In recent years many people in the Northeast have seen the Buy to Let market as all about nest egg investments. It's fueled by pitiful interest rates on building society savings accounts and pension returns that are struggling to match expectations..
In recent years many people in the Northeast have seen the Buy to Let market as all about nest egg investments. It's fueled by pitiful interest rates on building society savings accounts and pension returns that 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 Sunderland, the average Gross Yield is better than most, being around 4.8% per year
However, that’s based on average sales values and average rents, and as followers of this blog will know, well informed Landlords in Sunderland (buying the type of properties we suggest in the areas we recommend) can easily achieve between 6.0% and 8.0% per year
In the long term though, the question of capital growth is as important, if not more important (because even if you have great short term yields, if the value of the property doesn't keep up with the rest of the market, in real terms you’ll have a depreciating asset)
Average sold property values in Sunderland currently stand at £125,611 which is an increase of 9.44% in the last 5 years
We constantly advise that property investment is a long term game, so I wanted to share some research I recently did for a couple of our Sunderland investment Landlords
Roll the clock back 10 years to 2004, the average value of a property in Sunderland was quite similar to what it is now at £123,967 (but we all know what happened to the market between then and now!). Looking back 15 years to 1999 makes interesting reading, as the average Sunderland property value was only £55,650, going back 30 years to 1984 and the average value was only £25,280
Looking at a 30 year investment period, if you’d put £25,280 into the stock market in 1984 instead of buying a house in Sunderland, your shares today would be worth £145,586. Put the same £25,280 in a Building Society account and if you reinvested the interest back into the account, your Building Society account would have £139,908 in it. Compare that with the property market in Sunderland and the average property would be worth £125,611 today
Over a 30 year period there’s not much in it between the building society and shares, with the property investment looking the worst of the three options.
That’s until you realise that with the rental property you’d also have received around £90,000 in rent over those 30 years, which you wouldn't have received with the Building Society account or shares!
Clearly when investing in property there’s going to be associated costs you don’t get with shares or savings, such as insurances, property maintenance costs & professional fees but many of these costs are tax deductible and certainly shouldn't come close to the £90,000 in rent received
You may think this is wholly unrealistic given few people would have such a large lump sum to invest in a property outright (and therefore the above rental income must be offset against Buy to Let mortgage payments) but given the forthcoming changes in pension rules from 2015 (meaning pensioners can draw down their pension in full if they wish rather than having to buy an annuity), there are likely to be significant numbers of people in their 50’s & 60’s wishing to do just that to fund their retirement and at the same time provide a nest egg for the future