Buying to let - A genuine example of why investing makes sense!
Considering the current climate, it is very difficult to predict how long this period of uncertainty will last. However, history has proved that ‘bricks & mortar’ has consistently outperformed most other forms of investment over the medium to long term.
The concept of buying property to rent out has, I’m sure, been a hot topic of conversation for many over recent years and having caught up recently with some long-standing clients, it proves that potential returns can certainly prove lucrative.
HERE IS THEIR STORY
It really began when I first met them in 2013. They were rattling around in a large house after their children had flown the nest and were keen to downsize. In doing so they would also release additional funds and wanted to make this money work for them.
We discussed the concept of buying to let and suggested they use some of the surplus proceeds from the sale of their main home as deposits to purchase a small number of investment properties and finance the balance with a bespoke mortgage. They were attracted by the prospect as the rent received from the tenants would more than cover the monthly mortgage commitments and there would still be more than enough left over for other costs including agents fees and any related ongoing maintenance which may be required. Additionally, over time the related mortgage would gradually be repaid, which indirectly would create additional profits for them as and when they chose to sell property in the future.
We also identified a geographical area which would offer strong potential capital growth over the medium to long-term and so their journey with us began. Suitable properties were sourced over a 6-month period, appropriate funding was put in place and the purchases proceeded to successful completion. Suitable tenants were then sourced and within a relatively short space of time our clients were receiving regular rental payments. Of course, the key at the outset was to identify the right properties to buy which were located in areas that would prove popular with prospective tenants, but also go up in value over time.
At the time, their capital outlay was £250,000 in deposits and a further £60,000 in related costs and fees, most of which could be reclaimed as and when the properties were eventually sold at some point in the future. The rest was funded with a competitively priced mortgage via one of our specialist mortgage advisers.
Moving forward 7 years, we have recently reviewed the performance of their portfolio. The price of the properties have, on average increased by 52% over the 7 years which in monetary terms means that the 4 properties which were collectively purchased for just under £1million are currently worth £1,520,000.
During that period, the original mortgage taken out has also been reduced therefore creating even more tax free equity. Although our clients currently have no plans to sell their portfolio, the additional equity generated provides other options. They can put some of this into buying additional properties or release cash for other reasons. However, I know that their main priority is to ‘cash in’ and sell some of the properties at some point in the future, to help fund their lifestyle in retirement.
Other clients in similar situations may opt to retain all 4 properties with the aim of completely paying off the related mortgage and using the rent generated as an income.
If this were currently the case, based on the rent being achieved, the properties would collectively generate annual gross income of £67,000 per year. This would certainly enhance their financial options especially if it were considered the right time to retire.
‘Ultimately every client's strategy is different, and our aim is to develop a plan around their own individual requirements. However, regardless of their circumstances, the number one priority in every case is to get the right advice at the outset and I guess that’s where myself and my team come in’. - Steven Bond, Beresfords Managing Director.
To find out more about how you could benefit from buy to let, get in touch:
Telephone: 01245 397491