When I started in property 3 years ago, my plan was to build a portfolio of properties in Teddington, right on my doorstep. The fact that I know the area well and that I would be right on hand to deal with any issues was appealing, as well as, of-course, the fantastic capital appreciation which we have experienced in recent years. However, since getting educated and mentored in how to ‘properly’ invest in property as a business, my whole plan changed and I did what most ‘southerners’ come out in a cold sweat over…. yes…. I went north!! But there was a very good reason for doing so which I’ll gladly share with you.
If I wanted to buy a one bedroom flat in Teddington as a nice little buy to let it would cost in the region of £350k for a half decent one. It would generate about £1200 rent per month which is a gross yield of 4.1% (gross yield is worked out on the income of the property over a year divided by the purchase price. This is a good gauge of the potential returns from an investment property). Of course gross yield only gives half the story as there are always costs involved in renting out a property such as agent fees, mortgage payments (if applicable) etc. Taking these into account usually means you end up with, in the region of, a 2-3% net yield (net before tax and after costs). The good news in Teddington is, of-course, the capital appreciation. Last year alone this was around 10% (a tidy £35k on that one bed flat)! Capital appreciation doesn’t mean anything though until you sell or refinance and so can’t help you to pay the monthly bills no matter how much it is!
My objective with property investing is to create passive income, income which is coming in regardless of the hours that I work. That is the only way that you can create the lifestyle of your choosing. Properties in the north give me that, especially when I use the HMO (Houses of Multiple Occupation) model. Don’t worry, long gone are the days of dingy student digs (well in my property world anyway). I aim to create high end, en-suite accommodation with all the mod-cons for professionals. With the increase in Generation Rent, more and more people are not only being priced out of buying, but are also being priced out of renting a whole flat. House shares for professionals are therefore becoming more and more popular.
So how do the numbers compare with investing in Teddington. Well, to buy a typical house big enough for a 6 bed HMO in Manchester, for example, you would spend around £100k (yep, bit different to £350k for a one bed flat isn’t it)?! You would then need to spend around £60k on all fees and refurb costs which would mean you would be all in for £160k. You would comfortably be able to rent each room out for £400 per month which would mean that the income of the property each year is in the region of £28,000 (DOUBLE the income of the Teddington one bed and only cost HALF as much)! This gives a gross yield of 17.5%. I know – bit of a difference right?!
Again, we can’t ignore capital appreciation though. In Manchester this would be much lower than on the Teddington flat, understandably. Probably last year around 2% making you around £3,200 – very different to the probable £35k in Teddington! My advice therefore would be that if you don’t need cash and/or income then go for the Teddington flat as that’ll sit, nicely appreciating, year on year until you come to sell it. If, however, like me, you are looking for monthly income, maybe to get you out of the 9-5, then the north wins every time!
If you’d like to know more about the kind of investing I do, and even how you could potentially get involved, then feel free to drop me an email at firstname.lastname@example.org. Always happy to go for coffee and have a chat – never any charge!