Investment Property valuation

[nabbers]

Looking for some advice.    I have a block of four substantially built, brick and slate lock up garages that I had to get valued in 2014 for my divorce.   It was a proper valuation by a land agent and cost £500.   He said in his report that they would each rent for £40 per month and if I wanted to sell them I could expect to get £45,000 so I had to pay out half of that value to my ex wife so  £22.500 in order to keep them.

I had been using them myself as a workshop and for storage, but moved away so decided to rent them and I thought £40 per month seemed too cheap so advertised them at £80 per month and was inundated with enquires and so all four are let at £80 per month on easy in easy out terms and the tenants pay by standing order every month.   Theres nothing much to go wrong like in a house you might let with carpets and curtains etc, so the rent is all income with no expenses to deduct from it.

I had no idea how these things are valued, but talking to a few people, it seems it is just a case of a ROI - return on investment and people work on a percentage.  So the original valuation is four garages x £40 rent x 12 months = £1920   

So Looked up how  to calculate the rental yield on an individual property. First, find your annual rental income for that property. Then, divide this by the property value. Finally, multiply the figure by 100 to get the percentage. this works out at at a 4.2% return.

Now I'm getting double the rent the valuer predicted so I wondered if the value of the building would double or is that not how it works?    

Asking around; lazy valuations are [EDIT] £10k each for a lock up...but these are in a really nice area and aren't concrete panels and asbestos....and rent for double the normal price....

But others say investors expect a 8% return.....

I'd welcome input from you chaps that rent out property!   

 

Edited December 20, 2018 by nabbers
Typo

[JDog]

It is impossible to calculate accurately the yield on let property without an accurate property valuation. ‘Lazy valuations’ are just not good enough for that purpose.

If you can get between 8% and 10% true yield you will be doing well. Rental yields for let property are a different matter though the property valuations are easier to ascertain accurately.

[prem1234]

Like you I think £40 a month is cheap to rent a garage and £80 is much more realistic especially as it does not look like there is a minimum tie in for 6 months etc.

When I used to rent properties out I would be after a minimum yeald of 5%, but 5-10% was the sweet spot.

Being on the southcoast by a new hospital development the house prices were also increasing as well which helped.

No chance of knocking the garages down and put a house or flats/Bedsits on ?

[Bobba]

£310k each for a lock up! Is that a typo? Or is the footprint being valued as a possible building plot.

we have a substantial 1930's lockup in a private yard in a popular area of Bristol (yes, Bristol does have popular areas). 2 miles from city centre. Brick built and about 9ft wide 16ft long. One sold recently for £18,000. It's in a residents parking zone area so we could easily let for £80 mths poss more which would give 5% yield.

[silver pigeon69]

Thats not how it works. Generally with commercial property you get a higher yield than residential and thats also the same for garages. Investors in residential are happy with a >5% return, commercial nearer 10% . If you garage is worth £310K i presume it is in central London, Kensington?(if Garage is worth £310k, 5% is £15.5k/year) If you rent out the garages, rent them on a commercial type lease, then if you have any non-payers etc you can basically just go and seize the garage and change the locks (after written warning etc)  Investment property has a slightly higher value (at the moment) due to the low interest rates. Banks giving you 1-2% on your money, property giving you >4%.

16 minutes ago, Bobba said:

£310k each for a lock up! Is that a typo? Or is the footprint being valued as a possible building plot.

we have a substantial 1930's lockup in a private yard in a popular area of Bristol (yes, Bristol does have popular areas). 2 miles from city centre. Brick built and about 9ft wide 16ft long. One sold recently for £18,000. It's in a residents parking zone area so we could easily let for £80 mths poss more which would give 5% yield.

It is very dependent on area. In Brighton/Hove garages go for a lot of money and normally go on the day they are advertised, as parking is a major problem there.

[silver pigeon69]

Also the lower the value of the "property", generally the higher % return. A flat that costs £100k. is easier to rent for £500/ month (6%) as opposed to a house that costs £1m and would need to rent for £5000 a month for the same return. 

[nabbers]

Sorry the '3' in 310 was supposed to be a pound sign!   So £10k each.....

My quandary is, why doesn't double the predicted rental that I am achieving over the original valuation mean double the value if I sell?

So have factors and ROI changed 50% since 2014?

Was it a bad valuations?

Was he working in favour of my wife not me?

[silver pigeon69]

3 minutes ago, nabbers said:

Sorry the '3' in 310 was supposed to be a pound sign!   So £10k each.....

My quandary is, why doesn't double the predicted rental that I am achieving over the original valuation mean double the value if I sell?

So have factors and ROI changed 50% since 2014?

Was it a bad valuations?

Was he working in favour of my wife not me?

Rental returns are funny things, the rent is what someone will pay, not a fixed percentage of the value.(however at present there is a lot of foreign investors that may pay you more if the returns are more, but with garages and short term agreements, this is unlikely) If you have a hospital with the NHS as a tenant with a 25yr lease paying 15% of value, then you will get more than empty value if selling.(sometimes 30% more!!)

If the valuation was higher in 2014 (45k and now 40K), unless things have changed drastically in your area (traveller site opened next door?)or the garages are in dis-repair now, then yes the valuation was in favour of your wife. (if you instruct the valuer and explain why you need the value, it can "go" in your favour by 10-20% either way!!)

[nabbers]

The garages have been let without interruption since 2015.    Only cost to myself has been getting some keys cut.    Waiting list for new tenants if one becomes free.

 

[silver pigeon69]

1 hour ago, nabbers said:

The garages have been let without interruption since 2015.    Only cost to myself has been getting some keys cut.    Waiting list for new tenants if one becomes free.

 

Ok. Put them up for sale at £20k each. See if they sell?

[Lloyd90]

3 hours ago, silver pigeon69 said:

Ok. Put them up for sale at £20k each. See if they sell?

Better off hanging onto them and having the income unless specifically needed for something. 

[sitsinhedges]

They are worth what someone is prepared to actually pay for them. Just keep taking the rent.

[John_R]

7 hours ago, nabbers said:

Sorry the '3' in 310 was supposed to be a pound sign!   So £10k each.....

My quandary is, why doesn't double the predicted rental that I am achieving over the original valuation mean double the value if I sell?

So have factors and ROI changed 50% since 2014?

Was it a bad valuations?

Was he working in favour of my wife not me?

It would be pure folly to dwell on what "might have been" . Too much has changed since 2014 anyway.

If curious you could look around land registry records and read actual sale prices on similar property over the relevant time frame.

If it were mine I would just get an up to date value now and either park the information or act upon it as seems fit.

 

[silver pigeon69]

3 hours ago, Lloyd90 said:

Better off hanging onto them and having the income unless specifically needed for something. 

I agree.

1 hour ago, John_R said:

It would be pure folly to dwell on what "might have been" . Too much has changed since 2014 anyway.

If curious you could look around land registry records and read actual sale prices on similar property over the relevant time frame.

If it were mine I would just get an up to date value now and either park the information or act upon it as seems fit.

 

I wouldn't pay for an up to date value. Get a few estate agents to price them and take an average. That should give you a good idea of their value.

[Munzy]

36 minutes ago, silver pigeon69 said:

I agree.

I wouldn't pay for an up to date value. Get a few estate agents to price them and take an average. That should give you a good idea of their value.

Exactly what I would do too.

As mentioned, the correct value is the price someone is willing to pay. Asking the people responsible for flogging the merchandise is in my experience the most accurate way of getting a valuation. Agents will understand the nuances of the offer and the impact on value better than someone who is simply crunching numbers with little first hand experience of actually finding buyers.

As a residential BTL landlord I would also say that whilst I’m happy with a 5% return for some of our properties I would want a higher percentage for others. This is due to geographic location impacting rental void periods as well as differing repair costs to buildings. When taking a long term view a 5% return for a garage which sounds like a very simple building with lower maintenance costs may be more appealing to me than a 7% yield for a more “difficult” residential home. This makes it a little more complex when reverse engineering the calculation to get to a valuation from a monthly yield.

 

3 hours ago, Lloyd90 said:

Better off hanging onto them and having the income unless specifically needed for something. 

Completely agree.

I like to build future potential into my portfolio and a block of garages (depending on area of course) could one day become a development plot for several houses.

If the garages are making money each month why sell them, you could be missing a huge windfall ten years down the line.

[nabbers]

7 minutes ago, Munzy said:

I like to build future potential into my portfolio and a block of garages (depending on area of course) could one day become a development plot for several houses.

If the garages are making money each month why sell them, you could be missing a huge windfall ten years down the line.

 

Explored the development option eventually losing at appeal.    I have another potential residential project I'd like a bash at, so if the same sums that had led to a £45k valuation in 2014 would lead to a £90k one in 2015,  due to me doubling the rental income, then I could move on to pastures new!    However, since the original valuation appears to stand despite the uplift in rental income, I'll probably just keep them ticking over as its easy money with little risk.

Thanks for all the input.

[Munzy]

10 minutes ago, nabbers said:

 

Explored the development option eventually losing at appeal.    I have another potential residential project I'd like a bash at, so if the same sums that had led to a £45k valuation in 2014 would lead to a £90k one in 2015,  due to me doubling the rental income, then I could move on to pastures new!    However, since the original valuation appears to stand despite the uplift in rental income, I'll probably just keep them ticking over as its easy money with little risk.

Thanks for all the input.

But who says the original valuation stands?

It’s worth whatever someone is willing to pay. Why don’t you double your old valuation (based on doubled rental yield) and approach three agents and see if they come back with a similar value.

[silver pigeon69]

8 minutes ago, Munzy said:

But who says the original valuation stands?

It’s worth whatever someone is willing to pay. Why don’t you double your old valuation (based on doubled rental yield) and approach three agents and see if they come back with a similar value.

As Munzy says, approach three agents and see what price they come back with. It won't cost you anything. You never know one might have a client that is desperate for some garages in that location. I have a friend who is looking for a garage and is desperate! He would happily pay twice the market value for the right one, near to his house in Hove.

[nabbers]

Sorry yes good point!   I will do that ! 

 

[Delwint]

I pay £65 a month for my garage lockup. I also can’t see that the value of your garages will have gone up too much. Even if you are getting more rent in such a short space of time. I’d keep taking the money. It’s giving a decent return. I have a rental property and am currently getting 8% yield on it. Which is a good return