So you’re thinking about buying a rental property, buy to let or whatever the latest ‘cool’ term is.
Now I’m not going to discuss the Chancellors latest announcement and how it may impact you. Its not my area of expertise, I have to use all four paws to count to fifteen, lost one in a fight with a Doberman, all right it was a Pekinese but who is counting.
The first, the very first thing you should be asking yourself is why? Yes, yes I know its so you can buy the Caribbean island next to Richard Bransons, but come on really.
What is it your trying to achieve, a steady income, long-term capital increase, little of both or a stomach ulcer.
For make no mistake whilst I’m a big fan of investing in property (well I would be wouldn’t I), it really isn’t as straightforward as the TV shows would have you believe.
As they say in all the best Financial Adds (in the very, very small print), the value of your investment can go down as well as up.
There are basically two ways to make money with a rental property, firstly obviously the rent and secondly capital appreciation or an increase in the value of the property.
Some landlords target the first going for maximum rental return or cash flow whilst others just want the core value of their assets to increase well ahead of inflation over the years.
Naturally the perfect solution is both, but as you might expect this is a difficult balance to strike
Let me give you a couple of recent examples in the Dundee area:
Firstly, a semi detached three bed on St Ninians Terrace, starting bid of £50,000 and secondly a four bed detached house on Clayhills Drive, starting bid £243,000.
For our purposes we will use the starting bids.
Ignoring the obvious differences in size, construction and price of both properties, which one would give the best rental returns? Well using what I believe to be comfortably achievable rents for these properties the rental returns would be:
St Ninians – 11.66%
Clayhills Drive – 3.85%
Now the difference is large and may surprise some people, a return of over 11% is excellent by almost anyone’s standards I think. From experience I can say that both properties would probably let pretty comfortably at those rents, I haven’t been in either of them and therefore have no knowledge of what if any renovation work would be required to bring them up to the required standard.
Of course these are extreme examples for illustration purposes. In reality the St Nininans property is of non-standard construction and capital appreciation is going to be very low, whereas the Clayhills Drive property will probably appreciate nicely over time.
The basic point I’m making is that you need to be sure of your goals, there is more than one way to make a profit with property and there are various factors to look at. Take me as an example; I’m now getting to an age where an easy let and good rental return is more important than capital appreciation.
All our circumstances are different and you can, with a little care and thought, tweak your purchase to suit your needs.
Should you have any questions about any of the above or even a property you’re considering buying that you want an opinion on then please don’t hesitate to email us at Belvoir Lettings Dundee, nick.horan@belvoirlettings.com.
Love Miss Toots X (The Property Dachshund)
