Property investment from the perspective of a middle-aged, low risk, straight talking Yorkshire landlord. Serco Insight
The other day, I was in the office and a colleague casually asked me, “Can you quickly, write a short piece about property investment from a landlord’s perspective?” Wow – no mean feat but here goes.
Those who have met me will know that my favourite metric is, Return On Capital Employed (ROCE). It is my favourite because it is honest. It measures the percentage return on my cash invested, after any mortgages and all other operating costs have been paid. Unlike Return On Investment (ROI), there is no vanity with ROCE, it is what it is and unless it exceeds a certain minimum threshold, I’m out!
On the basis that ROCE exceeds my minimum threshold I might be in, but that will be subject to some serious analysis of the micro-economics pertaining to the potential investment property.
Let’s face it, over the past few decades Landlords have been subject to significant legislative and regulatory creep. I can remember when a letting agent would manage a property for 8% and if you negotiated hard or had a few properties, that was an ‘all in’ price. Of course, it is different now with letting fees, management fees, inspection fees, fees for inventories and check-ins, the tariff of fees seems endless. Once the poor relation of Estate Agency, Property Management has now become big business.
Of course, the tax man wants his slice too, those revenues being bolstered by the removal of mortgage interest tax relief, the SDLT surcharge and the removal of indexation to name but a few.
And, of course, we also need to be mindful of broader factors, especially in the current economic landscape.
Housing Asylum Seekers via Serco, who contract with the Home Office under the AASC contract could be just what you are looking for. As a niche sector, it has its complexities, but it is more than doable, Serco already leases more than 6,000 residential properties and they need a whole lot more.
Let’s set the scene:
- 70% of asylum seekers arriving in the UK are single and as such, there is most demand for four and five bed HMO’s.
- Serco rents your property via a lease agreement, not an AST, and effectively assumes the position of both Managing Agent and Tenant meaning that all the complications that a HMO usually presents to a landlord do not exist. Also, you are not subject to any management fees.
- In terms of the lease, you receive 100% of the rent every month, whether the property is occupied or not, and accordingly you are not exposed to any Council Tax or utility costs during the term.
So, with some micro-analysis of potential locations, you can identify areas where property values are sensible and Local Housing Authority (LHA) rents are strong which often translates to 10%+ ROI. And because your operating expenses are now limited to mortgage and insurance payments and any licensing costs, your ROCE can easily exceed 25%.
Whilst it may sound too good to be true, it is not, thousands of landlords have already tuned into this opportunity. Of course, there are a few hurdles but with a little effort, research, and some good advice they are all navigable, for example, compliant mortgage finance and appropriate buildings insurance policies.
It will not have escaped your attention that there are currently tens of thousands of asylum seekers being temporarily accommodated in hotels across the UK and the forecasted numbers for future arrivals are significant. In a nutshell, there is a huge need for thousands of properties and one or some of them could be yours.
A wise man once told me that property investment is about, ‘time in the market, not timing the market’ and he is correct. What are you waiting for?