5 reasons why investing in property in Hull will create wealth

This article aims to educate the reader on the 5 fundamentals of professional real estate investing specifically focused on the town of Hull in the East Riding of Yorkshire.

The topics discussed

  1. To take advantage of
  2. Return of investment
  3. Demand for rent
  4. Stress tests
  5. Escape strategy

To take advantage of

When investing in a property, you can benefit by borrowing from the bank using the power of leverage. Typically, a purchase-to-rent mortgage requires you to deposit a 25% deposit and the bank will provide the remaining 75% of the property’s purchase price. Where else can you get them to do that? Banks will loan you money to buy a property. They are less likely to loan you money to grow your business and they definitely will not loan you money to buy stocks and shares. They understand that property remains a safe asset despite what the media says. To show you the power of leverage, we’ll show you an illustration. You have 100,000 to spend on an investment property. The following scenarios show how you can spend that money

Scenario 1: buy 1 property worth 100,000 with all your cash

Buy 1 home without a mortgage. Deposit 100K and buy the property directly. The following year, inflation raises the price of that property by 5%. The property is now worth 105K. You now have a property worth 105K and equity of 5K in that property.

Scenario 2: purchase 4 properties worth 100,000 each with a mortgage for each

You put a 25K deposit on each property and a mortgage for the remaining 75K, spending all of your 100K on 4 properties, not just 1 property this time. The following year, inflation raises the prices of that property by 5%, just like in scenario 1. Each property is now worth 105K. However, you now have 4 of them, so benefit from the 5K equity in each one. So now you have a capital of 20K instead of the 5K of scenario 1. You have still spent the same amount of money, but have benefited from the Bank’s money leverage.

2-3 bedroom properties in Hull can be purchased for between 40-100K. They offer an excellent opportunity to leverage your cash

Return of investment

The return on investment is defined below.

Return on investment = investment profit – investment cost / investment cost

In basic terms, how hard your money is working for you. You can choose to invest in a new business company, stocks on the stock market, or property. Each channel of wealth creation has its own return on investment along with the associated risk. As a professional investor, you must weigh your appetite for risk and the potential return on your investment. Let’s review the 2 leverage scenarios and examine the ROI.

Scenario 1: buy 1 property worth 100,000 with all your cash

Return on investment (ROI) is 5%, for example 5,000 / 100,000

Scenario 2: Purchase of 4 properties worth 100,000 each with a mortgage

Return on investment (ROI) is 20%, for example 20K / 100K Hull is a great place to start your real estate investment career due to the great return on investment. The reason is that property prices in Hull are among some of the cheapest in the UK. So the cost of your investment is lower. This means that not only your money can go further, that is. You could buy more properties, but each of those properties will go up in price, and if you’ve leveraged your investments with mortgages, your return on investment will be even higher.

Hull offers a better return on investment than the most expensive cities in the UK because property prices are lower

Demand for rent

Of course, an investment property only becomes an asset if you can rent it out. If you can’t, that asset quickly becomes a liability. A quick reminder on the definition of assets and liabilities

Active = puts money in your pocket

Responsibility = Take money out of your pocket

Therefore, to ensure that your investment property remains an asset, you must be sure that it is in an area of ​​high rental demand. Hull is a hidden gem of a city. It is the gateway to Europe through the ports of ABP and P&O Ferries and therefore has a thriving export / import industry. Siemens is to locate a large wind turbine manufacturing plant there, consolidating its status as a center of excellence for renewable energy technology. It is well connected by the M62 and has a large manufacturing base. The Deep, the UK’s only submarine, has also established itself as a tourist destination. The University of Hull continues to grow and has a healthy student population of around 25,000. However, due to the relatively low wages in the region, the affordability to buy a home is low. Consequently, this has led to a high demand for rental properties.

The following ZIP codes in Hull are excellent rental areas. HU5 is close to the University for students. HU7 and HU9 are ideal for families.

Financing offers

If your goal is to own 10, 20 or 30 properties and supply the deposits for each one, you will soon run out of your own cash, then how do the Pros do it? Well the answer is other peoples money (OPM). They buy their properties at the right price. Property money is earned when you buy the property NOT when you sell it. Buying at the right price – that is, below market value or BMV as it is called – allows you to refinance with the mortgage lender at the open market value and withdraw most of the cash from your deposit. This allows you to recycle your cash pot to buy another property. However, in this market, the Council of Mortgage Lenders has imposed a 6-month rule that prevents you from re-shipping unless the property has been held for at least 6 months. If you can demonstrate added value, then you have a better chance of achieving the valuation you want. On average, property prices double every 11 years. This means that a 100,000 property is worth 200,000 in 11 years. When you sell this property, you pay off the original 100K mortgage and then make about 100K profit. This means that if you bought 2 properties, you can sell one and pay off the mortgage on the other and still have 1 property with no mortgage cash flow. Using this principle, you can expand to any number of properties you want to buy. Obtaining a mortgage can be difficult in this current economic climate, but it is not impossible. The money has not disappeared. It’s just in different places. The trick is to find the people with cash.

Purchase for cash

Some properties that need to be renovated in Hull can be purchased for as little as 20K. This means you have to buy them for cash, as mortgage providers generally don’t lend below 40K. It also means you can act quickly and not have to involve mortgage lenders and appraisers in the purchase. Once you’ve restored the property, you can get a surveyor to value the property with a view to placing a mortgage and obtaining most, if not all, of your cash.

Deposit financing

You can help people with cash earn more than they get in the bank by offering them a higher interest rate for borrowing their money to fund a deposit. You can then pay your money back after refinancing.

Mortgage host

If you can’t get a mortgage, find someone else who can and offer to share a property’s cash flow. Get a lawyer to draft an agreement between you and the host. Because property prices are relatively low in Hull, there is a better chance of finding investors who are willing to loan you 10-15K for a deposit. Risks are reduced by decreasing the amounts borrowed. Once you have made a deal with an investor and made him more money, he will be happy to make another deal with you.

Hull property prices are low, leading to less risk for cash investors when financing a deal.

Stress tests

With any of your investments, we recommend that you test your investments at higher interest rates. While we enjoy historically low interest rates, it is tempting to buy a lot of real estate deals. However, interest rates only have 1 way to go and that’s up. Prove that your investment still produces cash flows at higher interest rates so that it remains an asset and not a liability.

Test your investments at higher interest rates. Hull’s investment properties continue to have positive cash flow at interest rates of 8-9% at current rental values.

Escape strategy

With any investment, it is vital that you know your exit strategies. With an airplane, knowing where the exits are is vital in an emergency. Similarly, when investing, you need to know where your exits are to get out of the investment deal in an emergency.

Sell ​​your investment

If for some reason you need to get out of an investment you can sell a property. The properties that will be easier to sell will be the most popular in that area. If you own an expensive executive single-family home in a desirable area, the number of buyers is reduced and limited to residential buyers. However, if you have a cheaper investment property, you can sell it to both investors and residential buyers. This is important when considering your investment.

Know at least 2 exits when entering an investment deal. There are many investors in Hull and due to the low prices they are also affordable for residential buyers.