Financing an Investment in Residential Property

I am pleased to say I am having many more serious discussions about investing  in residential property.

Last year whenever a discussion begun regarding investing, there was a bit of a game, nobody wanted to admit they did not have the appetite (or the money) to invest, but it was clear most were firmly on the sidelines.

This is supported by the statistics in my blog regarding only 2% of funds announced in 2009 being raised – click here.

There are currently certain portfolios that are doing the rounds and being looked at by many corporate investors.

For example, Bank of Scotland have put the portfolio of property bought through Grant Bovey’s failed Imagine Homes property business (mostly held in the Veritas portfolio) up for sale.  This portfolio has a wide range of capital values, rental levels and locations.

In my opinion this was a portfolio built up through some kind of flawed financial modeling rather than a clear strategy supported by research and due diligence. Corporate investors are obsessed by the gross to net figures (this means what costs are incurred in running a portfolio, such as service charges, property management fees etc.). IPD (Investment Property Databank) recently reported on the portfolios they analyse gross to net costs represent about a third of gross yield.

I would expect for the Imagine Homes portfolio this will be higher, as the portfolio is so widely spread with relatively low rentals. I think the angle here will depend on how desperate the bank are to sell.

The fact that these types of portfolios are being put on the market further supports that there is serious interest in investing in residential property again.

This interest is not limited to corporate investors, I am seeing interest from private individuals as well.

Clearly, this is good news as the scarce resource currently is funding.

There is though some hesitation on what a good opportunity looks like.

Any views?

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About Neil Young
Chief Executive, Young Group

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