5 Reasons Why Investing in Property in Hull Will Create Wealth

This article aims to educate the reader on the five fundamentals of professional property investing, specifically focused on Hull in the East Riding of Yorkshire. When investing in property, you can benefit by borrowing from the Bank using the power of leverage. Typically, a buy-to-let mortgage requires you to put a 25% deposit down, 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 lend you money to buy property. They are less likely to lend you money to grow your business and will not lend you money to buy stocks and shares. Despite what the media says, they understand that property is still a safe, secure asset. To show you the power of leverage, let’s 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 – Buying one property worth 100K with all your cash

Buying one house without a mortgage. Put down 100K and buy the property outright. The following year inflation raises the price of that property by 5%. The property is now worth 105K. You currently have a property worth 105K and equity of 5K in that property.

Scenario 2 – Buying four properties, each worth 100K, with a mortgage on each

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

2-3 bedroom properties in Hull can be bought for between 40-100K. They offer a superb opportunity to leverage your cash.

Return on Investment

The return on investment is defined below.

Return on investment = Gain of Investment – Cost of Investment / Cost of Investment

In basic terms, how hard is your money working for you? You can choose to invest in a new business venture, shares on the stock market, or property. Each wealth creation channel has its return on investment and associated risk. As a professional investor, you must weigh up your appetite for risk and potential return on your investment. Let’s revisit the two leverage scenarios and examine the return on investment.



Scenario 1 – Buying one property worth 100K with all your cash

Return on investment (ROI) is 5%, e.g., 5K/100K

Scenario 2 – Buying four properties, each worth 100K with a mortgage

Return on investment (ROI) is 20%, e.g., 20K/100K Hull is a great place to start your professional property investing career because of 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 not only can your money go further, i.e., you could buy more properties, but each of those properties will go up in price,e, and if you’ve leveraged your investments with mortgages, your return on investment will be even greater.

Hull gives a better return on investment than more expensive cities in the UK because property prices are lower.

Rental Demand

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

Asset = Puts money in your pocket

Liability = Takes money out of your pocket

So, to ensure your investment property remains an asset, you need to be confident that it is in an area of high rental demand. Hull is a hidden gem of a city. It is the gateway to Europe via ABP ports and P&O Ferries and has a thriving export/import industry. Siemens will locate a large wind turbine manufacturing plant there, cementing its status as a center of excellence for Renewable energy technology. It is well connected to the M62 and has a broad manufacturing base. The Deep, the UK’s only submarium, 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 salaries in the region, the affordability to buy a house is quite. This consequently has led to high demand for rental property. The following postcodes in Hull are great rental areas. HU5 is close to the University for students. HU7 and HU9 are great for families.

Financing Deals

If you aim to own 10, 20, or 30 properties and supply the deposits for each one, you will soon run out of your cash, so how do the Professionals do it? Well, the answer is Other Peoples Money (OPM). They buy their properties at the right price. Property money is made when you buy the property, NOT when you sell it. Buying at the right price, i.e., below market value or BMV as it’s called, enables you to refinance with the mortgage lender at the Open Market Value and pull out most of your deposit cash. This allows you to recycle your pot of money to purchase another property. However, in this market, the Council of Mortgage Lenders has imposed a 6-month rule that prevents you from remortgaging unless the property has been held for at least six months.

If you can demonstrate added value, you can achieve your desired valuation better. On average Property, Prices double every 11 years. This means a 100K property is worth 200K in 11 years. You pay off the original 100K mortgage when you sell this property and then have approximately 100K profit. If you bought two properties, you can sell one, pay off the mortgage on the other, and still have one cash-flowing property with no mortgage. This principle can be scaled up to any property you wish to buy. Getting a mortgage can be difficult but not impossible in this economic climate. The money hasn’t disappeared. It is just in different places. The trick is to find the people with the cash.

Buy for cash

Some properties needing refurbishment in Hull can be bought for as little as 20K. Accepting them with cash would help, as mortgage providers generally do not lend below 40K. It also means you can move quickly and not involve Mortgage Lenders and Valuers in the purchase. Once you have refurbished the property, you can get a surveyor to value it, place a mortgage on it, and return most of your cash.

Deposit Finance

You can help people with cash earn more than they are getting in the Bank by offering them a higher interest rate for borrowing their money to fund a deposit. You can then return their money after refinancing.

Mortgage Host

Hull property prices are low, which leads to lower risk for Cash Investors when funding a deal. If you can’t get a mortgage, find someone else who can and offer to share the cash flow from a property. Get a lawyer to draw up an agreement between you and the host. Because property prices are relatively low in Hull, there is more chance of finding investors willing to lend you 10-15K for a deposit. Risks are reduced as the amounts on loans are less. Once you’ve done one deal with an investor and made more money, they will be happy to do another deal with you.

Stress Testing

With any of your investments, we advise stress-testing your assets at higher interest rates. While we enjoy historically low-interest rates, buying lots of property deals. Is tempting. However, interest rates have only one way to go: up. Test that your investment still produces cash flows at higher interest rates so it remains an asset, not a liability. Test your investments at higher interest rates. Hull investment properties still have positive cash flow at 8-9% interest rates at current rental values.

Exit Strategy

With any investment, you must know your exit strategies. With an airplane knowing where the exits are is vital in case of an emergency. Similarly, investing requires knowing where your doors are to get out of the crisis investment deal.

Selling your investment

You can sell a property if you need to come out of an investment for any reason. The properties that will be easiest to sell will be the most popular in that area. If you own an expensive, executive detached house in a desirable location, the number of buyers is reduced and constrained to residential buyers. However, if you have a cheaper investment property, you can sell it to investors and residential buyers. This is important when considering your investment. Know at least two exits when entering an investment deal. There are many investors in Hull, and because of the low prices, they are affordable to residential buyers. Robin Shaw is Marketing Director for Investment Property Partners in Hull. They help build positive cash-flowing property portfolios through experienced, intelligent, educated investment.