The buy to let sector in East Dulwich is doing very well at the moment, but it is always important that you do thorough research before any purchase. I could regale you with many stories where investors have got it tremendously wrong in East Dulwich. I recall a fantastic one bedroom flat with off street parking, large double bedroom, reception, and kitchen, which was located in the lovely quiet tree lined Underhill Road in the Belvoir Lodge Development. In October 2006 the property sold for £182,500 and it subsequently sold quite recently in November 2014 for £249,999.
Over those eight years, the property had increased in value by 36.99%. Impressive indeed until you consider that property values in the East Dulwich area over the same time frame (Oct 2006 – Nov 2014) rose, on average, by 82.5%! It is interesting to note that in 2006 for £182,500, you could have bought a lovely two bed or even a three bed apartment in East Dulwich. A one bed apartment for the same price as a decent two or three bedroom apartment maybe should have set alarm bells ringing. The thing is it is quite easy to make a mistake in property; even a small error can prove very costly so always follow the three R’s. Research, Research, Research!
So what should you buy in East Dulwich? HMOs attract a lot of attention, while they can be profitable, they require more time and are subject to more regulation so if you are not an experienced Landlord they’re probably not for you. At the other end of the scale, there are the professional one or two bedroom properties ideal for those looking to get into the “buy to let” market. Each landlord has different requirements and will be pursuing different strategies, so advice needs to be tailored to those needs.
The best things I can suggest is that you take advice from fellow landlords, other professionals, including ourselves and then make a more calculated decision accordingly. Also take a look at this excellent resource thepropertyhub.net, it has a wealth of information for new and seasoned Landlords and Investors alike. The important thing to remember is the rental income you achieve drives the amount you can borrow, and you should also consider future interest rates. A good rule of thumb, to ensure you don’t overstretch yourself is to take your net rental income for the year and divide it by the interest rate you would be happy to break even at. That gives you your maximum borrowing threshold.
Let’s say your net rental income was £9,000 for the year, if you don’t think interest rates will go beyond 7% then £9000 / 7% = £128.6k. That should be your maximum borrowing for that property.
Finally, if you are investing so much time and money in obtaining assets for you and family, it is just as important for you to identify ways to protect it. Make sure you have considered what happens to these assets if you suddenly pop your clogs in terms of inheritance tax. Selling quickly in a buoyant market is not an issue, but what if the market was like it was in East Dulwich between 2008 and 2012 where property took a long time to sell? It might be worth considering some life insurance to help protect your family from any fire sales due to the taxman’s demands.
There are plenty of good advisers in London that can help you with the mortgages and life insurance. We aren’t one because we are a Dulwich Estate Agent, but what we can always point you in the right direction. Why not pop in and see us and discuss any of your current and future needs?