Ex-Council Property – A Sound Investment?
With limited financial resources, an ex-council property can seem like the
perfect solution. However, is buying an ex-council house a worthwhile investment
for budding property investors, or is it simply a money pit that is more hassle
than its worth?
House prices are on the up and, despite many doom and gloom merchants fearing
the worst, it seems that the market is going to continue to rise over the long-term.
With this in mind, it can be difficult to raise the necessary money to finance
your property investment plans. Some of the cheaper properties are ex-council
houses and it would seem that these, in many instances, offer good value property
with decent rental and capital returns. So what’s the catch?
Rental returns
Rental returns on ex-council properties are rarely as high as they would be
on a similar sized privately built flat in the same location. Whilst the stigma
of an ex-council house will not bother renters as much as it would a purchaser,
there is still an element of refusing to pay the same for what is seen as a
second class property. That said, ex-council property often offers the exact
things that professional tenants are looking for. Most ex-council properties
have larger rooms than one would find in a private development and, in many
cases, public transport links have been improved to accommodate the large number
of people living in the area.
Bear in mind that council estates are often found in areas that are generally
considered as coveted and extremely affluent. Stephen Ludlow, from Ludlow Thompson
states: "The council estate of Sullivan Court in SW6 sits snugly at the
heart of Fulham, the home of the green wellies and Range Rover set."
Despite all of this, rental returns remain on average, 15 percent lower in
ex-council properties than they do in privately built properties. Before you
walk away from the idea of going ex- council, consider that despite the lower
rent, there is almost invariably a lower purchase price. This means that your
actual returns are likely to be as good, if not better than those on a privately
built flat.
Dr. Kanak Patel, an experienced property investor believes that purchasing
ex-council property as an investment makes excellent commercial sense: "You
can charge 80% of a period property’s rent, for a property which cost half
the price. It makes great business sense. For the landlord, it means a great
yield on a readily lettable property with exceptionally low out-goings. It
is also a myth that capital values increase at a lower rate - quite the opposite
as more people become aware of the high yields on offer".
Similarly, those who do their homework can really stand to gain from purchasing
ex-council property, as in many cases the areas that are selling privately
are also being invested in heavily. By selecting an area that is ‘on
the up’, it is possible to see a long-term capital growth which outstrips
that of the market in general.
Given all of this, why aren’t more people investing in ex-council property?
Reluctance to invest
On a practical level, the reluctance to invest can largely be attributed to
the large financial institutions that traditionally have been hesitant to offer
mortgages on ex-council property. In many cases, this is still true and more
time and effort may have to be spent to get the mortgage deal that you need
to make your property investment venture viable.
As a general rule, high rise buildings are not a sound option for mortgage
lenders, with most of the large institutions being reluctant to offer financing
on any flats higher than the fourth to sixth floor. This trend has deteriorated
somewhat in recent years; however, you may still find that the ‘best’ property
investor mortgage deals are not available when it comes to your dream fifteen
storey block! Some of the banks that treat ex-council property (as well as
other more unusual property) favourably include Nat West, Royal Bank of Scotland,
Abbey, Halifax and HSBC.
Bear in mind as well that some mortgage companies may look for factors of
desirability such as what percentage of the property is privately owned. This
is mainly due to the fact that resale may prove more difficult in the event
of default. Many mortgage companies will only consider properties where at
least half of the block is privately owned. Even if you can find a mortgage
provider in more unusual circumstances, it may not be at a favourable rate
and this should be considered when you calculate your total net income.
Another potential pitfall can be the maintenance charges. As with many blocks
of flats, individual owners are often liable to pay their share of any overall
maintenance bills. Before purchasing, find out exactly what you are liable
for and the state of repair that the building is in. It is not uncommon for
someone to purchase a flat only to find that they have to cough up a further
25 percent of the asking price simply to meet a repair bill.
No guaranteed returns
Ex-council houses may be a superb way to beat the market and to find undervalued
areas that are on the up. In many cases, there are good rental returns and
a low initial outlay. Nevertheless, ex-council property is certainly no guaranteed
cash-cow, and property investors considering this tactic should make sure that
they arm themselves with all the facts before parting with their hard earned
cash!
Popularity: 6% [?]
