Case Study 7: Yield Compression.
Let’s talk about one of my favourite strategies in property investing—buying mispriced assets, improving their income, and extracting value through yield compression. That’s exactly the play we’ve executed with Alexandra Villas, a beautiful block of seven flats in central Chester.
This is a deal that combines smart sourcing, portfolio structuring, tax efficiency, and future-focused planning—the kind of project that separates the speculators from the strategic investors.
The Opportunity: Mispriced Yield = Mispriced Asset
Alexandra Villas came on the market at £895,000, marketed on the basis of a 9.5% yield. Now, to the average investor, that might seem attractive. But to me, it flagged a valuation discrepancy.
I’d just had two other central Chester properties revalued at 8.5% yield, which is pretty standard for the area based on comparable evidence. So the question became: Why was this block being valued at 9.5%?
Simple: It was undervalued due to a yield valuation error. The higher the yield assumed, the lower the property’s market value when calculating backwards from rent. But I knew that, in time, I could justify a lower yield (i.e. a higher valuation) through evidence and income optimisation.
The Strategy: Yield Compression and Income Enhancement
When I approach a deal like this, I’m looking at two key levers for growth:
Yield Compression – Revalue the property in future at a lower yield (from 9.5% to 8% or even 7.5%), in line with local comparables. That alone lifts the value.
Cash Flow Enhancement – Transition the existing ASTs to serviced accommodation (SA) over time, increasing the rent roll by 50% or more.
So we’re stacking two strategies together: a finance-driven uplift and a trading-driven uplift.
Negotiation: Digging Into the Costs
The vendor originally wanted £895,000, but I wasn’t satisfied with the numbers provided. On closer inspection, we found the £85,000 gross rent figure included costs the landlord was covering—specifically, council tax and gas—to the tune of £5,000+ per year.
So we adjusted the net rent to more accurately reflect its true income and used that to negotiate the price down to £825,000.
📌 Lesson: Always scrutinise gross rents. Sellers often inflate the headline numbers and hide the costs they’re absorbing.
How We Funded It: Portfolio Refinance
We funded this deal using a portfolio refinance, securing it against equity we’d built up in 134 Foregate Street, a previous project. This meant we only needed to inject around £100,000 of new capital into the purchase.
This is a key strategy I teach in Property Unicorn Club: once you have assets working, you can recycle equity across deals, building momentum without constantly raising new funds.
The Numbers Today (And Tomorrow)
Let’s break down the numbers—both current and projected:
📊 Current (as purchased):
Purchase Price: £825,000
Net Annual Rent: ~£80,000
Implied Yield: ~9.7%
Immediate Value at 8.5% Yield: £941,000
Immediate Value at 8% Yield: £1,000,000+
That’s an instant equity uplift based on correcting the yield valuation alone.
🔮 Future Potential (SA Model):
If we gradually convert all seven units to serviced accommodation, and hit a realistic £1,200 net per unit per month, the numbers change dramatically:
Annual Net Income: ~£100,800
Projected Value at 8% Yield: ~£1.26 million
That’s a potential £435,000 uplift over a 2–3 year time frame—just by improving income and compressing the yield. No major refurb, no planning uplift, just better use of the asset.
Timing and Market Cycles
I’m realistic here. We’re not refinancing this straight away. We’re on a fixed portfolio product, so we’ll allow 18–24 months of income improvement before we look at a revaluation.
By that point, we’ll have:
✅ Established a track record of SA income
✅ Built evidence for a lower yield valuation
✅ Potentially benefited from interest rate reductions (from 5.25% today to perhaps 3.5% again)
It’s a longer-term play, but one I’m very confident in. Chester’s central flats perform consistently well, and this property is well positioned both physically and financially.
Key Takeaways from Alexandra Villas
1.
Mispriced Yield = Opportunity
Many investors take yield values at face value. But understanding how yield impacts valuation is a huge advantage. Alexandra Villas was undervalued due to a simple yield miscalculation. That’s our gain.
2.
Service Accommodation Can Transform Returns
By transitioning from ASTs to SA, we’re increasing income by over 50%, which massively boosts capital value in a commercial valuation model.
3.
Cash Flow and Equity Go Hand-in-Hand
A better rent roll means a higher valuation. That’s why I focus on income-producing assets with room to grow. You don’t need planning permission—just operational excellence.
4.
Portfolio Leverage is Powerful
We didn’t buy this with a big pot of new capital—we used equity built up in previous projects. That’s how you build fast: recycle, restructure, repeat.
Want to Learn How to Do This?
If you’re looking at deals and unsure how to structure them for maximum uplift, then it’s time to get into the Property Unicorn Club.
Inside the club, I teach:
How to spot valuation gaps like this one
Yield compression strategies
How to finance deals creatively using existing equity
The transition from AST to SA for maximum cash flow
Alexandra Villas is a perfect example of what I call a “unicorn deal”—a rare combination of undervaluation, upside, and long-term flexibility. It doesn’t need major work. It just needs smart management, income strategy, and timing.
And that’s exactly the kind of investing I teach.
Stay focused,
Rob