I had an interesting email from
someone in Crawley a few weeks ago that I want to share with you (don’t worry I
asked his permission to share this with you all). In a nutshell, the gentleman
lives in Copthorne, he is in his mid 60’s and still working. He has a decent
pension, so that when he does retire in a couple of years’ time, it will give
him a comfortable life. He had recently inherited £255,000 from an elderly
aunt. One option he told me was put it into a savings account. The best he
could find was a 2 year bond with the Post Office which paid 1.9%; meaning he
would get £4,845 in interest a year. One of his other options was to buy a
property in Crawley to rent out and he wanted to know my thoughts on what he
should buy, but he had concerns as he didn’t want to take a mortgage out at his
time of life. He was also worried about all the tax changes he had read about in
the papers for landlords.
Notwithstanding the war on Crawley
landlords being waged by George Osborne, the attraction of bricks and mortar
endures for many. As our man is a cash buyer, he would not have to deal with
the intricate cut to
mortgage interest tax relief that will diminish,
or even eradicate, the profits of many Crawley landlords. It’s true he would
face the extra 3%
in stamp duty to buy a second property, but with
some good negotiation techniques, that could soon be mitigated.
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I told him that buying a Crawley
buy to let property is all about the total return on investment. True, he could
put the money in the Post Office bond and receive his interest of £4,845 a year
or, as he rightly suggested, invest in property in Crawley. The average yield (yield being the equivalent of the interest
rate on the property) at the moment in Crawley is 3.63% per annum, meaning
our potential F.T.L (First Time Landlord) should be able to, depending on what
he bought in the town, earn before costs £9,256 a year. (However, I told him there are plenty of landlords in Crawley earning
half as much again (if not more), if he was willing to consider more specialist
investment types of properties – again, if you want to know where – look at my
blog or drop me an email).
The bottom line is that the
success of investing in Crawley buy to let property versus a savings account
with the Post Office (or whatever Bank or Building Society is offering the best
rate) will depend on the performance of those assets. Unlike with a savings
account, with property the capital you invested can also go up (and yes, it can
go down as well – more of that in second). Property values in Crawley have
risen in the last twelve months by 7.6% meaning, that if our chap had bought a
year ago, not only would he have received the £9,256 in rent, but also seen an
uplift of £19,380 …meaning his overall return for the year would have been £28,636
(not bad when compared to the Post Office!).
..
but the doom mongers amongst you will say, property values can go down,
as they did in 2008, and in 1988 and 1979. Yes, but after 1979 prices had
bounced back to their ’79 levels by 1984 and went on to grow an additional 58%
in the following four years. Then again, they dropped in 1988 and did take 13
years to reach back to those ’88 figures, but the following six years (between
2001 and 2007) they then increased by an additional 66%. Now, according to the
Land Registry, average property values in West Sussex currently stand 12.2% above
the January 2008 level, and anecdotal evidence suggests that in the nicer parts
of Crawley, we are well above these sorts of levels. Therefore, all this talk
of property crashes is unfounded.
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