Thursday, 5 November 2015

In search of the Holy Grail?


A few days ago, one of our Landlords contacted me with a question regarding one of his other student properties that he owns up in Durham. In a nutshell, the property was being rented out to students and he was looking at his position in the next couple of years, i.e. rent or sell. He also asked if he could achieve a similar return / yield if he sold in Durham and purchased in Canterbury.

Regular readers will know that to achieve the Holy Grail of Lettings of a) a great yield and b) fabulous capital growth can be a real challenge, if not impossible, therefore this required a degree of research on behalf of the Landlord to offer him some sound advice.

To enable me to respond, it was necessary to manage some research and get back to him with some facts and figures.

The property in question in Durham was bought for circa £230K and has a monthly rent of £1646, which in turn gives a respectable gross yield of nearly 8.6%.

My first area of research was the latest Land Registry data, which was published a few days ago on the 28th Oct 2015.

In the table below, we can see two key pieces of information regarding the capital growth, i.e. the South East has grown by 8.5% in the past 12 months, as opposed to the prices in the North East which have decreased by 0.3% in the same period. Interesting to also note that the North East is the only region in England and Wales that has decreased in the past 12 months.



When I ‘drilled down’ to county level, i.e. Kent & Durham, we found the problem was compounded, i.e. Kent has grown by 8.5% in the past 12 months, as opposed to the prices in County Durham which have decreased by 1.9% in the same period. (As per the table below). Of interest, I have left the data of the other counties between Durham at the top and Kent at the bottom, showing the variants between other counties.
 
 
 
 
As my regular readers will note, the most important consideration you will make before investing in property is the balance between annual return/yield and the annual value increase/capital growth. However, what affects those two things (yield and capital growth) in Canterbury or indeed Durham, are very varied and complex. The quantity of property and whether property is owner occupied, social housing (posh words for council housing) or private renting has a big difference on yield and capital growth.
The scenario above is a near perfect example of the dilemma facing investment Landlords regarding yield v capital growth and whilst the Landlord in question has not yet made a decision, by making such research for him we have been able to provide him with some of the tools to make an informed decision.
Therefore, if you are looking for a sound investment, always check the area carefully and try to obtain some honest & sound local advice.
Good hunting!