Saturday, 16 May 2015

1497% Return for Grantham Buy To Let landlords since 1999?

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 Grantham 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 Grantham 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 Grantham, 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 terraced house in the Earlesfield Lane area of Grantham. He bought a very pleasant 3 bed terraced house in 1999 for £19,600. It sold again in December just gone for £93,000, a rise of 374.48% in just over 15 years – a compound annual return of 10.94%

However, the real returns are for those Grantham 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 £19,600 purchase price of the Earlesfield Lane terraced house on an interest only 75% mortgage, he would have only needed to invest £4,900 (as his 25% deposit... borrowing the remaining £14,700), but his £4,900 would be worth today, £78,300  (£93,000 less £14,700 interest only mortgage)... a rise of 1497.95% - a compound annual return of 20.29%... and I haven’t even mentioned the rent he would have received in those 15 years!

This demonstrates how the Grantham buy to let market has not only provided very strong returns for average investors since 1999 but how it has permitted a group of motivated buy to let Grantham 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 Grantham 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 Grantham for buy to let, then one place for such information would be the Grantham Property Blog.   Link here