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 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 £920,000, a rise of 268% in just under 14 years – a compound annual
return of 9.75 %
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), (his £187,500 would be worth today, £690,000) (£920,000 less £187,500 interest only
mortgage)... a rise of 390.66% - a compound annual
return of 27.9%... and I haven’t even mentioned the rent he would have received
in those 14 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 my reckoning have had additional two or three
properties (albeit with larger mortgages but greater future potential).
As my article mentioned a week ago, more and more Hampstead people
may be giving up on owning their own home and are instead accepting long term
renting. Despite the recent changes in SDLT announced by The Chancellor, George
Osborne, having scared off some smaller, less established landlords, buy to let
lending continues to grow from strength to strength with some very attractive
deals on offer in a bid to bring Investors back to the market. If you want to
know what (and would not) make a decent property to buy in Hampstead or
anywhere else in NW3 for buy to let, then one place for such information would
be the Hampstead Property Blog at www.NW3propertblog.com
or if you have an investment in mind and would like a second opinion, feel free
to write to me chris@ashmoreresidential.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.
Don't forget to visit the links below to view back dated deals and Hampstead Property News.
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