. The number of vacant flats may vary month to month. For prudence we have factored into our forecasts an annual void rate of 3.8% and have not included any growth in rental values.
At the forecasted level of rent, Gross Rental Yield would be 5.97% and the forecast Dividend Yield 3.78% (fully accounting for and after mortgage interest payments, purchase costs, furnishings, forecast maintenance, annual voids, corporate taxation and all fees). Since April 2016 UK taxpayers are entitled to a £5,000 annual dividend allowance. See our FAQs here for more information.
The mortgage is provided by a major high street bank with a two-year fixed interest rate of approximately 3.45%. After this two-year period, the interest rate will switch to a variable rate based on the bank's base rate. At that point, we will assess the situation and either continue with the variable rate or fix the interest rate for an additional period if necessary. Please refer to our blog post on geared property for further details.
The properties were acquired in good condition, and the Chartered Surveyor's report identifies no material issues. We have set aside a contingency of £5,500 for any issues that are identified after purchase. There is also a total provision of £18,820 for furnishings.
The flats were acquired on a high quality leasehold basis (each with 250 years remaining and a ground rent of £250 per annum linked to RPI).
This transaction was approved by our RICS qualified Director of Property.
The investment comprises 8 two-bedroom flats.
The flats are all recently converted and are finished to a high specification.
We present here floorplans for 3 of the flats as examples.
- Share Valuation
- House Price Index
- Rental Income Breakdown
- Latest Valuation
- Latest Share Valuation
- Latest Property Value
- Amortised Purchase Costs
- - £501,718
- Latest Valuation
Note: The estimates provided do not constitute valuation advice; it remains your responsibility to determine valuation.
The HPI is an official statistic that captures changes in the value of residential properties across England and Wales. It is published by the Land Registry, which is a UK government organisation.
Note: Past performance is not a reliable indicator of future results.
Residential property investment is a total returns product. This information is the income component only. Increasing capital values have historically driven most of the return.
- Gross Rent per year (E)
- Service Charges
- - £10,288
- Gross Rental Revenue
- = £59,312
- Gross Rental Yield
- - £36,944
- Annual Interest Payment
- Letting and Management
- Property Insurance
- Allowance for possible voids
- Maintenance Allowance
- Corporation Tax
- Dividends per year
- = £22,368
- Dividend Yield
Note: UK taxpayers are currently entitled to a £5,000 annual dividend allowance. This means that the total income related tax you pay is no greater than if you were to own the property directly. Gross rent and dividends may be lower than estimated. Tax treatment depends on individual circumstances and may be subject to change in future. See FAQs for more information on taxation. The Dividend Yield assumes an investment at the Latest Valuation.
8 flats in Norman House, Derby, DE1 1NU,