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 i.e 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 Hampstead landlords – they
are making their own decisions rather than entrusting them to others (such as City
Whiz Kids in London playing roulette with their Pension Pot).
So if you are
investing in the Hampstead 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 Hampstead, 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 was talking to a
landlord who bought a flat in the Wedderburn Road area of Hampstead. He bought
a very pleasant 2 bed flat in 2002 for £250,000. It sold again in January just
gone for £895,000, a rise of 258% in just under 13 years – a compound annual
return of 10.31%
However, the real returns are for those Hampstead 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 £250,000 purchase price of the Wedderburn Road flat on an
interest only 75% mortgage, he would have only needed to invest £62,500 (as his
25% deposit... borrowing the remaining £187,500), but his £62,500 would be
worth today, £707,500 (£895,000 less £187,500
interest only mortgage)... a rise of 1032% - a compound annual return of 20.52%... and I haven’t even
mentioned the rent he would have received in those 13 years!
This demonstrates how the Hampstead buy to let market has
not only provided very strong returns for average investors since 2002 but how
it has permitted a group of motivated buy to let Hampstead 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 Hampstead
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 Hampstead for buy to let, then one place for such information would be
the Hampstead Property Blog at www.NW3propertblog.com
If you are looking for an agent with experience that can help you find the right tenant for your property, then contact us to find out how we can get the best out of your investment property. Email me on chris@ashmoreresidential.com or give me a call on 020 7435 0420. Pop in for a chat – we are based on Ashmore Residential, Suite 7, 25-27 Heath Street, London, NW3 6TR. The kettle is always on.
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