Two young property entrepreneurs are to launch their first investment fund aimed at buying and letting homes to university students and key workers.

Liam Collins and David Bone will in the coming week launch a fund aiming to raise an initial £20m, with the plan to begin buying homes in distress as the market nears its bottom to capitalise on any capital growth as well as rents from the UK’s student population.

The pair have already built up a business specialising in “houses in multiple occupation” (HMO) since 2001, when Mr Collins bought his first student house. They own 73 houses and manage a further 132 on behalf of investors. Their company, CBS, buys, refurbishes, and lets the properties.

Mr Collins said that the fund will buy at 20 per cent below recognised market prices by concentrating on distressed sales and repossessions, giving the prospect of an immediate upside.

These will then be converted into high-end flats and rented on 12-month contracts and on a room-by-room basis. They claim that there is a 95 per cent occupancy rate in their existing portfolio, which can achieve a 10-12 per cent yield.

The fund has an initial 18-month buying period, and after will pay out 5 per cent a year with the remainder of annual profits being re-invested.

“We can buy a run-down residential house for £100,000 in an area we know through street-level research is desirable to students, then have it refurbished and marketed to tenants as an HMO within six weeks,” said Mr Collins.

“For a four-person house, a per-person rent of £100 per week alone amounts to a £20,000 year revenue, with the renovation costs recouped by the increase in property value alone.”

The duration of the fund is intended to be seven years with an option to reduce to five years, at the end of which period the remainder of the annual net target return of 10 per cent will be paid out as a lump sum. The priority income of the fund is 5.5 per cent.

The fund is expected to use around 35 per cent debt in its deals. Renovation costs will be taken from the fund, with about £1,000 in maintenance costs factored in every year. There is an investment threshold of £50,000.

The main return however for CBS is 50 per cent of the profits over and above that promised investors.

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