If you were born in
the early 1970’s or late 1960’s, if you haven’t started to think about it yet,
retirement is closer than you think. In fact the number of years you have left
to work is less than the number of years you have worked. The basic state pension
is worth £115.95 a week for a single person in 2015/16 (or £6,029 a year) and £231.90
a week for a couple (£12,118 a year) as long as your partner has paid their
stamp (although there are certain get out of jail cards if they haven’t).
As a household,
could you live on just over £12k a year?
However, could the
property you are living in save you from poverty when you reach retirement? You
see, a regular income is vital in retirement, and the bricks and mortar you own
in Hampstead could provide a way for you to finance life when you retire.
If you are in your
30’s, instead of saddling yourself with bigger and bigger mortgages, going from
your first time buyer flat, to a terraced, to the semi and then the large
detached house, you could instead keep your terraced or small semi, turning it
into a buy to let property, let the rent pay the mortgage and then rely on
capital growth to provide you with a lump sum when you sell the property and
retire. One of the biggest plus points of buy to let is what is known as leverage.
Let me explain ... say you have a deposit of 25% and the value of the property
rises by 3% a year, your gains in fact multiply to 12%. However, if
property prices drop, 'leverage' can be catastrophic, as losses will also be
multiplied. Property values have dropped a number of times in the last 50
years, but they always seem to bounce back ... property must be seen as a long
term investment.
Let me explain how
leverage could work for you. If you had bought a Hampstead house in the Spring
of 1983 for £100,000, using a 75% mortgage and 25% deposit, (meaning your
deposit would be £25,000). Today, that Hampstead property would have risen in
value to £993,145, a rise of 893.1%. However, when you look at the growth on
just your deposit, the rise is even better ... instead of 893.1%, we see a rise
of 3873% (remembering that the mortgage would have been paid off).
See the graph below displaying the percentage increase in values.
However, buy to let
is not all about capital growth and in retirement, income is more important
than capital growth, as rent is the key to a steady income.
So surely the best strategy is to buy those Hampstead
properties with the high rents (when compared to the value of the property). These
are called high yield properties in the buy to let world because the monthly
return is so much greater. So, surely they are the best in Hampstead? Possibly,
but the properties that offer these higher yields (in the order of 4% to 6% per
year) tend to be in such areas as Finchley Road that in the commercial heart Hampstead.
Historically they haven’t offered such good capital growth when compared to the
area average, have a higher tendency for void periods and such properties tend
to attract tenants that have a greater propensity to be high maintenance.
Therefore, if a high maintenance rental
portfolio wasn’t for you, another strategy could be buy a property with relatively
smaller rental returns of 2.5% to 3.5% per year (i.e. lower yields), but in a
more up market, residential part of the NW3 area such as Belsize Park or in and
around Hampstead Village. Properties such as these tend to suffer from less
void periods (i.e. when there is no tenant in the property paying you rent) and
they historically have had better long term capital growth when compared to the
area average.
See graph below comparing yields.
Every landlord is different and every property is different.
All I suggest to you is do your homework.
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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forget to visit the links below to view back dated deals and Hampstead Property
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