How to boost your property income: tips from the experts

Whether it’s less than £100,000 or more than £1m, investing a lump sum is a big decision. But where do you start? Six experts share their top property picks for boosting your income. Jeremy Lamb, director and auctioneer, Andrews & Robertson £250,000 Look for a secondary shop and upper part somewhere in London. You would have to look around at this price but you should be able to find something with potential, perhaps to increase the size of the residential, going up or back behind the shop – or possibly conversion to residential, depending on the parade. We recently sold a shop and upper part in Erith, the shop was trading as a dry cleaners and there was a self-contained flat above. The total income was £17,400 per annum and it sold for £224,000 – a gross yield of £7.8% plus long term potential to convert the ground floor to residential. £500,000 You could look for a flat in London, perhaps in a growth area in the south east – Anerley or Penge, or at this price possibly Crystal Palace. This would probably not offer a great return but could have significant capital growth prospects. In our February auction we sold a good size two bedroom flat with a roof terrace in Crystal Palace which required modernisation, for £400,000. £1m In this price range you have quite a bit more choice and less competition. You could probably find a small block of flats, possibly part let and perhaps with a regulated tenant in place. This would offer income, the opportunity to refurbish and long term capital growth. We have recently sold a large house in Tulse Hill arranged as three self-contained flats for £930,000. This required complete modernisation but was in a very good residential area and will do well in the long term.  [caption id="attachment_883648" align="alignleft" width="847"] Tulse Hill – £1m[/caption] £2m In this price bracket I would be looking at commercial property due to the new tax rulings. I would choose something secondary with active management opportunities and producing a good return, rather than a strong covenant with a very low yield. Possibly retail with potential to improve covenants and or maximise the upper parts. £4m You could try and seek out a small portfolio or possibly a company sale. These are not always easy to find but could provide a well-balanced income producing opportunity, with perhaps some potential for further active management or break up opportunities. In our February sale we sold a mixed use portfolio in Streatham. This comprised 11 properties, with a mix of retail and residential in a popular growth area with the opportunity to significantly increase the income or possibly look at residential development angles. It was sold for in excess of £4m. Robin Rathore, Founder, Bamboo Auctions £100,000 A lot of properties that find their way into the Bamboo Auctions marketplace are priced under £100,000, and I believe we are going to see the number of properties in this price range increase over the next 12 months. Most of these properties are in the midlands and north, and although they may not return as high capital appreciation (particularly in and around the BB postcodes) as London, they offer excellent return on investment, with some residential properties offering yields as high as 15%. Some of our auction partners, including SDL Auctions and Loveitts, often list properties online that fall into this bracket and they are well worth a look – particularly as they’ll fall within a more amenable SDLT tax threshold. £250,000 Stamp duty is going to kick in for residential property purchases over £125,000, and if you are buying a second property, this will increase your rate to 5%. That said, there are still plenty of opportunities for someone with this budget. If you are looking to buy in London, I would look to the outskirts – Croydon is pushing to become a “tech city” to rival Old Street, with its self proclaimed title “Silicon Valley of South London”. London and its conurbation isn’t the centre of the world. With the next generation of home buyer and investor being pushed out of London, opportunities in the Northern Powerhouse or Midland Engine cities are going to pass you by if you narrow your sights purely on London. £500,000 With this budget, your options start to widen. You’re now in the market for residential property in London. You should be able to find flats in period conversions in Stockwell, Clapham and Balham, which can usually be rented out straight away. Yields in these areas are of course lower than outside London, but void periods are rare, such is the demand from young professionals to be close to the Northern Line. Want the buzz of developing? There’s plenty out there and you might pick up an unmodernised property in Streatham, Balham or Tooting, which, with some development capital could return a decent price on exit. £1m plus With this kind of budget at the ready, London is your oyster. You’ll be able to find a property to let in London and you may even choose to invest in multiple residential properties to spread your risk. Unless you are experienced, I would avoid HMOs – they can be difficult to manage and there are new rules coming into effect this year which will widen the scope of HMO licensing requirements. If you are looking to maximise yields, I would instead look to the commercial market and invest in one or a series of commercial properties with blue chip tenants and longer leases. You could also look towards investing in whole commercial buildings which have scope for development. One of our auction partners, Clive Emson recently sold a freehold self-contained office building in Essex, for just over £1.2m by online auction. I’m sure it will prove a very good investment over the next 12 months or so. Jamie Cooke, managing director of IAM Sold Under £100,000 For high rental yields and a good return on investment, densely populated towns and cities in the North of England have an abundance of properties under £100,000 that are ripe for renovation. Newcastle, Leeds and Bradford have a particularly strong turnover of stock and typically offer a profit margin of 15-20%. With possible yields exceeding 15% depending on location and number of bedrooms, I would opt for a buy-to-let here.  £100,000 – £200,000 Typically resulting in lower rental yields in the buy-to-let market, but providing longer term, more secure tenants with less void period and property maintenance. Buy to resale could see a decent profit in this price range, resulting in sales at the current UK average of £214,000. Areas like East Manchester, Norwich and Sheffield are low risk in resale return, with these locations proving particularly popular for working families. £200,000 – £350,000 Buy-to-let is likely a low yield in this price bracket unless purchasing buildings with a view to converting into an HMO. However, licensing in certain areas of the UK has become highly restricted, so it’s worth checking with the local authority on HMO licensing. There are a lot of properties available on sizeable plots, and buying at £200,000 with scope to develop a second property on the plot can be a good option to maximise return, pending consultation with local planning departments. Premium areas of Yorkshire (Harrogate, Wetherby, York and Richmond) as well as booming tech locations such as Cambridge, can be great investment locations within this price bracket. £350,000 – £500,000 In this price range, development sites with opportunity to build multiple properties would be a good option, but it is a capital rich investment. The average three bedroom semi-detached property covers a plot size of approximately 90 sq m, so with building costs in the region at approximately £800-£1,000 per square metre, investing in a plot of land with room for four properties could see a good return. Investors may be tempted with annual capital growth to invest in London property, but there are plenty of alternatives to secure more property for your budget. For example, North Oxford, Chelmsford, Brighton and St Albans are all within easy commuting distance of the capital, and provide a great location for couples looking for a starter home and strong returns. £500,000 plus With a budget exceeding £500,000, those looking to invest are spoilt for choice across the UK. Period properties with original features are very “vogue” at the moment, with a lot requiring remedial to extensive renovation. Cities like Edinburgh, Oxford, Chester, Durham and Bath are all soaked in fantastic architecture and high buyer demand. Ian Kitson, director, Cheffins Property Auctions, Cambridge £250,000  At this level I would look to purchase a safe investment such as a buy-to-let property in somewhere such as Bury St Edmunds, Ely or another Cambridge satellite town. These can offer approximately a 4 per cent rental yield, which whilst it is slightly lower than yields in other areas, there is guaranteed capital growth making this an assured investment. It would be difficult to buy in Cambridge city itself with this level of investment, however many of the region’s smaller towns are seeing levels of capital growth which are rivalling Cambridge itself. £500,000 For this amount, I would purchase a residential property in need of renovation which had scope to add value. We have seen an increase in these types of lots in recent years and they have often proved to guarantee strong capital growth returns. We recently sold a large property on the outskirts of Cambridge, close to Addenbrookes Hospital, for £430,000 which needed refurbishment. It had potential to be worth around £500,000 once updated, whilst also offering scope for a rental income. We would recommend buyers always visit residential properties with a surveyor and a builder to cost any potential structural work which could reduce final profits. [caption id="attachment_883652" align="alignleft" width="847"] Cambridge – £500,000[/caption] £1m Looking to larger, commercial investments with high level rental incomes from established tenants would be the safest investment at this level. We recently sold a freehold mixed-use building in Biggleswade, Bedfordshire which achieved £1,055,000 against a guide of £900,000, making it the record hammer price ever recorded at a Cheffins property auction. Generating an annual income of £50,000 from established tenants, the property saw competitive bidding within the room, eventually selling to a local investor. Well-known high street brands are the safest tenants and this property had two retail units which were let to SpecSavers and Subway. I would recommend that investors look to rent retail to well-known brands as it offers increased reliability and less risk of void periods. I would also always look to purchase a property such as this in an up and coming location which is likely to be better value than in more established areas, therefore offering greater initial rental yields, and also likely to see rent rises. £2m At this point, as a savvy investor, you want to start building a portfolio to spread your bets over multiple property types. I would recommend splitting this into three or even four purchases. Start with a strong buy-to-let property in Cambridge city centre at around £500,000 with a rental yield of around 3 – 4 per cent. Then I would buy a commercial premises in Cambridge, such as one which we recently sold on Chesterton Road for £484,000 which offered a retail element, residential flat above and possible extension STP, all of which gives a good blend of yield and flexibility. The remaining £1m I would use to buy a development site and either build out the units and sell them off or retain them for rental return. For example, last year we sold an old police station in a village close to Cambridge which made £268,000 and had planning to build two, substantial detached properties. Depending on spec and size, these could be built out and sold on for anything up to around £900,000, thereby offering some further profit for the committed investor/developer. £4m With this level of capital to spend, an investor could build a strong and diverse portfolio in the eastern region. Typically I would be tempted to buy two or three residential properties in up and coming, secondary locations such as Peterborough or Ipswich for up to £250,000 a piece. I would then spend approximately £1m on two commercial premises in Cambridge which will offer a lower yield but a higher capital growth, ideally with established tenants. With this safety net established, I would consider speculative propositions with the remaining funds. Higher yields are available in secondary and tertiary locations, for both residential and commercial property. As with all investments it must be considered that higher returns often mean more risk (which could be larger potential void periods or lower prospects of capital growth), but these risks are balanced by the earlier purchases. The remaining money could be spent on land lots which have the potential for growth if planning permission for development could be achieved, or those that might give tax advantages. Currently, arable land can be obtained for approximately £8,000 per acre, but bear in mind that for this option there would be costs attached to land management, however it could give an investor a strong foothold in one of the fastest growing and most sought after regions of the UK. Similarly, East Anglia and particularly the areas surrounding Cambridge are suffering an acute housing shortage and as a result more and more farmland, amenity land and brownfield sites are being granted planning permission to be built out, which is earning landowners significant sums for varying sizes of land parcels. James Wilson, partner at Allsop, Residential Investment & Development, Leeds £250,000 A 2 or 3 bedroom house within half a mile of Kirkstall Forge development in West Leeds. The property would attract very good interest from renters due to proximity to the new railway station and access to Leeds city centre. There are also very good capital growth prospects as the development progresses. £500,000 A small portfolio of either flats or houses in north, west and/or south west Leeds (be wary of onerous ground rent provisions and short leases when buying flats). These areas have experienced consistent capital growth in recent times and rental growth is set to follow suit. £1m This is prime located student property, refurbished to a high standard, comprising up to 20 bed spaces located in Leeds, Manchester or Liverpool. Easy to manage with net returns of between 7%-9%. Allsop recently sold a refurbished student property with 22 bed spaces for £982,000 in Hyde Park, a prime student letting area for Leeds university students. The sale reflected a net yield in the region of 7%. £2m  A well located freehold block of flats with up to 25 units with potential to increase rents and value through active asset manage. Gross yields are typically between 6%-8% with discounts of up to 10% from aggregate vacant values depending upon location and quality of stock. Allsop recently sold a block of 24 apartments in Burton upon Trent, fully let, generating an income of £145,380 per annum. This reflects a gross yield of 7.3% and a discount of approximately 10% from the aggregate vacant values. [caption id="attachment_883654" align="alignleft" width="847"] Burton-upon-trent – £2m[/caption] £4m With this level of investment it would be wise to spread risk, such as with a well located, mixed use freehold comprising ground floor retail with good covenant strength and five plus years remaining, unexpired and residential uppers. Net returns in well established northern towns typically range between 6%-7%. Jesal Patel, director, auctions and development, Prideview Group £250,000 This budget is really the entry level for commercial property investment, and you have to look nationwide if it’s a solid covenant you want. Examples of investments we have helped private buyers acquire this year include a small town centre McColl’s on an unbroken 16-year lease in Lincolnshire (ca. 6.5% yield), a Pizza Hut franchise in a new housing development near Gloucester, with 8 years remaining (ca. 7%) and a new Costa Coffee franchise on a Devon high street with a 10-year lease (ca. 6.5%). £500,000 With a slightly higher budget you can begin to look at Greater London. Two nice buys at auction this year include a high street Card Factory on a 10-year lease in Pinner, north west London for £590,000 (5.9%) and a Banana Moon Nursery franchise within a residential building in Greenwich, south east London, on a 9-year lease for £520,000 (7.2%). Further afield, we sold a Spar on a 10-year lease in a small village in north east England in Allsop’s February auction for a solid £377,500 (6.6%). £1m Blue chip, lock-up investments with minimum 10-year leases or whole buildings with mixed-use or asset management potential would fit this bill. We just acquired an off-market, lock-up unit in a new Southampton residential development, let to Tesco Express for 10 years for a first-time buyer for just over £1m (nearly 7%). A more interesting buy was a Co-op Food near Birmingham, let for 10 years but already vacated by Co-op. We acquired this for a yield-hungry buyer for under £1m and ca. 10%; on expiry he should collect a good dilapidations cheque and then review his options. Finally, we sold a mixed-use asset in Harrow, north west London, in the Barnett Ross February auction, for £705,000 (4.8%). The property comprised four shops let to independents with a flat above and potential for another flat. The competitive bidding for it demonstrated the appetite for mixed properties where the residential buy-to-let tax changes do not apply. £2m At this level, you aren’t really competing with either former buy-to-let investors or institutions, so this is a key focus area for Prideview. What we want are solid, clean investments not priced at crazy yields or properties with some short or medium term development or value-add potential. In January we acquired a Caffe Nero and Wenzel’s bakery in Rickmansworth High Street, north west London, both with 10 years remaining on the lease, for £1.5m (ca. 6%). We also have a nice pub on a large plot in Ipswich let to Spirit Pubs for seven more years currently available for around £1.5m (ca. 7%). We also recently acquired a vacant pub in Muswell Hill, for under £2m which could be re-let or the use class changed or the property redeveloped. £4m Unbroken parades, offices with development potential or institutional grade investments are all possible if you possess this finance. We recently acquired a Wilko in Barrow-in-Furness town centre, north west England, in the Acuitus March auction. It’s a substantial purpose-built, 35,000 sq ft building let for 13 years, good value for around £3m with a yield of 8%. An investment with medium-term, value-add potential is a petrol station in Tipton, West Midlands, which we bought for around £3.5m (ca. 6.5%) with 12 years remaining to a major petrol station operator. The property includes a large swathe of disused land which could be redeveloped in future. Finally we recently acquired a vacant office building with planning for residential conversion in Harrow, north west London, for a developer who will immediately begin a luxury scheme there. Photo credit: ©Rex:Shutterstock This article appears in EG’s Property Auction buyers’ guide. To read more about how you could grow your wealth through auctions, you can register for immediate access. Hear from experts as they share their top tips to boost your income, self-taught property developer Sarah Beeny on how she got started and whether you should join the new army of investors switching from residential to commercial property.