BASE RATES ARE LOW
It was in 2009 that the Bank of England reduced their base rate to the lowest ever. These were ‘emergency measures’. Six years of near zero rates could now be the norm. If you are a non-believer, have a look at the rates in Japan since 1995.
SAVERS – EQUITIES
If you’re a saver, it doesn’t look so rosy with base rates at 0.5% and your nest egg likely to be achieving 0.75–1.0%. Savers are now looking elsewhere and this can include new types of investments, e.g. peer to peer lending, Buy-To-Let properties, crowd-funding or a variety of bonds and equities.
Since the birth of Buy-To-Let in 1996, Paragon have suggested that every £1,000 invested in a BTL deposit would be worth £13,000 by 2013; compared with £3,082 for shares and £1,949 for cash. Below are some ﬁgures we’ve calculated.
If you invest £100,000 in the stock market you will get growth on £100,000 performing at the long term historical average of 6.5%, (more recently this ﬁgure has been lower) after 30 years, this ﬁgure will have grown to £661,436. Not bad you think.
BUY-TO-LET – GIVE IT A GO
The same £100,000 invested in a Buy-To-Let, fully managed over the same period with a starting gross yield of 5% and a mortgage of £80,000. After 30 years taking into account all costs along the way, you are left with a property worth £966,000 and NO mortgage.
REFERENCES AND NOTES
Siegel re historical equities growth
Nationwide re historical property inﬂation set at 4%, rent inﬂation 5%, mortgage rate 4%
Any alternative scenarios can be calculated at Abode Property Management
Survival guide after I take that step
Doing Buy-To-Let is not always easy, to beneﬁt from the rewards you will have to get far more involved than cash for instance. It can be fun, interesting and very rewarding – most importantly it creates a balanced portfolio. However, there are a few key things to remember…
Tell me about the deposit?
The higher the deposit the better your interest rate- 25% deposit should secure you an attractive rate.
How do I choose?
If you use a yield calculation, this is a simple way of comparing properties from a monetary perspective.
Where do I buy?
The majority of tenants, your customers are 22–35 years of age, buy where they want to live, do NOT buy where you want to live. Near to City Centres is a safe option, good transport links is always important also. There are various areas which are very BAD for renting, these are not the same as ‘bad’ areas.
What type of property do I choose?
The safest option is to try and appeal to the widest audience possible, e.g. a one bed is good for a single person or a couple, a two bed will also appeal to two sharers.
Is it worth paying a premium for a parking space?
The extra rental for the space is one factor here, plus it will make the property easier to rent out.
How much should I budget for maintenance?
With a new build very little, with an older property, this could average as high as 10–20%.
Do I need landlord speciﬁc insurance for my property?
Absolutely, as you would in your own house you will need cover, or if within a block, you will need to ensure the existing insurance covers your apartment.
What legal obligations are there as a landlord?
Registering the deposit properly is critical, plus gas safety testing is a regular requirement.
What are the tax implications?
This is an area that either the HMRC, your accountant or Letting agent can assist with.
Do we need a letting and managing agency?
Well of course we would say YES, but in reality a letting agent can minimize your risk of issues dramatically for very little cost. We have various services depending on your desired level of involvement.
What’s the most important advice to avoid issues as a landlord?
Thorough, proper references and choosing good tenants at the outset will minimize a problematic tenancy, plus periodic inspections.