The average Burton landlord sees a return of £12000!

A chap popped into our offices on the High Street the other day whilst his better half was shopping in the town centre. He had come into some money and after reading my articles in the Burton Mail, took me up on the offer of a chat about investing in property.

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 Burton, 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 Burton rental property stands at 3.4% a year, representing a fall of 0.2% from one year ago, down from 3.6% in November 2013. Over the last 12 months, property values in Burton have risen by 4.2%, so taking into account capital growth, total annual returns on an average Burton property stand at 7.6% over the twelve months to December. In absolute terms this means the average landlord in Burton has seen a return, before deductions such as mortgage payments and maintenance, of £11,832 in the last twelve months. This is made up of rental income of £6,036 and an average capital gain of £5,796.

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. As I don’t sell property, I can look at the whole of the Burton property market and tell you what I would consider buying, without any conflict of interest.

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. Finally though, it might interest readers to know that the rents Burton tenants have to pay for Burton property are still 4% lower than they were 2008. Considering prices for other things (gas, food, petrol etc) have risen by 19%and wages by 13.1% since 2008, tenants are getting a good deal whilst landlords are achieving good returns themselves.

Lots of good news for Burton landlords, but it’s still time to be cautious.

I had an interesting chat with a landlord who uses another letting agent in the town after she popped into our offices for a coffee whilst her husband was at the football watching Burton Albion trying to consolidate their quest for promotion. We got taking about the Burton market and thought other landlords might be interested.

You see, property values didn’t stop dropping in Burton until August 2013, so after a strong run over the last 16 months, the ever upward drive of house price rises has started to turn with increases now at an almost standstill for the first time since the middle of 2013. Now it could be said this easing of the housing market in Burton can be attributed partly to the time of year (last year property values in Burton dropped by 0.3% in November but recovered by 0.1% in December), it is obvious that estate agents in Burton are wary about the direction of the market as a result of the not as strong demand and fewer house sales.

With the uncertainty of a possible interest rate rise, new mortgage rules, a general election on the horizon and recent warnings of a house price bubble. Although the main indicators suggest that buyers will start to gain the upper hand, especially with the new stamp duty rules announced recently by George Osborne. However, there are many homeowners who don’t need to sell and won’t bother unless it’s economically beneficial to do so, but most homeowners are homebuyers, so what they loose with one they gain with another.

This is all good news for landlords looking to buy rental property with the changes in stamp duty and later in 2015, the new rules regarding pensions, where you will be able to take money out of your pension pot to invest in property. However, at the same time, I would say don’t just buy any old property in Burton. First time landlords need to be cautious. The doubling of house prices every seven to ten years which has taken place since WW2 doesn’t seem to have been seen since the mid 2000’s. The property market is shifting with more properties being built and restrictions put on mortgage lending, the likelihood of the property market increasing at the same levels as the past are questionable. But investing in property is also about receiving the rent.

On the one hand going for high yielding Burton property to rent out seems an obvious choice, but high yielding property often doesn’t go up in value that well and in some circumstances doesn’t keep up with inflation, meaning in real terms you have a depreciating asset (I spoke about this a few months ago in ‘The Burton Property Blog’). So surely you should pick a property that has great capital growth then, because of the obvious potential to generate long term capital profit, especially with inflation eating away at our savings. However, rental yields on high capital growth properties (in areas such as Repton) tend to be low meaning if you are taking a high percentage mortgage, the rent doesn’t pay the mortgage payments.

That is why in the New Year, due to the demand, we will be running a number of informal Landlord Workshops for new and existing Burton landlords, irrespective of whether you are a self managing landlord (ie you do it all yourself), landlords with other agents, people who are thinking of becoming a new buy to let landlord in Burton for the first time in 2015 and finally our landlords that already let us manage their properties.

A new property portal has arrived.... OnTheMarket.com

On Monday 26 January 2015, a new property portal - OnTheMarket.com – is launched. The arrival of this brand new portal is a very exciting development for the property market.

The portal is run by Agents’ Mutual, which is made of a membership of over 2,000 property agency firms, amounting to 4,000 offices. It is envisaged that the membership will grow significantly once the portal goes live. The motivation of the portal is to deliver the best user experience for prospective tenants, with results produced clearly and in an uncluttered way with no pop-ups or third party advertising as is found on the other major portals.

To give the portal a chance of establishing a meaningful presence, each member agent will only be allowed to display properties on one other major portal. As such, Professional Properties undertook a detailed investigation into its own property portal data, looking at numbers of phone calls and email enquiries generated from both Rightmove and Zoopla. Further analysis into the quality of leads, as well as the conversion of leads received to successful lets was also looked at in detail.

In conclusion, we decided that that the best portal for Professional Properties to appear on, as well as OnTheMarket.com, would be Rightmove. Rightmove not only delivers more enquiries to Professional Properties, but the quality of those enquiries are, in our opinion, higher than those received from Zoopla.

Rightmove is, in our opinion, the market leader, ranked 8th in the list of the most viewed websites in the UK, well ahead of Zoopla at 35^th. Google has announced that it is the most searched for business in the UK, thus adding further evidence that Rightmove is the right choice.

We believe the combination of our own website, www.professionalproperties.co.uk, together with OnTheMarket.com, the new entrant with all the publicity that will ensue, as well as Rightmove, the most established and dominant portal in the market, will give our clients properties unrivalled exposure in respect of online marketing.

From 26th January 2015, properties being marketed by Professional Properties will no longer appear on Zoopla.

At Professional Properties, we firmly believe that this is an exciting time for the property market and we believe OnTheMarket.com will be of long-term benefit for all those with an interest in renting property in our local area.

If you have any questions regarding the above, please feel free to contact me.

Should I Rent or should I Buy?

A few weeks ago, my article about why Burton twenty somethings aren’t buying anymore, caused a number of landlords to contact me. So much so, I want to revisit the story for a second time as some landlords are concerned demand will dry up as people start to buy instead of rent.

So .. Renting verses Buying in Burton – Which is best? An intriguing question, yes? Or one which would appear patently obvious to answer? Surely we are all in this to own our own property one day rather than paying out large sums of what is essentially ‘dead’ money as some like to call it in rent. Or is there a little more to it than that?

Let’s firstly look at a typical property sale.  In Winshill, there are a number of two bedroom semis for sale at £110,000. Say a first time buyer bought it for £104,500 working off a typical mortgage rate of 3.89%, with a 30 year repayment plan and based on an initial deposit of £5,225, the monthly repayments would be £465 per month. Turning my attention to the rental side and this property would fetch approximately £520 per calendar month.

So, it’s cheaper to buy then rent, so it would appear as though the answer is obvious. Buying must be the way to go. The sales market must be booming, but yet in a lot of cases it is not, and the number of people choosing to rent continues to grow. Besides the numbers, it’s clear that a certain percentage of people still favour renting than buying. The National Centre for Social Research Report backs this up pointing to a shift in attitudes from previous generations when buying at the first opportunity was the ‘done thing’.

Although in pure monetary terms, buying seems like the best option, first time buyers are clearly also considering the risk associated with owning their own property. The reasons for that reluctance to buy are many and varied, but here are some of my thoughts.

Firstly, it’s a big financial commitment –first timers need to be sure they can afford what they’re taking on.  Also, when interest rates rise, repayments will also go up . New homeowners also need to be sure they can afford maintenance costs such as replacing a boiler if it packs up or fixing a leaky roof. If you stretch yourself too much when you buy you may resent not having money for meals out, holidays and entertainment.

You have less flexibility than when renting. For example, if you want to move for work or personal reasons selling up and moving on is far more expensive if you own as you’ll have all of the associated estate agency and legal fees. Also bear in mind that it may not always be easy to sell your home – (it was really tough to sell a property in Burton in 2008 and 2009, so it’ll be dependent on what’s happening in the market. Finally, If you’re living with someone else and split up, the process of sorting out the property will be far more complicated and expensive

Buying and owning your own home is certainly what the majority of us continue to strive   towards, and but now more than ever ‘Generation Rent’ continues to gather considerable momentum and shows no sign of slowing down in the future. No doubt this will be welcomed news amongst Burton’s landlords and investors.

If you want to discuss this article in more detail, then please pop into our offices on the High Street in Burton for a cup of coffee and a chat!

Welcome to 2015!

Well hello again and welcome to 2015!

As an addition to my own blog this year, I will be posting any newsworthy items that I believe offer useful information to landlords and homeowners from the lettings industry.

The first of these is an article I spotted regarding the level of buy to let mortgages..

Over one million landlords have buy to let mortgages and last year repaid £21.9 billion - a sign of their commitment to the sector, claims the National Landlords Association.

It says the average cost of landlords’ mortgage repayments in the last year has been £20,950, which excludes up-front deposits of typically 25 per cent of property value.

The NLA’s findings show that landlords with one-to-four properties spent an average of £10,335 on repayments last year, compared to £55,285 spent by those with larger portfolios of 11 or more properties.

“These figures really hammer home just how much money private landlords put into providing homes for the UK’s estimated nine million renters, especially if we consider that such a large proportion are single-property or smaller portfolio landlords” says NLA chairman Carolyn Uphill. 

“The majority of private individual investors are keeping a supply of well-maintained homes on the market when previous governments have failed to incentivise or stimulate more housing and social housing has been in long term decline. There’s no sign of either of these issues letting up anytime soon so is it any wonder that buy to let lending is at an all-time high?” 

Well Carolyn, buy to let lending continues to grow and a lot of mortgage brokers that I speak to in the area tell me that the percentage of buy to let mortgages that they are doing now is higher than ever and is a massive part of their overall business. The rates are still good and the uptake is increasing. So, if you wish to take advantage of the buy to let mortgage market, give me a call and I will point you in the direction of the best mortgage advisers around!

Another article that caught my eye was on the subject of rent arrears. An article based on data from Your Move and Reed Rains - not specialist letting agents I hasten to add! - says...

Arrears by tenants in the private rental sector have increased for the first time since 2012 according to data from lettings agencies Your Move and Reeds Rains. 

In the final quarter of 2014 there were 68,100 tenants in severe rent arrears of more than two months. This represents an increase of 4,600 such tenancies compared to the same quarter one year earlier - the equivalent of a 7.2 per cent annual increase. 

On a quarterly basis the setback is less sharp, with 1,700 more cases of severe arrears in quarter four 2014 than in quarter three, representing a quarterly increase of 2.6 per cent.

  

Adrian Gill, director of estate agents Your Move and Reeds Rains, comments: “Escaping the worst deprivations of the financial crisis has taken half a decade. And even now, for many households every month is still a difficult month. 

“Stretching to include even a little festivity often makes December particularly hard.  But just as the occasional setback is inevitable, the long-term trend is increasingly clear. Since the sharpest pinnacle of tenant difficulties in 2010 the number in serious rent arrears has practically halved.”

The statistics on the properties that we manage do not reflect these figures, however, we do have a great selection of Rent Guarantee products, including Rent on Time which guarantees that rent is paid every month. However, the article still shows a worrying trend and reminds both landlords and agents to be very vigilant when it comes to making sure that your tenant pays the rent.