I had an interesting email from someone in Harlow
a few weeks ago that I want to share with you (don’t worry I asked his
permission to share this with you all). In a nutshell, the gentleman lives in Little
Parndon, he is in his mid 60’s and still working. He has a decent pension, so that
when he does retire in a couple of years’ time, it will give him a comfortable
life. He had recently inherited £240,000 from an elderly aunt. One option he
told me was put it into a savings account. The best he could find was a 2 year
bond with the Post Office which paid 1.9%; meaning he would get £4,560 in
interest a year. One of his other options was to buy a property in Harlow to
rent out and he wanted to know my thoughts on what he should buy, but he had
concerns as he didn’t want to take a mortgage out at his time of life. He was
also worried about all the tax changes he had read about in the papers for
landlords.
Notwithstanding the war on Harlow landlords
being waged by George Osborne, the attraction of bricks and mortar endures for
many. As our man is a cash buyer, he would not have to deal with the intricate cut
to mortgage interest tax relief that will diminish, or even eradicate, the
profits of many Harlow landlords. It’s true he would face the extra 3% in stamp
duty to buy a second property, but with some good negotiation techniques, that
could soon be mitigated.
I told him that buying a Harlow buy to let
property is all about the total return on investment. True, he could put the
money in the Post Office bond and receive his interest of £4,560 a year or, as
he rightly suggested, invest in property in Harlow. The average yield (yield
being the equivalent of the interest rate on the property) at the moment in Harlow
is 3.72% per annum, meaning our potential F.T.L (First Time Landlord) should be
able to, depending on what he bought in the town, earn before costs £8,928 a
year. (However, I told him there are plenty of landlords in Harlow earning half
as much again (if not more), if he was willing to consider more specialist
investment types of properties – again, if you want to know where – look at my
blog or drop me an email).
The bottom line is that the success of
investing in Harlow buy to let property versus a savings account with the Post
Office (or whatever Bank or Building Society is offering the best rate) will
depend on the performance of those
assets. Unlike with a savings account, with
property the capital you invested can also go up (and yes, it can go down as
well – more of that in second). Property values in Harlow have risen in the
last twelve months by 9.5% meaning, that if our chap had bought a year ago, not
only would he have received the £8,928 in rent, but also seen an uplift of £22,800
…meaning his overall return for the year would have been £31,728 (not bad when
compared to the Post Office!).
..
but the doom mongers amongst you will say, property values can go down,
as they did in 2008, and in 1988 and 1979. Yes, but after 1979 prices had
bounced back to their ’79 levels by 1984 and went on to grow an additional 58%
in the following four years. Then again, they dropped in 1988 and did take 13
years to reach back to those ’88 figures, but the following six years (between
2001 and 2007) they then increased by an additional 66%. Now, according to the
Land Registry, average property values in Essex currently stand 11.56% above
the January 2008 level, and anecdotal evidence suggests that in the nicer parts
of Harlow, we are well above these sorts of levels. Therefore, all this talk of
property crashes is unfounded.
… and what would that £240,000 get you in Harlow? A
decent 3 bed end terrace near Staple Tye or a very nice 2 bed terrace in savoy
Wood or Church Langley .. in fact, the world is your oyster. But which Oyster?
Well, my blog reading friends, if you want to read similar articles like this
and what I consider to be the very best of buy to let deals in Harlow,
irrespective of which agent is selling it, then you need to visit the Harlow Property
Blog