With over £2.5m worth of funding approved in 2022 for the regeneration of Southport, Sefton’s popular seaside town, could new property investors beat the competition early and invest in a new and upcoming town?
Southport is a popular seaside town, with notable plans to regenerate the Victorian town. With over 1,000 short term rentals on Airbnb and a £17,724 increase in house prices across Sefton in 2022, Southport is looking to become an even more attractive holiday destination.
The recent developments and funding initiatives in Southport have sparked optimism for property developers. Despite being the 12th most densely populated area in the North West, the population growth has been modest, rising by only 2% since 2011. However, the injection of funding and regeneration projects aims to revitalise the area and create new opportunities for property development.
In August 2022, the government allocated £2.5 million in funding to rejuvenate Southport and establish it as a vibrant visitor destination. By the end of 2023, at least 24 new establishments, including cafe bars, hotels, and gyms, are expected to enhance the local scene as part of a broader regeneration project.
Additionally, in February of this year, Homes England announced plans to acquire a former park-and-ride facility in Southport to develop it into a residential area with over 600 new homes. This development aims to address the area’s housing demand and further contribute to the town’s growth.
Furthermore, the construction of the Marine Lake Events Centre, backed by £33.3 million in government funding in December 2022, is set to attract over 500,000 visitors annually and generate an estimated £18 million for the local economy. This influx of visitors and economic activity can positively impact the demand for properties in Southport.
Southport’s proximity to Liverpool, makes it an appealing destination, attracting approximately £1.2 million additional visitors annually. As a result, property developers have been capitalising on this demand by converting their properties into short-term rentals, with over 1,000 Airbnb rentals currently available in Southport. This trend indicates the potential for higher yields in the short-term rental market.
Average prices in Sefton rose by £17,724 from January 2022 to December 2022, resulting in a 9.06% increase, meaning even buying to flip could be a worthwhile investment.
Finbri, a specialist UK bridging and development finance company, surveyed over a thousand property investors and uncovered fascinating insights. The research revealed that 45 percent of investors intend to invest in real estate in 2023. However, only 12.09% of “property flips” occurred in the North West, compared to 17.48% in the Midlands and 25.2% in London. These findings emphasise the disparate trends in property renovation across regions and highlight potential opportunities.
Finbri, a UK bridging & development finance company, recently surveyed more than 1,000 property investors and found that while 45% were planning to invest in property in 2023, Wales was disproportionately underrepresented when it came to bridging old properties back into the market through “property flips.” In Wales, only 5.49 percent of homes were renovated and resold, whereas in the neighbouring West Midlands, 17.48 percent of homes were renovated and resold.
Considering these recent developments, funding injections, and the town’s coastal appeal, Southport presents an exciting opportunity for property developers to explore and capitalise on the potential growth and rejuvenation of the area.
What are the advantages of property investment?
Investing in property development offers two significant benefits. First, there is the possibility of capital appreciation, in which the value of your property assets can rise over time, resulting in substantial financial gains. The practice of purchasing properties for renovation or refurbishment and reselling them for a profit, also known as “flipping,” can generate quick profits. According to a survey conducted by Bridging Market in 2022, fifty percent of property swaps resulted in gains between £10k – £50k, with only one percent incurring losses.
The second advantage is the generation of income. By retaining ownership of your properties and leasing them to tenants, you can generate a consistent income. According to a recent study by Finbri, rental rates in the UK are on the rise, with certain regions experiencing an increase of 14.6% in the year leading up to September 2022. This upward trend is especially noticeable outside of London, specifically in Northern Ireland. These findings indicate a promising rental income potential and a robust market outside the city centre.
Property investment provides the opportunity for both capital appreciation and income generation, and in an area where resurgence is already underway, novice investors could reap the rewards by planning investments in Southport early.
But how do you get started in property development?
Keeping it simple may be the best way to establish a good profit margin on your first property development project.
Taking up a simple property development project has numerous important advantages:
- It can be less risky.
- It can still make a decent profit.
- It has a lower learning curve.
- It is less difficult to fund.
- There are more opportunities available.
- If you work in a trade, you can finish some components of the work yourself, lowering your expenditures.
Purchasing a property to refurbish for sale or rental is one of the most basic forms of property development.
First-time property investors are sometimes drawn to crumbling, outdated homes and apartments that require a simple fix and a cosmetic makeover.
If you’re new to property development, this type of residential property is an excellent place to start because it allows you to use your prior home-buying and renovation experience without requiring specialised knowledge of the commercial, storage, office, or student housing markets.
- Aim for a profit margin of at least 20% on a repair and flip.
- If the profit margin is insufficient, be prepared to walk away.
- Your initial profit is determined by your buy price; you control how much you pay, and the market sets your sale price.
Expert advice for inexperienced developers:
Every item has a “ceiling value,” or the highest price it may possibly receive in an open market transaction. Even the most expensive fixtures and finishing touches will not raise it above the ceiling.
- Instead of buying the worst house on the finest street, look for the next best street or growing district.
- Listen to estate agents: open-plan living rooms may add more value than an expansion.
- Decide if you want to sell or rent out your investment right now, but consider other options in case plan A doesn’t work out.
- Your investment property is being rented out.
- If you don’t intend to keep the property, you’ll most likely look for a buy-to-let mortgage to cover the cost of the acquisition.
Your development selections will be influenced by the community in which you purchased the property and your projected rental income. Does this house, for example, offer enough bedrooms to appeal to families, young professionals, or students?
Investigating Rental Alternatives for Your Investment Property
There are several techniques to consider when researching rental alternatives for your investment property.
A buy-to-let mortgage is a popular financing option for purchasing a house if you do not intend to keep it, unless extensive structural modifications are required. When making development selections, the estimated rental revenue and location of the site are important considerations. It is critical to determine whether the house has enough bedrooms for families, young professionals, or students.
Leasing to an Individual Tenant, Pair, or Household.
A single lease with a single tenant, a couple, or a family is the most typical option for new investors.
- Your monthly rental income covers your buy-to-let mortgage, as well as additional administration and maintenance costs, leaving you with a profit.
- Low management costs, only one tenant relationship to maintain, and a high likelihood of long-term retention.
- If there are void periods when the property is vacant and uninhabited and earns no money, your annual profitability is jeopardised.
House of Multiple Occupation (HMO)
An HMO – renting out specific rooms in a property where everyone uses a communal kitchen, living area and toilet facilities – is an alternative to renting to a single renter and a popular option for renovations.
- Leases are individually negotiated.
- A much higher monthly rental revenue is possible, but at a higher expense for maintenance and care.
- A large HMO that rents to five or more independent tenants (with additional management obligations) can be even more profitable, but organising the necessary improvements and maintenance can be more challenging.
- If you have an HMO or Large HMO, you will continue to receive rental income even if the home is not totally occupied.
- There is also tougher planning for HMOs, so check with your local authorities before beginning a project!
Short-Term Rentals
Alternatively, you can explore the option of renting out your property on a short-term basis, targeting holidaymakers and visitors to Southport. This approach can provide higher rental income during peak tourist seasons, mainly if your property is located in a desirable location near popular attractions or the beach. Short-term rentals offer flexibility, allowing you to use the property for personal stays or make changes to the rental terms more easily.
However, managing short-term rentals requires more hands-on involvement, including marketing the property, handling guest bookings and inquiries, and maintaining the property between stays. It’s essential to consider local regulations, permits, and any applicable taxes or fees associated with short-term rentals in Southport.
Selling the Property After Renovation
Another feasible choice is to sell the property once it has been renovated. It is essential to consider the possible consequences of obtaining a mortgage for an extended period if you intend to sell the property. It is crucial to comprehend the potential impact of early repayment fees (ERFs) before deciding to pay off your mortgage early, as they can significantly affect your overall profit.
If you need funding for a project immediately, consider looking into short-term capital options like bridge financing or bridging loans. These loans provide repayment flexibility, enabling you to repay the loan once your projects are finished.
The Essential Phases for Property Development Success
To become a successful developer, you must first master three important phases:
- Sourcing, feasibility, and planning are all important considerations.
- Financing and a plan for leaving.
- Construction, project management, and scheduling.
Sourcing, feasibility, and planning
When looking for a house, try to locate the greatest price possible and think critically and honestly about its potential. Conduct extensive market research on local house price ceilings, rental rates, and up-and-coming locations – get to know the area you’re considering investing in. Better yet, stick to something you’re familiar with. Instead of buying the worst property on the nicest street, seek a house on an adjacent street that is more affordable to you and your possible buyer or renter.
The next step is feasibility, which involves determining your proposal’s financial and practical feasibility. It’s good to test the viability of a few hypothetical projects so that when an opportunity arises, you’ll have the funds to act promptly. Set budgets for each component of the development project and then figure out how to finance it. Answer things like how much it is and how you intend to fund it:
- Surveyors’ reports, architect fees, and planning fees
- Deposits for the acquisition of property
- Mortgage or bridge finance fees for the remainder of the buying price
- Stamp duty and conveyancing charges
- Costs of construction (trades, supplies, scaffolding, cranes, cherry pickers, and so on).
- Whether you’re selling or renting your home, ‘dressing’ it with at least basic furnishings will undoubtedly help you financially.
- If you’re selling, throw in estate agent fees and another round of legal fees, and figure out how much personal tax you’ll pay to avoid nasty HMRC surprises.
- If you plan to depart the rental market, consider letting agent costs if you aren’t used to being a landlord.
Financing and exit strategy
High street banks aren’t usually set up to fund this type of business because their lending rules aren’t as flexible as those of private and specialised lenders, and you’ll almost certainly be paid much higher interest rates.
A skilled finance broker can look at all your options, even private banks that are closed to direct borrower approaches and find you the best loan solutions for your circumstances.
Depending on the complexity of the work necessary and the deposit amount, you may need a combination of cash sources for your restoration project.
A buy-to-let mortgage, bridging loan, development finance, or second charges could all be used to raise funds.
If you need to raise funds, it’s critical to understand the various funding possibilities. Speaking with a respected broker will rapidly provide an overview of the type of finance you can acquire, the cost of that funding, and the general lending conditions you’ll need to meet. The directory of the Association of Bridging Loan Brokers & Lenders contains a fair selection of trustworthy bridge finance brokers and lenders.
Any financing will require an exit strategy. That is the procedure for recouping your investment and making a profit. Your exit strategy will be based on selling or renting the property while repaying the original financing with a longer-term mortgage.
Construction, project management, and scheduling
Finally, you must oversee the construction process and ensure it is completed on time. Remember that any overrun will raise the cost of any borrowing you have accounted for. Will you hire a general contractor to oversee the trades? Will you hire a project manager or manage the task yourself? This question will most likely be answered by the scope of the project and your trade skills. To summarise, don’t bite off more than you can chew. All development projects require rigorous planning and project management to keep expenses under budget.
You must plan every detail of your development project. Which trades will you need, and will the trades overlap at any time, causing scheduling issues on the job site? Can you upskill to cover any simple trades? Create a schedule to determine how long each sort of project will take.
Incorporating these considerations and developing a comprehensive strategy can help you navigate the property development process effectively. When it comes to investing in property in Southport, there are many options available to make a good investment from what appears to be an upcoming town.
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