An apparent bargain but is it?

I went to have a look at a repossession last week. Reasonable area. Infact, very good area historically but a little bit on the wain as families move out and houses get subdivided into flats. It's slowly becoming a little bit of a bedsit land.

All said and done not a bad area. The 1st floor maisonette was being marketed at £77500 but has just been market down to £73,950. Checking out the historic data using UKValuation's online valuation package showed that properties were valued at £130,000 and similar properties had sold for £100,000 in the last couple of years. On the face of it a bit of a bargain.

The property did need gutting: new windows, central heating, kitchen, bathroom, etc to bring it up to a good standard.

Costs?

The cost of all this work? Probably in the order of £15,000. I reckon I could get the property for £70k making an all in cost of £85k assuming no financing required. Financing costs on top could easily add another £2k.

Returns?

What would be my returns on this? Conservatively rents for a nice two bed in the area should be able to achieve £450 pcm. So annually £5000 allowing for just under a month of void each year. This would give me a gross yield of just under 6%. Not bad, certainly better than in recent years where 5% was tops.

Risks?

What are my risks? My big concern is rental demand. Ten,Twenty years ago good quality rental accommodation would fly out the door. Now, theres alot of new build apartments alot of competition.

Keeping my powder dry

6% yield, potential void, a 35% drop in house prices would suggest a price of £65,000 for this apartment.

So on the face of it a bargain and probably will be in the long-term. But for me these figures are not compelling. I'm looking for at least an 8% yield. To me whilst it seems cheap that property is not worth more than £50k.

Landlords and investors need to be wary of jumping in because prices seem cheap. Cheap is a relative measure. Cheap compared to a historic high does not make it a bargain.