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.