Buy to let is essentially different from investing in stocks
and shares or putting money in the Building Society. Whilst these other
investments (Building Society Passbooks, Stocks and Shares etc) are
passive ie once the money has been invested it you leave it
alone, with buy to let, things are more hands on, in fact it’s almost a
business. One thing the landlords I speak to say is the fact that they like buy
to let because it is both an investment, as well as a business. It is this
factor that attracts many of my Canterbury landlords – they are making their
own decisions rather than entrusting them to others (such as City Whiz Kidzs in
London playing roulette with their Pension Pot!).
So if you are investing in the Canterbury property market,
you can earn from your investment in two ways. 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 Canterbury,
but the value of property does go up as well as down just like shares do, but
the initial purchase price rarely decreases.
Rental income is what the tenant pays you - hopefully this will grow
over time. If you divide the annual rent into the value (or purchase price) of
the property, this is your yield, or annual return.
I was talking to a landlord who bought a terraced house in
the St Peters Place area of Canterbury. He bought a very pleasant 3 bed terrace
in 1999 for £72,000. It sold again in February just gone for £285,000, a rise
of 295.83% in just over 15 years – a compound annual return of 9.61%
However, the real returns are for those Canterbury landlords
who borrowed money to purchase their buy to let property. They have made
significantly higher returns than those who paid 100% cash. If the landlord had
borrowed 75% of the £72,000 purchase price of the St Peters Place terraced
house on an interest only 75% mortgage, he would have only needed to invest £18,000
(as his 25% deposit... borrowing the remaining £54,000), but his £18,000 would
be worth today, £231,000 (£285,000 less £54,000
interest only mortgage)... a rise of 1183.33% - a compound annual return of 18.55%...
and I haven’t even mentioned the rent he would have received in those 15 years!
This demonstrates how the Canterbury buy to let market has
not only provided very strong returns for average investors since 1999, but how
it has permitted a group of motivated buy to let Canterbury landlords to become
particularly wealthy. In fact, if this landlord had continued to re-mortgage
the property as it went up in value, he could by our reckoning have had an additional
two or three properties (albeit with larger mortgages but greater future
potential).
As my article mentioned a few weeks ago, more and more Canterbury
people may be giving up on owning their own home and are instead accepting long
term renting whilst buy to let lending continues to grow from strength to
strength. If you want to know what (and would not) make a decent property to
buy in Canterbury for buy to let, then one place for such information would be
the Canterbury Property Blog. www.canterburypropertyblog.com
or email Canterbury@martinco.com
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