1066% Return for Some East Dulwich Buy To let landlords since 1999
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 ie once the money has been invested you tend to leave it alone, with buy to let, things are more hands on, in fact it’s almost a business. One thing the landlords I speak to say is the fact that they like “buy to let” because it is both an investment as well as a business. It is this factor that attracts many of my East Dulwich landlords – they are making their own decisions rather than entrusting them to others (such as City Whiz Kidzs playing roulette with their Pension Pot).
So if you are investing in the East Dulwich 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, also known as capital appreciation, this has been strong in recent times in East Dulwich, but the value of property does go up as well as down just like shares do but the initial purchase price rarely decreases. Rental income is what the tenant pays you – hopefully this will grow over time. If you divide the annual rent into the value (or purchase price) of the property, this is your gross yield, or annual return.
I was talking to a landlord who bought a flat in the Forest Hill Road area of East Dulwich. He bought a very pleasant 2 bed flat in 1999 for £75,000. It sold again in January just gone for £275,000, a rise of 266.66% in just over 15 years – a compound annual return of 9.05%.
However, the real returns are for those East Dulwich 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 £75,000 purchase price on an interest only mortgage, he would have only needed to invest £18,750 (as his 25% deposit, borrowing the remaining £56,250). The original £18,750 invested would be worth today, £218,750 (£275,000 less £56,250 interest only mortgage)… a rise of 1066.66% – a compound annual return of 17.80%… and I haven’t even mentioned the rent he would have received in those 15 years!
This demonstrates how the East Dulwich buy to let market can provide very strong returns for average investors and 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 greater future potential).
As mentioned in my other article, more and more East Dulwich 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 (and would not) make a decent property to buy in East Dulwich for buy to let, please give me a call or drop me an email.