This month we speak to one of our clients about their growing property portfolio to get their personal experience of buying, running and selling property as an investment.
“To set the scene, I had dabbled with property a little. I have bought, renovated and sold a small terrace property for a modest profit. I then bought another property with a friend as a buy-to-let, renovated and let that property, whilst battling planning for a new build in the garden – handy that my partner in this is an architect!
Then came the next opportunity: a property in need of renovation with a potential building plot. This was too good to miss out on. The estate agent was advising prospective buyers that the plot was not suitable to build on, which kept the price down but was a faux pas on their part – a complicated restrictive covenant that took a bit of unpicking and detective work saw this removed for a very modest cost.
Each owning our own property (but with our free capital tied up in the current BTL property) brought about the first challenge: finding the deposit funds. A call to Clare at Mortgages for Yacht Crew, and we were able to re-mortgage to free up £90,000, which was close but not quite enough. The purchase was agreed at £265,000, rental potential was £1000 per month, but this was then down-valued to £800 because of the renovation work needed. This was an important consideration as it reduced the amount we were able to borrow. After a bit of scraping around, we finally had our £115,000 deposit pulled together.
So that was it, we now owned our next project. To get to this stage we had forked out £115,000 for the deposit, £12,000 in stamp duty (as we owned another property there is an additional 3% charge on top of the other stamp duty fee) and £2,000 in solicitor fees. Renovation took a lot of evenings and weekends but this kept costs as low as possible, at £16,000. That gave us a total investment cost of £133,000, plus a mortgage of £150,000, taking the total cost to £283,000, and with a current market value of £295,000, we were slightly in profit – but still had a free plot of land.
Taking the land out of the equation, as this is a rare find, did this buy to let still stack-up? Traditional Return on Investment calculations work on the total price vs the rent. In this example, the house was valued at £295,000 with a monthly rent of £1,000, giving this just 4.07% ROI. However, my preference is to look at the money invested, versus the gross profit. Here, that would be £1,000 rent minus the £350 monthly mortgage repayment, which equals £7,800 in annual income. Taking this against the £115,000 investment gives a much more modest 6.7% ROI, as well as the £10,000 capital growth on the property.
Letting the property was easy, as there is such a shortage of rental stock, we were inundated. Good tenants and no payment concerns saw the property let for the last three years, with one tenancy change. Over those years that has meant a gross profit, after mortgage costs of £23,400. However, the real gain is from capital growth, with the housing market continuing to grow, the property value has increased to £370,000 which is £75,000 in the three years.
After another call to Clare, we have used this capital growth and the increase of rental valuation to release another £55,000 of equity from the property. The best bit: with current low interest rates, we were able to keep the monthly payments about the same, meaning that the £2,000 early repayment charge was easy to swallow up. With a 10% rent increase, this property continues to make just under £9,000 a year, and we now have £55,000 to reinvest.
So, are BTL still a good investment? For me, in the three years, we have a theoretical (as the property is not sold) return of just over £110,000, from my initial £133,000 investment. As a percentage, this is 83% overall or 27% annual growth – I’m happy with that!”
This is just one of many success stories! If you would like to see how we can help, contact a member of our team today:
*Important Notice – This article isn’t intended as personal advice, it is one client’s real life case study and their own personal opinions. If you’re not sure whether an investment is right for you please seek advice.
*Your home may be repossessed if you do not keep up repayments on your mortgage