A Sunny Spring for NE Property Sector

Monday February 11, 2013

We seem to have become hardened to a gloomy economic outlook here in the north east. Triple dip recession, ghastly interest rates on savings, underperforming pensions, an uncertain stock market… and then it snows. Fortunately there is a ray of Spring sunshine out there in the shape of the local property market.

The local property market is changing and for investors, it is a change for the better. The principal drivers of this change are students and young professionals. Students now have the option of renting an apartment in the purpose build student accommodation blocks that are springing up in our city centers. Young professional are increasingly opting to rent rather than buy. These two factors have led to demand for high quality lets which shows no sign of diminishing.

Slightly run-down properties that were once home to the ubiquitous student flat are being refurbished to meet the demand for quality accommodation from young professionals. This demand is sustained as the student of today becomes the young professional of tomorrow, an increasing number of whom are choosing to live and work in the region they came to love as students.

An average property fitted out to a high standard will yield between eight and ten percent in the north east and with sound management this yield can be improved. We recently bought a distressed property in Heaton on behalf of a client for £124,000. We spent a further £14,000 refurbishing and furnishing the house. Since we were managing the letting, three of the five rooms were let before completion of the work and on completion; the bank valued the property at £165,000. Monthly rental of £1,400 covered the mortgage and showed a yield of 12.2%. It is hard to imagine another long term investment which would show such a return.

The current hot areas for investors are Heaton and Sandyford since they offer a number of properties where money spent on refurbishment will show an good return on investment. Both areas have excellent transport links, good restaurants, pubs and quirky little specialist shops. Easy access to Jesmond Dene and Heaton Park is an added bonus for young professionals. It is possible to walk or cycle to the centre of Newcastle with 80% of the journey through green spaces.

One secret for success in property investment is to develop a business plan for the property. Ask yourself who is your ideal tenant – student, young professional, family or a mix of tenants sharing a larger property? Once you know who you are aiming to please your refurbishment should reflect their needs and aspirations. Project management is an essential part of the plan with trade following trade up to the point where carpets and furniture put the finishing touch in place.

A well managed property in the lettings sector can go some way to offset the groan as you open your morning paper to yet another economic whammy and it should bring to mind the words of Mark Twain who said “Buy land. They’re not making it any more”.