In a recent article, when we spoke about the difference
between the four towns of Ilkeston, Heanor, Eastwood and Belper property
markets, it produced a number emails and a couple of people making contact with
me for a chat about investing in buy to
let.
Many people in our part of Derbyshire and Nottinghamshire have
seen the buy to let market become all about nest egg investment, over the last
few years. It is fuelled by pitiful interest rates on building society savings.
It reflects the fact that building society savings accounts are paying half a
per cent interest and pension returns are struggling to match expectations,
turning more and more people into landlords to secure their future. So what can you expect from your rental
property investment? In the short term, rental yields are important, and in Erewash
and Amber Valley, the average annual yield is in the order of 3.4% to 5.5% per
year (depending on which town and type of property you buy of course).
In the long term though, the question of capital growth is
as important, if not more important (because if you have great short term
yields, but the value of the property doesn't keep up with the rest of the market,
you will have an asset that in real terms is dropping). Taking Ilkeston as an
example (but the figures are just as relevant for Heanor, Eastwood and Belper) as
we mentioned in a previous article, average property values in Ilkeston currently
stand at £143,400. Property values in Ilkeston have risen by 15.4% in the last
5 years. On the other hand, property investment is a long term game, so I
wanted to share with you the research I did for a couple of Amber Valley and
Erewash landlords. Roll the clock back 10 years to 2004, the average value of a
property in Ilkeston was £97,700. 15 years to 1999 makes interesting reading,
as the average Ilkeston property value was only £50,100, 30 years makes it £15,700
and just for a bit of fun, we looked at 1974 when it was £5,940!
However, if one looks at say a 30 year investment period, if
you had put £15,700 into the stock market in 1984 instead of buying a house in Ilkeston,
your shares today would be worth £91,008. Put the same £15,700 in a Building
Society account and you reinvested the interest back into the account, and your
Building Society passbook would have £86,889. Compare that with the property
market in Ilkeston and the property would be worth £143,400 today. Quite a bit
of difference to the building society until you realise that with the rental
property you would have received in excess of £78,000 in rent over those 30
years, which wouldn’t have received with the Building Society account!
If you would like to discuss my thoughts on the rental
markets in Ilkeston, Heanor, Eastwood or Belper, please feel free to pick up
the phone 01332 910499 or email me on lettings@sprucetree.co.uk
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