A gentleman popped into our offices on Hillingdon Hill whilst his wife was off checking out some of the bargains in Randalls closing down sale. Such a shame that, but I digress. He had come into some money and after reading my articles on the Uxbridge Property Blog took me up on the offer of a chat about investing in property. I reminded him that landlords who invest in property achieve a return on their investment in two ways.
Returns from Yield
The first is their rental income, which is what the tenant pays you. If you divide the annual rent into the value (or purchase price) of the property, this is your yield, or annual return.
Capital Growth
When a property increases in value over time, it is known as ‘capital growth’. Capital growth, also known as capital appreciation, has been strong in recent times in Uxbridge, but the value of property does go up as well as down, and of course the local conditions surrounding property will have a big effect.
The gross average yield on the typical Uxbridge rental property stands at 5% a year. Over the last 12 months, property values in Uxbridge have risen by 8.9% (according to Zoopla), so taking into account capital growth, total annual returns on an average Uxbridge property stand at 13.8% over the twelve months to December. In absolute terms this means a landlord in Uxbridge with an average property has seen a return, before deductions such as mortgage payments, lettings fees and maintenance, of £43,431 in the last twelve months. This is made up of rental income of £16,450 and an average capital gain of £26,981. Based on average current values of Uxbridge property of £329,000.
What about interest rates rises?
However, yields for new investors are going to be tough to make ends meet when interest rates rise, so it’s essential new buy to let landlords seek the best advice, buy the best sort of property, buy that property at the right price and factor in mortgage rates of five to six percent seen before the credit crunch. As I don’t sell property, I can look at the whole of the Uxbridge property market and tell you what I would consider buying, without any conflict of interest.
Have rents gone up?
A few weeks ago I talked about future property value increases, so this week I want to finish with my thoughts on rents. You see, at present, rents are moving in an upward direction, but in the main it is only in line with inflation. Therefore, from a landlord’s point of view, in real terms, they are no better off. Ideally if wages were rising, as they should be, with inflation, neither would tenants be better off either. Finally though, it might interest readers to know that the rents Uxbridge tenants have to pay for Uxbridge property are up 4.3% on where they were in 2008. Considering prices for other things (gas, food, petrol etc) have risen by 19% since 2008, tenants are getting a good deal whilst landlords are achieving good returns themselves.
