Cover of How to Analyse a UK Buy-to-Let Deal: Area, Street, Property and Numbers

How to Analyse a UK Buy-to-Let Deal: Area, Street, Property and Numbers

How to Analyse a UK Buy-to-Let Deal: Area, Street, Property and Numbers

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Summary
 #335Take our 2 min SurveyA text arrives at 5pm Hong Kong time with a batch of discounted UK properties, at least 25 other buyers in the race, and a condition that contracts must be exchanged within six hours.That leaves less than an hour to analyse the deal.In this solo episode, I walk through how to analyse a UK buy-to-let deal from overseas, from the wider area down to the street, the property and the numbers.At the end, I reveal what happened on that evening in November 2022.Take our 2 min SurveyDiscovery CallAccess Resource LibraryOur WhatsApp groupGet in TouchProperty Engine discounts (Code: EXPAT)Starter: 30 day trialPro: 30 day trial/3 mths 1/2 price, Ultimate: 1/2 price 3 monthsOur Sponsors: Finnigan McNeill Property GroupYouTubeExpatPropertyStory.comWe discuss:Building your own deal analyserBefore analysing any deal, it helps to know your goals, circumstances, target return on capital employed (ROCE), time available and appetite for risk.A deal analyser can be built in Excel, or with the help of AI, around your own criteria.More rows do not automatically make a better analyser, so aim for a first pass you can run in about ten minutes.Here is an illustrative example with made-up round numbers, to help if the audio was hard to follow.These figures are for illustration only and are not a real deal.Purchase costs· Purchase price: £100,000· Deposit (25%): £25,000, so the mortgage is £75,000· Stamp duty, including the extra 2% for overseas buyers: £7,000 (check current rates)· Solicitor: £1,500· Mortgage broker: £500· Survey: £500· Sourcing fee: £2,000· Refurb: £5,000· Capital employed (all the money you put in): £41,500Annual income and costs· Rent: £9,000 (£750 a month)· Management fee (10%): −£900· Buildings insurance: −£300· Maintenance allowance (5%): −£450· Voids allowance (5%): −£450· Mortgage interest (£75,000 × 5%): −£3,750· Net annual income: £3,150Return on capital employed· ROCE = net annual income ÷ capital employed = £3,150 ÷ £41,500 = 7.6%You may also want rows for tax on your income and for stress testing a best, average and worst case, especially for short-term lets.Analysing the areaThe three key drivers of capital growth are population, employment and infrastructure, such as transport links and regeneration projects.Former guest James Sproule describes "pretty cities" such as Cambridge, Bath, York, Harrogate and Edinburgh as a good bet for capital growth.Dr Paul Morland's advice is to avoid areas with a declining population, which you can check with the Office for National Statistics (ONS).How to check rental demandUsing Property Engine, divide the number of let agreed properties in a postcode by the total of available and let agreed properties.For example, if a postcode has 20 properties available to rent and 30 let agreed, demand is 30 ÷ 50 = 60%.The same formula works for sales: divide properties sold subject to contract by all properties for sale, including those sold subject to contract.For example, 25 sold subject to contract out of 65 in total gives 38%.Former guest Jonathan Rowland won't go near anything under 40%, while others use 50%.Analysing the street and comparablesEnglishHousePrices.com shows sold prices in a postcode from Land Registry data, giving you an idea of the street's ceiling price.Lenders are often reluctant to value a property above that ceiling.The ideal comparable is next door, the same size, sold recently and in the same condition, and Property Engine makes checking condition through photos quick.Analysing the property itselfCheck your figures with two or three local estate agents, and ask what price would achieve a really quick sale.Check the EPC for the rating, size and any non-standard construction, but treat it as a starting point rather than a bible.Google the address, check the local planning portal, and use a VPN if a council website blocks overseas browsers.Location-driven or deal-driven?Sticking to one area makes it easier to build a team, but a deal-driven approach can find bargains faster and adds some diversity to a portfolio.A big discount is always the best way to mitigate risk.Key takeaways· Build a deal analyser around your own goals and target ROCE, and keep the first pass simple.· Move from the area to the street to the property, checking your figures at each stage.· Measure demand with a simple percentage before you buy.· A trusted network of brokers, managers and partners lets you analyse quickly and safely.Resources mentionedProperty Engine (use the code expat for a discount), EnglishHousePrices.com, Rightmove, Zoopla, the EPC register, Google Earth, Land Registry, HomeTrack, EIG, Dougal.co.uk, Refurb Calculator and ExpressVPN.Episode 326 on stamp duty, Episode 301 ...
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