Tuesday, 23 February 2016

Inheritance - Is buying Aylesbury Property still the best place for my windfall?

I had an interesting email from someone in Aylesbury a few days ago that I want to share with you. In a nutshell, the gentleman lives in Bedgrove, he is in his mid 60’s and still working. He has a good pension, so that when he does retire in a couple of years’ time, it will give him a comfortable lifestyle. He has recently inherited £250,000. One option he told me was to put the money 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 £4,750 in interest a year. One of his other options was to buy a property in Aylesbury to rent out and he wanted to know my thoughts on what he should buy, but he had concerns as he did not 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 Aylesbury landlords currently 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 concern himself with the cut to mortgage interest tax relief that will diminish, or even eradicate, the profits of many Aylesbury landlords. It is 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 an Aylesbury 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 £4,750 a year or, as he rightly suggested, invest in property in Aylesbury. The average yield at the moment in Aylesbury is 3.28% per annum, meaning our potential First Time Landlord should be able to, depending on what he bought in the town, earn before costs £8,199 a year. (However, I told him there are plenty of landlords in Aylesbury earning 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 Aylesbury 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 a savings account, with property the capital you invested can also go up (yes, it can go down as well – more of that in second). Property values in Aylesbury have risen in the last twelve months by 9.6% meaning, that if our chap had bought a year ago, not only would he have received the £8,199 in rent, but also seen an uplift of £24,000 in the value of his asset…meaning his overall return for the year would have been £32,199 (not bad when compared to the Post Office!). 

… but the doom mongers among 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 Buckinghamshire currently stand 19.33% above the January 2008 level, and anecdotal evidence suggests that in the better parts of Aylesbury, we are well above these levels.  

… and what would that £250,000 buy you in Aylesbury? A smart 2 bedroom terrace close to town , a great 2 bedroom house on Fairford Leys or Watermead ... in fact, the world is your oyster. But then you need to decide what is the right property to maximize your returns. As ever the blog has articles that cover that point but for more detailed current discussion email me or pop in when you are passing.

Landlord drop in session Saturday 19th March 10.00am – 2.00pm, more details to follow