Where you can get a 20% yield on property

After winning the 4×100 metres gold medal at the London Olympics, Usain Bolt made a bizarre and heartfelt tribute. It was the people of Birmingham that he wanted to thank…

“They were extremely great to us, they showed us a lot of love – thank you guys.” His sentiments were echoed by fellow Jamaican athlete, Yohan Blake: “Birmingham people”, he said, “We have to give you all the respect.”

It turns out that both athletes had trained for the games at Birmingham University – which has some of the best sports facilities in the country. It’s proved such a success that the university is embarking on a major redevelopment of its facilities.

They are not the only ones looking to build in Birmingham right now. This week I learned that the Church of Scientology is looking to set up shop here too. They own an empty old mansion on the outskirts of the city and are about to invest £6m in its restoration.

In fact, Birmingham is in the throes of a property revival. Commercial property activity in the West Midlands actually doubled from £167m in Q1 to £317m in Q2. The region is also enjoying record residential rents and climbing house prices.

How did this happen?

Today I want to tell you about how the Midlands pulled itself out of the mire. And about the penny shares that are looking to profit from this revival.

Reasons to be cheerful in the West Midlands

The West Midlands didn’t plunge into recession when Lehman went under. But it has been struggling along ever since the collapse of MG Rover in 2005. Happily though, helped by the entrepreneurial spirits of its immigrant community, Birmingham is on the up.

Last week Paul Bassi, founder and chief executive of Real Estate Investors (RLE) decided it was about time to wave the flag for the beleaguered city. “I feel that I should comment on some of the regional economic influences that impact positively on our business and locality”, he said, “particularly when so much of the national and global news is so negative.”

Bassi gave the following reasons to be cheerful:

• The region’s exports are worth £120bn. 
• Direct foreign investment has increased 206% – more than every other UK region.
• The West Midlands is the largest regional exporter to non-euro countries.
• It has the best performing high street in the UK.
• Jaguar Land Rover is creating 1,000 supply chain jobs there.
• BMW is expanding with a £250m investment in Swindon, Oxford and Birmingham.
• Birmingham International Airport wants to expand.
• Birmingham’s New Street Station is embarking on a £640m upgrade.

The good news is filtering through to the property market. The region has record residential rents, the largest rental growth anywhere in England. And it is seeing year-on-year appreciation of house prices.

An inviting property yield of 20%

While Londoners are trying to work out how to replace all those City jobs, the process of transition in the West Midlands is well-advanced. The region’s many manufacturers have slimmed down, focussed on skills and added value. And they’ve carved out business in export markets.

The motor industry is still a big customer but manufacturers are also finding customers for highly-engineered precision components in medicine, energy and – significantly – aerospace. According to Rupert Mucklow of quoted Midlands property investor A & J Mucklow (MKLW), “There is now a shortage of good quality industrial space of all sizes in the Midlands and rental levels and letting incentives are slowly starting to harden.”

Bassi believes that property investors should wake up and take note. London’s economy is grappling with the aftermath of the banking crisis. But the West Midlands is rebuilding itself as a multicultural, entrepreneurial, self-supporting, mixed economy.

Property yields here are way above those of London. While buyers have been happy to receive rental yields below 4% for London commercial property, Bassi has recently been buying property in the Midlands at yields ranging from 8% to a massive 20%.

To be fair to London, it does seem to be reinventing itself also. Rather than relying on the City, it is now relying on the lavish spending of foreign residents who would rather not admit the true source of their fortunes.

You don’t have to accept 4% property yields that rely on the fickle fashions of international jet-setters. I think I’d rather rely on an inflation-busting yield and the slow but sure revival of Birmingham and its surrounding economy. If it’s good enough for Usain Bolt, it is good enough for me.

A high yielding property play will always attract interested investors… and that’s true of a new way to play the gold market too. I’d be willing to bet a lot of you own gold.

I’m told a huge bunch of Penny Sleuth readers have already signed up to Simon Popple’s new Metals & Miners newsletter. And it’s easy to see why.

Gold miners have been too cheap for too long. I keep saying that. And with the world’s central banks launching into huge new rounds of money printing, it may not be long before see a serious run up in the gold price.

That’s why I just tipped a gold miner in my Red Hot Penny Shares newsletter. And if you are looking to get involved yourself, you should get your name onto the distribution list for Metals & Miners.

Click here to do that now.

• This article is taken from Tom Bulford’s free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.

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Red Hot Penny Shares is a regulated product published by Fleet Street Publications Ltd. Past performance is not a reliable indicator of future results.

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  • Property Man

    Good to hear some ‘upbeat news’ from one of our UK regions.

    However, I find the headline grabbing “where you can get a 20% yield on property” a bit glib & the substance in the article to support it non-existent (other than that the investments are in the Midlands somewhere).

    At that level of return, investors in property investments will have all sorts of issues to contend with, e.g voids, short leases, tenant covenant, etc.

    Just to highlight that you can get a 20% return on property, I think, is too vague & meaningless without indicating further detail surrounding the risks involved or perhaps most of the readers here are mature enough to realise this.

    In contrast & referring to other recent articles posted here on MW, most people (including pension funds in order to match their long term liabilities) are seeking secure long term income generating investments.

  • Russell G

    Agree with property man, stating a 20% rate without considering risk is pointless. You can also get a 20% return on Greek national debt at the moment! 😉

  • Orb

    Still sitting on our property on the outskirts of Birmingham that we bought in early 2004, and that’s been listed since Aug ’11, and to date the best offer we’ve had is £1k below purchase price!

    Still, with a life tracker mortgage of 1% above BoE, it has turned into a nice rental income, but only a 4.7% yield against the purchase price all those many years ago; and even that’s nowhere near a 20% yield!

    I have noticed things are picking up, but rentals remain relatively low in comparison to other parts of the country; especially for a Big City location.

  • Paddie

    Being a lifelong resident of Birmingham,I can tell you this article is a load of old tosh…. True investment is taking place In the West Midlands as a whole but alot of it is missing Birmingham out, We are suffering from an extremely high unemployment rate, and unfortunately have an inept council which is too big to be useful and through poor policy has over decades led to the ghettoisation of a once great world changing city…
    Birmingham has been on a slippery slope downhill since the 60’s and all the smart people are taking their money out of it!!!

  • Ryan

    I used to respect the views of moneyweek as credible until reading this heap of nonsense. In your dreams Birmingham does not have a 20% yield – find me any property that will give me that and I’ll share half the profit with you because this simply does not exist.

    Lastly, Birmingham looks like another part of the world these days but certainly no longer “great” Britain..

  • Doug

    Birmingham is the last place any sane investor would buy property.

  • mike

    Due to the total lack of evidence to support the headline one must come to the conclusion that MR Tom Bulford is of the opinion that the readers of his colum will be absolute plonkers who will take any old rantings as gospel- the comments prove otherwise.
    request MSW advises him accordingly please as such contempt lowers the magazine as a whole.

  • Billy Boy

    As always its just a headline to grab your attention to try and sell you a
    some other product.
    I have purchase Money Week and it give good commentary on the state of the nation, but just gives snibbits of advice thats any good.
    The say things like: its time to buy gold and give you all the reasons why …but a few pages down they also tell you why NOT to buy gold ….and give you all the reasons why!
    So you’re non of the wiser and they cover themsleves for future issues …to say we told you so in issue $$$$.