Case Study: Advising on Buy-to-Let in Swansea

Case Study: Advising on Buy-to-Let in Swansea

Hannah McCartan
25th January 2017

Back in June last year (whilst heavily pregnant), I was approached by one of our landlords to help look for a second buy to let investment for him and his wife.

There are no surprises to those of you who know me as to how excited I was to receive an email full of links to property brochures, a welcome distraction to waiting for our son to arrive!

The brochures showed properties ranging from £95,000 to £135,000, covering Fforestfach, Llangyfelach, Gowerton and, more centrally, Swansea Marina.

There were lots of pros and cons to each property, but the first thing we looked at was yield: what could each property achieve in the current market, and based on the purchase price (reduced by £5,000, to reflect an offer being accepted), what would the yield be?

From there, we looked at supply and demand in the area, and what type of tenant each would suit. We looked at the location in terms of what that prospective tenant needs and wants were, and then weighed up which property would be best suited to what the landlord wanted to achieve from his property investment.

Yield vs Capital Growth

The highest yielding property was in Fforestfach. Being close to the retail park and the main arteries into the city and the M4 for work, it lent itself well to the young renters market, but as it wasn’t in the nicest of locations, there wouldn’t be much by way of capital growth on the property.

In my experience, the location also tends to attract a lot of housing benefit enquiries, which this landlord wasn’t interested in.

The second was a property in Llangyfelach; though more expensive to buy in this location, the rent would also be higher, so it came in at a reasonable 6.2% yield. We felt that this property would hold its value due to the level of professional employment in the area and its proximity to the M4, DVLA, and Morriston Hospital.

The 2 bedroom property in Gowerton came in with the lowest yield at 5.8%. The location was very family-friendly, and a new primary school in the area would boost its desirability, but we concluded that most families would probably prefer a 3 bedroom house instead of 2 (which this one and all the others we had considered so far were).

I was familiar with this particular estate, too, and knew it was leasehold, which is not ideal when purchasing a house as it affects future values, and the charges associated could increase without warning.

Wild Card

The wild card amongst the pack was a really lovely looking apartment in Swansea Marina with a great aspect-yielding potential of 7.57%!

It seemed too good to be true, and on closer inspection and thought, we realized we needed to factor in the high service charge that apartments in the Marina have. After wiping off an estimated £100pcm for the service charge, the yield dropped to 6.3%.

But there was more to consider here: ideally the flat should be furnished, which raises more issues. There would be, of course, the initial outlay for the furniture, without the benefit of the 10% wear and tear allowance offset against tax, which has now been removed. Council tax at the full rate and on a daily basis would be due for each day the property was not tenanted, and furnished properties also have a tendency to have a higher turnover of tenancies.

Finally, the listing didn’t mention parking. Flats in Swansea Marina without allocated or permit parking have proven very difficult to rent, in my experience.

The Decision

The landlord decided to pursue the property in the Llangyfelach area, and was delighted when a cheeky offer was surprisingly accepted, (I always recommend going in lower than you think is reasonable as you never know!), increasing their yield to close to 6.5%.

The property was in excellent condition, and only required light cleaning and redecoration before it went on the market to let. Within 24 hours of it being marketed, viewings had taken place, and it had been let, in principle, to the first viewer. A professional, she fitted the landlord’s requirements exactly, and is all set to be moving into the property next week.

If you are looking to invest in Swansea, why not pick my brain for free and benefit from my experience of the Swansea letting market and where the best places to buy for you are!

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