Thursday, 11 June 2015

524% Return for Epsom Buy To Let landlords since 2000?

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, 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 Epsom landlords – they are making their own decisions rather than entrusting them to others (such as City Whiz Kidz in London playing roulette with their Pension Pot).

So if you are investing in the Epsom 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 Epsom, 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 gross yield, or annual return.

I was talking to a landlord who bought a flat in the Lavender Road area of Epsom. He bought a very pleasant 2 bed flat in 2000 for £106,000. It sold again in November for £245,000, a rise of 131.13% in just over 14 years – a compound annual return of 6.17%.

However, the real returns are for those Epsom 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 £106,000 purchase price of the Lavender Road flat on an interest only 75% mortgage, he would have only needed to invest £26,500 (as his 25% deposit... borrowing the remaining £79,500), but his £26,500 would be worth today, £165,500 (£245,000 less £79,500 interest only mortgage)... a rise of 524.52% - a compound annual return of 13.98%... and I haven’t even mentioned the rent he would have received in those 14 years!

This demonstrates how the Epsom buy to let market has not only provided very strong returns for average investors since 2000, but how it has permitted a group of motivated buy to let Epsom landlords to become particularly wealthy. In fact, if this landlord had continued to remortgage the property as it went up in value, he could by our figures 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 Epsom 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 Epsom for buy to let, then one place for such information would be here at the Epsom Property Blog or by emailing me at ian@directresidential.co.uk

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