Real Estate Investor Magazine South Africa Real Estate Investor Magazine - July 2017 | Page 51

Valuations are highly dependent on immediate location and type of property and are subject to change considerably. So please do your investment due diligence very carefully. WHAT DOES MY MORTGAGE LOAN LOOK LIKE? MORTGAGE LOAN = 75% loan to value of end valuation of £ 225,000 = £ 168,750 WHAT DOES MY GROSS RENTAL YIELDS LOOK LIKE? GROSS YIELD = Annual Gross Rental / Capital Purchase Cost = £ 28,080 / £ 214,250 = 13% per annum WHAT CAPITAL REMAINS INVESTED? CAPITAL INVESTED = Capital Purchase Cost – Mortgage Loan = £ 214,250 - £ 168,750 = £ 45,500 WHAT DOES MY RETURN ON INVESTMENT LOOK LIKE? RETURN ON INVESTMENT = Net Annual Cash Flow / Capital Invested = £ 8,280 / £ 45,500 = 18% per annum Next month, we’ll be continuing the discussion on HMO investments, with a focus on the management of investment risks and the practicality of this type of investment for South Africans. How do I manage my investment risks? Multiple income streams over one asset, in my investment opinion, reduces the investment risk tremendously. If one of my rooms becomes vacant in a 6-bedroom HMO, I am still receiving the other 83% of my rental income. If the room rental market shifts or changes for the worse, I have the option to convert the property back into a buy to let rental or resale the property to a family without any risk of capital loss, as I have not over-capitalized. Landlords insurance is in place to cover tenant and third party liabilities. Building and contents insurance is in place to cover property and content damages and theft. How do you invest remotely from South Africa? It all comes down to understanding your local investment area and then working with a team of professional service providers, leveraging from their well-established business processes and systems as you go. My accountant and mortgage broker are based in London. While my project manager, architect, builder (including various trades), insurance broker and property management company are based within Birmingham. Do you require an HMO license? You must have a license if you’re renting out a large www.reimag.co.za HMO. Your property is defined as a large HMO if all of the following apply: • it’s rented to 5 or more people who form more than 1 household • it’s at least 3 storeys high • tenants share toilet, bathroom or kitchen facilities Even if your property is smaller and rented to fewer people, you may still need a license depending on the area. You will need to check with the local council. What do I need to make sure of when investing in HMO’s? In order to comply with legislation, I share the below key critical items to have in place: • the house is suitable for the number of occupants (in terms of, for example, size and facilities); • the manager of the house - you or an agent - is considered to be ‘fit and proper’, this includes: no criminal record, or breach of landlord laws or code of practice; • send the council an updated gas safety certificate each year; • install and maintain smoke alarms, heat detectors and carbon monoxide alarms; • provide necessary safety protection measures, including fire doors, fire blankets and emergency lighting; • provide safety certificates for all electrical appliances when requested. The council may add other conditions to your license, such as improving the standard of your facilities. The council will let you know when you apply. How do I apply for an HMO license? If you have a large HMO or your local council requires an HMO license, you should follow the below steps in order to apply for an HMO license: • Contact your council for a license to rent out your property as a house in multiple occupation (HMO) in England or Wales. • You should apply for the license yourself, but if you use a managing agent they can apply for you. • You’ll be charged a fee which is set by the council. Can South Africans invest in the United Kingdom? Most certainly yes. However, setting yourself up in the right investment structure is critical to enabling the funding. Furthermore, ensuring you have in- depth local knowledge about your investment area is essential to ensure you get it right! Warren Brusse is the Chief Financial Officer of United Kingdom Property Partners RESOURCES Property Partners JULY 2017 SA Real Estate Investor 49