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Buying to let - Why buying to let makes sense

By Lizzy Drewett - 23 July 2021

History has proved that over the medium to long term, from an investment perspective, ‘bricks & mortar’ has consistently outperformed most other types of mainstream investments. The concept of buy to let has become much more prevalent over the last 15 years and having caught up recently with some long-standing clients, their story proves that the potential financial returns can prove lucrative providing a sensible strategy is initiated at the outset.

It began in 2013 when I first met Sue and Richard. They were rattling around in a large house after their children had flown the nest and were keen to buy something smaller. When selling they released additional funds from their sale and wanted to make this money work for them.

We suggested they use some of the surplus proceeds as deposits to purchase some investment properties and finance the balance with a bespoke mortgage. They were attracted by the prospect as the rent received from tenants would exceed related monthly mortgage commitments and other costs.

Additionally, over time the rent received, and average property prices were likely to rise and the related amount outstanding on the mortgage would also reduce thus creating additional equity. Beresfords helped identify specific locations offering high rental demand and strong potential for capital growth. Suitable properties were sourced and purchased over a 2-year period.

Shortly after successful completion took place on each purchase Beresfords then sourced high quality tenants who underwent stringent referencing before moving in. At the time, the capital outlay from Sue and Richard was £337,250 in deposits and a further £100,000 in related costs, most of which would be recovered as and when the properties were eventually sold at some point in the future. The balance was funded via a competitively priced mortgage arranged via Beresfords ‘in house’ Mortgage adviser.

Moving forward 8 years, we have recently reviewed the performance of their investment. The collective price paid for all the properties purchased was £1,349,000 and the current market value this now stands at £2,375,000. Therefore, in terms of capital growth alone the properties have increased in value by £1,026,000 over that period up 76%.

Furthermore, the related mortgage outstanding has reduced which has in turn created even more equity for Sue and Richard. So, one must now ask that if the £437,250 in cash that was initially invested had instead been placed into another type of investment would it have got close to the type of returns witnessed so far from ‘bricks & mortar'? 

On the up! Increases in average house prices within Essex

Location

2010

2020

Difference (£)

Increase (%)

Billericay

£312,824

£486,849

£174,025

+55%

Braintree

£233,065

£344,146

£111,081

+47%

Brentwood

£348,591

£520,862

£172,271

+49%

Chelmsford

£286,087

£435,185

£149,099

+52%

Colchester

£210,836

£307,272

£96,437

+46%

Gidea Park

£241,896

£397,196

£155,300

+64%

Harold Wood

£198,323

£346,319

£147,996

+74%

Hornchurch

£249,268

£402,150

£152,882

+61%

Dunmow

£332,529

£460,354

£127,825

+38%

Ingatestone

£511,171

£699,640

£188,469

+37%

Maldon

£244,651

£382,651

£138,000

+56%

Shenfield

£403,137

£643,723

£240,586

+59%

Upminster

£311,015

£503,477

£192,463

+61%

Witham

£253,378

£409,891

£156,513

+62%

Writtle

£246,448

£423,310

£176,863

+72%

Overall

£292,214

£450,868

£158,654

+54%

 

Just a couple of our latest buy to let opportunities

Witham

Modern two bedroom apartment in popular location. Ensuite to master bedroom and further bath/WC, so ideal for professional sharers. Allocated parking, 135 unexpired lease, service charge currently £1,200p/a and ground rent £230p/a.

Asking price - Guide Price £200,000 - £210,000

Projected rent - £10,800 p/a (£900 pcm)

Gross yield - 5.4%

Tenure - Leasehold (135 years remaining)

Gross yield is calculated against current asking price and would improve if purchased at any price below this.

Find out more

Colchester

Two bedroom, top floor apartment ideally situated in the centre of town. Good internal order and a short walk to the train station. Unexpired term of lease is 132 years and current service charge/ground rent £1,250p/a.

Asking price - Guide Price £170,000-£180,000

Projected rent - £10,200p/a (£850pcm)

Gross yield - 5.6%

Gross yield is calculated against current asking price and would improve if purchased at any price below this.

Find out more

Of course, everyone’s budget is different but with suitable properties starting from £160,000 cash savings of circa £60,000 plus funding should be sufficient for someone to enter the buy to let market. Beresfords can literally deal with almost everything on a client’s behalf allowing them to get on with everyday life whilst reaping the related financial returns.

For more information without obligation email buytolet@beresfords.co.uk