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London Calling

Wednesday 10th October 2012

Property investor Neil Young, who has accumulated a private property portfolio collectively worth around £10m, talks about his ‘buy to hold’ investment strategy.

Qualified accountant, Neil Young, has over 10 years experience in global corporate finance having worked with companies such as Thomson Holidays and British Airways. In 2000 he was appointed European chief financial officer at Highland Partners, before leaving to found Young Group, a property investment firm.

Neil initially had his appetite for investing in property whet in the late 1990s after seeing the value of his primary residence, a two-bedroom apartment in Ealing, west London, post strong capital gains not long after he had purchased the property in 2007 when he was in his mid-twenties.

This was augmented by an attractive rental income when he decided to let the property out in late 2008 and move to Hong Kong for work purposes for a short period before moving back to London. A brief stint living abroad did not stop him buying another property back in England.  

Neil says: “I learnt a lot about investing in properties during my time in Hong Kong as it is a bit of hobby to many people living out there, and so I decided to buy my second home in London in the early spring of 2009.”

Flipping easy way to profit

Neil’s second property investment was a one-bedroom apartment at Butlers Wharf in Shad Thames, South East London, which he bought during the off-plan stage of construction through Galliard Homes for £80,000. The residential unit made him a rather handsome profit in a short space of time.

“The off-plan property increased by just over 50% in the space of just six months, and so I decided to cash-in before completion of the development and sell the residential unit for an inflated price of £125,000. There are good profits to be made from buying properties off-plan – even in today’s market.”

Neil has gone on to buy a few off-plan homes from house builders over the years, and has, every time, bought each property during the earliest stage of construction, with a view to achieving greater capital growth during the various build phases.

“I have always purchased off-plan units as early as possible, sometimes before any building has taken place, even before final planning permission has been granted.”

‘Buy to hold’ investment strategy

“The off-plan apartment at Butlers Wharf in Shad Thames which Neil bought from Galliard Homes and sold-on was one of only two properties that he has ever sold, with the other dwelling - a terraced house - located in Hendon.

“I sold each property for good profits. However, I have not sold an investment property for about 10 years because by and large my main property investment strategy is to buy to hold for the long term.”

Neil, who now has 25 homes in his portfolio, points out that buying and selling homes costs money in fees and taxation and so he has adopted a plan to hold all of his properties for the long-term until retirement age and possibly never actually sell them.

“Buying and selling homes costs money; transactions costs, mortgage fees, stamp duty, estate agent fees, which would eat into a large chunk of my profits. That’s why I view rental homes as a source of income for my pension and something that I could potentially hand down to my children.”

London property market: Neil’s ‘10 minute rule’

Geographically, all of Neil’s investment properties are located in London, where prospects for capital growth are generally good, although rental yields tend to be far lower than those achieved elsewhere in the country. He says he would not consider buying outside of London or even abroad as it does not fit in with his strategy.

“I specifically buy homes in London because it is a world city, with a great deal of demand. I strongly believe it has good future growth prospects, plus I am from London, lived in the capital most of my life, and know it reasonably well.

Neil has adopted what he refers to as his “10 minute rule”, which means that he only buys homes located within close proximity to good transport links and amenities.

“I’m primarily only interested in properties that are situated within 10 minutes walking distance to good transport links, particularly a tube station, food stores, bars and restaurants, as these facilities are generally in high demand from tenants.”

Property types

As far as the types of properties that Neil buys, he says that he generally aims to buy one or two bedroom apartments near either zone one or two London underground
stations, because they are generally in greatest demand and therefore easiest to let.

“Most properties set in travel zone one or two generally abide by my ‘10 minute rule’. I own homes in a wide range of places which I have bought either through an estate agent or house builder, but I have never gone down the property auction route.”

Neil has a balanced mixture of primary and secondary residential units in his portfolio, with homes located in a wide range of destinations, including Kings Cross, Chelsea, Dalston, Paddington, St John’s Wood, Canary Wharf, just to name a few.

Gearing: Using mortgage finance to maximise ROI

With regards to leverage, Neil, like many property investors, believes in using high loan-to-value (LTV) mortgages in order to maximise returns on investment (ROI) when buying properties.

“As far as LTV and mortgage terms are concerned, it all depends on circumstances, the type of property I am buying and what mortgages are on offer. But I generally look to use as much debt as possible.”

“During the height of the property boom I was borrowing around 85% LTV. But with mortgage lending conditions now tougher, I would now expect to have to put down a cash deposit of at least 25% of the property’s value.”

With interest rates at a record low, many buy-to-let property investors have benefitted from cheaper mortgage payments, but what borrowing terms has Neil generally committed to?

“Back in 2008 I moved all my mortgages to trackers, so I have benefitted from ultra low interest rates.”

Rental returns

Although capital growth has been rather strong in London in recent months, Neil, like most landlords, is keen on immediate income generation. In other words, getting good rental returns and minimising the void periods between tenants.

Neil says that properties in his portfolio are currently achieving an average annual rental yield of around 6%, which is typically the sort of return he would look for on ant new property investments. This sort of rental return is not to be sniffed at, given that it is higher than saving rates available in high street banks, not to mention the fact that the fact that some of Neil’s homes are situated in prime London locations which generally yield a lower rental return.

“It is difficult to know which properties offer a minimum and maximum rental return in my portfolio. This depends on of each property’s value. Usually higher value homes have lower gross yields. I have a few units in Chelsea, which have among the lowest yields in my portfolio [but generally offer better prospects for capital appreciation].”

Capital growth

Neil reports that the 25 homes in his portfolio are now collectively worth around £10m, with outstanding mortgages of £7m, suggesting that he is 70% geared through borrowed capital, giving him approximately £3m in equity, based on today’s market valuations.

“As I view my portfolio as a long term hold I do not worry overly about valuing my portfolio that frequently. In 2008, I acquired a number of properties that were financed on tracker mortgages which have turned out to be very good investments.”

Future expectations

As far as the residential property market is concerned in the short to medium term, Neil expects the market to remain relatively stable, which he says will suit his plan “to hold and grow my property portfolio”.

He adds: “I anticipate a steadier market, without the extremes [wild property price changes] that we have seen over the last five to 10 years.”

Professional business: Helping hand for other landlords  

Neil founded the Young Group a few years ago in order to help other landlords maximise returns from the residential property investment sector.

Essentially the Young Group advises and assists investor – large and small - to invest in the private rented sector (PRS) and asset manage their properties in the sector.

“We started the company because people saw the investments I was making personally and wanted me to do it on their behalf. The aim was to offer a way for busy people to invest long term in residential property through an organisation who take the hassle away from them and give good advice.”

Neil, who is now regularly asked to share his views on the property sector with the national press and broadcasters, advises: “[When investing in property] do your research and think long term.”

              

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