Could you get a 868% return in Burton by saving your money?

Buy to let is essentially different from investing in stocks and shares or putting money in the Building Society. Whilst these other investments, Building Society Passbooks, Stocks and Shares etc. are passive  i.e. once the  money has been invested it you leave it alone, with buy to let, things are more hands on, in fact it’s almost a small business.

One thing the landlords I speak to say is the fact that they prefer buy to let because it is both an investment as well as a business. It is this factor that attracts many of my Burton landlords – they are making their own decisions rather than entrusting them to others such as City Whiz Kids in London playing roulette with their Pension Pot!

So, if you are investing in the Burton property market, you can earn from your investment in two ways. When a property increases in value over time, it is known as 'capital growth'. Capital growth has been strong in recent times in Burton, but the value of property does go up as well as down, just like shares do, however, it very rarely decreases below the initial purchase price. The rental income that the tenant pays you will, hopefully, grow over time. If you divide the annual rent into the value, or purchase price, of the property, this is your yield, or your annual return.

So, let’s look at an example; I was talking to a landlord who bought a terraced house in the Belvedere Road area of Burton. He bought a very pleasant 4 bed terraced house in 1999 for £41,000. It sold again in December 2014 for £130,000; a rise of 217.07% in just over 15 years – a compound annual return of 8%.

However, the real returns are for those Burton landlords who borrowed money to purchase their buy to let property. They have made significantly higher returns than those who paid 100% cash. If the landlord had borrowed 75% of the £41,000 purchase price of the Belvedere Road terraced house on an interest only 75% mortgage, he would have only needed to invest £10,250 based on a 25% deposit and borrowing the remaining £30,750. However, his £10,250 would be worth £99,250 today; £130,000 less the £30,750 interest only mortgage, a rise of 868.29% representing a compound annual return of 16.34%.. and I haven’t even mentioned the rent he would of received in those 15 years! This demonstrates how the Burton buy to let market has not only provided very strong returns for average investors since 1999 but how it has allowed many motivated buy to let Burton landlords to become particularly wealthy. In fact, if this landlord had continued to remortgage the property as it went up in value, he could by our reckoning have had an additional two or three properties, albeit with larger mortgages but with greater future potential.

As my article mentioned a few weeks ago, more and more Burton people may be giving up on owning their own home and are instead accepting long term renting whilst buy to let lending continues to grow from strength to strength.

If you want to know what, or would not, make a decent property to buy in Burton for buy to let, then one place for such information would be the Burton Property Blog.