Our latest strategic provincial acquisition has a strong investment case with a forecast total return of 48% over 5 years. By agreeing to buy thirteen flats in a single transaction, we’ve secured a 10.9% discount to the price of the individual units. The exit strategy for this investment will be to sell the flats individually to realise the full discount for investors.
This investment comprises 13 fully tenanted two-bedroom flats situated in Birley, and offers a strong dividend yield. Designed for modern, stylish and comfortable living, these attractive flats are a mere 3.7 miles from Sheffield city centre, which is easily accessible via a short thirteen-minute walk to Birley Lane Tram. Boasting major international names including HSBC, PwC, Rolls-Royce, Nestle and Amazon, and with an economic output of over £30bn a year, the outlook for Sheffield City region is very positive. Moreover, the Government has confirmed that Sheffield city centre will be directly connected to HS2 and Sheffield Midland Station, meaning significantly improved access to London and other major cities. These factors should continue to result in strong demand from commuters over the long term.
View a short video from our Director of Property to learn more.
- The investment comprises 13 flats in Birley Moor Heights, Sheffield. We are purchasing the properties at a 10.9% discount by buying in bulk 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 properties individually rather than as a single investment, thereby realising the discount that we have secured from buying in bulk. Being 13 flats in a well-established location, they lend themselves to individual sale
- Leading research agencies Savills, Knight Frank, JLL and CBRE, have predicted house price growth in the Yorkshire & The Humber of 17.6%, 13.1%, 14.2% and 13.1% respectively, over the next 5 years (correct as of 17/11/2017). The average of these predictions is 14.5% and once geared by the mortgage debt would deliver 5-year capital growth of 27%, based on selling the flats individually. Once the dividend yield is added, this would equate to a total return of 48% over a 5-year period after deducting all costs of purchase (including the initial Property Partner transaction fee) and accounting for corporation tax on the capital gain, if the properties were sold at this value. The enhanced rental income promotion is paid in addition to these underlying returns
- 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. For your information, we have chosen to offer this investment on a mortgaged basis, because doing so increases the forecast 5-year total return from 32% to 48% and increases the annual yield by 0.72% p.a
Investors will start accruing dividend income from the day they commit to investing in the property. Contracts are due to exchange in the next few days with completion scheduled 5 weeks later. The resale market for this investment will launch the following business day after completion.
Our investment comprises 13 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 £1,216,500 for these properties versus a Chartered Surveyors Valuation of the units if sold separately of £1,365,000. 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 13 units is £88,560 per annum. The number of vacant units 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 6.50% and the forecast Dividend Yield 4.32% (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 will be provided by a major high street bank with an anticipated 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 are being acquired in good condition, and the Chartered Surveyor's report identifies no material issues. We have set aside a contingency of £23,000 for any issues that are identified after purchase. There is also a total provision of £1,950 for furnishings.
The flats are held on a high-quality leasehold basis, with over 170 years remaining at a peppercorn ground rent (effectively nil rent).
This transaction was approved by our RICS qualified Director of Property.
The investment comprises 13 two-bedroom flats.
There is allocated parking available for tenants.
We present here floorplans for 2 of the flats as examples.
- Share Valuation
- House Price Index
- Rental Income Breakdown
- Funding Target
- Share Valuation
- Purchase Price
- Purchase Costs
- Stamp Duty
- Legal & Prof Fees
- Pre-let expenses
- Repairs Provision
- Mortgage Arrangement Fees
- - £614,333
- Funding Target
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
- - £9,438
- Gross Rental Revenue
- = £79,122
- Gross Rental Yield
- - £48,409
- Annual Interest Payment
- Letting and Management
- Property Insurance
- Allowance for possible voids
- Maintenance Allowance
- Corporation Tax
- Dividends per year
- = £30,713
- 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.
13 flats in Birley Moor Heights, S12 4WG,