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 Walton-on-Thames 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 Walton-on-Thames 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, this has been strong in recent times in Walton-on-Thames, 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 know of a landlord
who bought an apartment in the Oakdene Court development in Walton-on-Thames in
2000 for £122,950. It sold again in January just gone for £287,795, a rise of 134.07%
in just over 14 years – a compound annual return of 6.26%.
However, the real returns are for those Walton-on-Thames 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 £122,950 purchase price of the Oakdene Court terraced house
on an interest only 75% mortgage, he would have only needed to invest £30,738 (as
his 25% deposit... borrowing the remaining £92,212), but his £30,738 would be
worth today, £195,583 (£287,795 less £92,212
interest only mortgage)... a rise of 536.29% - a compound annual
return of 14.13%... and I haven’t even mentioned the rent he would have
received in those 14 years!
This demonstrates how the Walton-on-Thames 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 Walton-on-Thames 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 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 Walton-on-Thames
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 Walton-on-Thames for buy to let, then one place for such information
would be the Walton-on-Thames Property Blog.
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