Tuesday, Jun 19, 2007
seems like he has covered everything except a housing slump
TELEGRAPH UK: Master of home economics
The figures for Julian's portfolio are enough to make even hardened buyto- let investors wince. His mortgage is a little over £25 million, and expanding, even though he says the typical rental yield on his properties has fallen from 20 per cent in 1996 to as little as 6 per cent today.
Posted by out of control speculators @ 11:05 PM (150 views) Add Comment
2 Comments
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1. bidin'matime said...
Sounds impressive, but he should have stopped buying years ago. If we assume that the students pay rent for 10 months a year (probably optimistic) then we get £2.1m. He employs half a dozen people to ‘drive round’, so we have wages and travel costs of at least £100k. 140 properties with an average annual maintenance cost of at least £500pa and perhaps as much as £1,000pa on top of the wage bill (“we do get a lot of doors kicked down. Most of it is drunken tomfoolery. Flat roofs are a big problem, too. As far as students are concerned, a flat roof is a barbecue area. We've had at least one barbecue which fell through the roof.") – lets call it an average of £750, which gives us another £100k for maintenance costs.
Then there’s insurances, replacing furnishings, rent collection costs, etc, etc – say another £300 - £400pa per property, or around £50k in total.
That leaves £1.85m for mortgage costs. £25m @ 6% is £1.5m, leaving him a tidy profit of £350k pa. and good for him – from people I know with student houses, it’s not easy money! However, as interest rates edge up, it becomes a different story…
At 7% the interest is £1.75m, which takes a whopping quarter of a million off his income. By the time they reach 7.5%, he’s making a ‘small’ loss of £25k. If they reach 8%, he’s having to sell properties to cover his £150k loss. Then he will face the question – who will buy the properties at prices which, by that time, will be producing rents far below the mortgage cost of buying them? Answer – no one. He will have to heavily discount them and chase the market downwards.
Having started in 1996, he will probably survive if he can sell enough fast enough, but if he loses sight of the main objective – to make money – and becomes ‘emotionally attached’ to his business, as so many do, he will probably see selling houses as failure and hang on too long. “I think it is about 130 to 140 properties now," he says, "but I've been on a buying spree this week so I'm not sure.” This suggests to me that he’s lost sight of the bigger picture – he should be selling some to pay down his debts and secure his financial position while the market is high. But do we have any sympathy for him…??!
2. Orwell said...
"...The chief advantage of student letting is the number of tenants you can squeeze into a property. There is a simple rule, says Julian..."
Mmmmmmmmmm so many people like tin sardines...
This man needs to be put down and his remains handled as toxic waste because even feeding him to a higher form of life like an amoeba might poison them.