In last weeks’ article, we
spoke about the difference between Chelmsford and Braintree property markets.
Now this resulted in a number emails arriving into my inbox as well as a few
people popping into my offices for a chat about investing in buy to let.
Many people in our part of Essex, over the last few years, have seen the buy to
let market become all about nest egg investment. It is fueled by pitiful
interest rates on building society savings and reflects the fact that building
society savings accounts are paying half a per cent interest and pension
returns are struggling to match expectations, turning more and more people into
landlords to secure their future.
So what can you expect from your rental property investment? In the short term,
rental yields are important, and in Chelmsford, the average annual yield is in
the order of 4.5% per year. However, that is based on averages, and as most
landlords in Chelmsford tend to buy starter home homes, apartments and terraced
houses, the majority of which are achieving 5% to 6.4% per year depending on
location and price in the City.
In the long term though, the question of capital growth is
as important, if not more important (because if you have great short term
yields, but the value of the property doesn't keep up with the rest of the
market, you will have an asset that in real terms is dropping). As we mentioned
in a previous article, average property values in Chelmsford currently stand at
£314,212. Property values in Chelmsford have risen by 22.4% in the last 5
years. On the other hand, property investment is a long term game, so I wanted
to share with you the research I did for a couple of Chelmsford landlords.
Roll the clock back 10 years to 2004 when the average value of a property in Chelmsford
was £177,700. 15 years back to 1999 makes really interesting reading, as the
average Chelmsford property value was only £107,800. 30 years ago was around £50,000 and just for a
bit of fun, we looked at 1974 at it was around £14,800!
However, if one looks at say a 30 year investment period, if you had put your £50,000
into the stock market in 1984 instead of buying a house in Chelmsford, your
shares today would be worth £238,800. Put the same £50k money in a Building
Society account and you reinvested the interest back into the account, and your
Building Society passbook would have around £280,250. Compare that with the
property market in Chelmsford and the property would be worth £314,212 today.
Not much difference to the building society until you realise that with the rental
property, as well as the capital growth in the building you would also have
received rent over those 30 years, which you wouldn’t have received with the
Building Society account!
