A chap popped into our office on Duke Street the other day whilst his better half was doing a bit of shopping in the High Street. He had come into some money and after reading my articles in the Essex Chronicle, took me up on the offer of a chat about investing in property in Chelmsford. I reminded him that landlords who invest in property achieve a return on their investment in two ways. The first is their rental income, which is what the tenant pays you. If you divide the annual rent into the value (or purchase price) of the property, this is your yield, or annual return.
When a property increases in value over time, it is known as ‘capital growth’. Capital growth, also known as capital appreciation, has been strong in recent times in Chelmsford, but the value of property does go up as well as down, and of course the local conditions surrounding property will have a big effect.
The gross average yield on the typical Chelmsford rental property stands at 4.4% a year; representing a rise of 0.8% from one year ago, up from 3.6% in 2013.
Over the last 12 months, property values in Chelmsford have risen by 7.8%, so taking into account capital growth, total annual returns on an average Chelmsford property stand at 12.2% over the twelve months to December. In absolute terms this means the average landlord in Chelmsford has seen a return, before deductions such as mortgage payments and maintenance, of £37,389 in the last twelve months.
This is made up of rental income of £14,292 and an average capital gain of £23,097. However, yields for new investors are going to be tough to make ends meet when interest rates rise, so it’s essential new buy to let landlords seek the best advice, buy the best sort of property, buy that property at the right price and factor in mortgage rates of five to six percent seen before the credit crunch.
A few weeks ago I talked about future property value increases, so this week I want to finish with my thoughts on rents. You see, at present, rents are moving in an upward direction, but in the main it is only in line with inflation. Therefore, from a landlord’s point of view, in real terms, they are no better off. Ideally if wages were rising, as they should be, with inflation, neither would tenants be better off either.
Considering prices for other things (gas, food, petrol etc) have risen by 19% since 2008, tenants are getting a good deal whilst landlords are achieving good returns themselves.
On a completely separate issue, I would like to thank the numerous landlords that I have spoken to or received correspondence from who have complimented me on these articles. It proves at least one thing, it seems pretty obvious that information on the local property market is much more interesting than the usual “Landlords Wanted” or “Tenants Waiting” adverts that we often see. The one that seems to tickle landlords the most is the old “We do Free Valuations ” claim – as if it’s unique! I’m sure we stopped charging for valuations back in the 80’s! I’m glad the articles are proving useful!