I had an interesting email from someone in Edinburgh a couple
of weeks ago, that I want to share with you (don’t worry I asked his permission
to share this with you all). In a nutshell, the gentleman lives in Trinity, he
is in his mid 60’s and still working. He has a decent pension, so that when he
does retire in a couple of years’ time, it will give him a comfortable life. He
had recently inherited £180,000 from an elderly aunt. One option he told me was
put it into a savings account. The best he could get from a reputable lender was
a 2 year bond with the Post Office, which paid 0.95%, meaning he would get £1,710
in interest a year. One of his other options was to buy a property in Edinburgh
to rent out and wanted to know my thoughts on what he should buy, but he had
concerns as he didn’t want to take a mortgage out at his time of life he was
also worried about all the tax changes he had read about in the papers for
landlords.
Notwithstanding the war on Edinburgh landlords being
waged by both John Swinney and George Osborne/Philip Hammond, the attraction of
bricks and mortar endures for many. As our man is a cash buyer, he would not
have to deal with the intricate cut to mortgage interest tax relief that will
diminish, or even eradicate, the profits of some Edinburgh landlords. It’s true
he would face the extra 3% in Land and Buildings Transactions Tax (the old
‘Stamp Duty’) to buy a second property, but with some good negotiation
techniques, that could soon be mitigated.
I told him that buying a Edinburgh buy to let property is
all about the total return on investment. True, he could put the money in the
Post Office bond and receive his interest of £1,710 a year, or as he rightly
suggested, invest in property in Edinburgh. The average yield (yield being the
equivalent of the interest rate on the property) at the moment in Edinburgh is 5%
per annum, meaning our potential F.T.L (First Time Landlord), should be able
to, depending on what he bought in the town, earn before costs £9,000 a year.
(However, I told him there are plenty of landlords in Edinburgh earning half as
much again (if not more), if he was willing to consider more specialist
investment types of properties – again, if you want to know where – look at my
blog or drop me an email).
The bottom line is this, the success of investing in Edinburgh
buy to let property versus a savings account with the Post Office (or whatever
Bank or Building Society is offering the best rate) will depend on the
performance of those assets. Unlike a savings accounts, with property the
capital you invested can also go up (and yes, it can go down as well – more of
that in second). Property values in Edinburgh have risen by 6.3% over the last
12 months (and, on average, 3.6% per annum over the last five years), meaning
that on top of your £9,000 in rent, but also seen an uplift of £11,340 …meaning
his overall return for the year would have been £20,340 (not bad when compared
to the Post Office!).
... but the doom mongers amongst you will say,
property values can go down, as they did in 2008 and in 1988 and 1979. Yes, but
after 1979, prices had bounced back to their 1979 levels by 1984 and went on to
grow an additional 58% in the following four years. Then again, they dropped
1988 and did take 13 years to reach back to those 1988 figures, but the following
six years (between 2001 and 2007) they then increased by an additional 66%.
Now, according to the Registers of Scotland, average property values in Edinburgh
currently stand 18.3% above the January 2008 (ie pre crash) level, and
anicdotal evidence suggests that in the nicer parts of Edinburgh, we are well
above these sorts of levels. Therefore, all this talk of property crashes seems
unfounded.
… and what would that £180,000 get you in Edinburgh? A
decent two bed flat as well as a nice house in many parts of Edinburgh ... in
fact, the world is your oyster. But which oyster?
If you would like a chat to find out more about
investment property and property management in Edinburgh please pick up the
phone (0131 603 4570) or email (news@thekeyplace.co.uk).
A few more interesting articles about the Edinburgh
property market:
- Why the 7% increase in Edinburgh prices? http://bit.ly/2d3jP4I
- What will the 0.25% interest rate cut do for the Edinburgh Property Market? http://bit.ly/2cHG1l2
- 274% increase in 20 years in Edinburgh – interesting, very interesting http://bit.ly/2cqRvLU
- Edinburgh Buy to Let sees returns of 9.3% in the last year http://bit.ly/2cf5W36
- To buy or sell in the Edinburgh property market? That is the question http://bit.ly/2cBuKHb
- Values of Edinburgh flats smash through the £285/sq ft barrier http://bit.ly/2coIaXx
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