I had an interesting email from someone in Bo’ness 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 the Drum, 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 £100,000 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 1.5%, meaning he would get £1,500
in interest a year. One of his other options was to buy a property in Bo’ness
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 Bo’ness landlords being waged
by both the UK and Scottish Governments at the moment, 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 Bo’ness landlords. It’s true he would
face the extra 4% 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 Bo’ness 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 £1,500 a year, or as he rightly
suggested, invest in property in Bo’ness. The average yield (yield being the
equivalent of the interest rate on the property) at the moment in Bo’ness is 6%
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 £6,000 a year.
(However, I told him there are plenty of landlords in Bo’ness 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 Bo’ness
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 Bo’ness have risen by 4.22% per annum on
average over the last five years, meaning that on top of your £6,000 in rent,
but also seen an uplift of £4,400 …meaning his overall return for the year
would have been £10,400 (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 Bo’ness currently stand 20.4% above the January 2008 (ie pre crash)
level, and anicdotal evidence suggests that in the nicer parts of Bo’ness, we
are well above these sorts of levels. Therefore, all this talk of property
crashes seems unfounded.
… and what would that £100,000 get you in Bo’ness? A
decent flat as well as a nice house in many parts of Bo’ness ... 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 Bo’ness please pick up the phone
(01506 828096) or pop in (6 Vicar Street, Falkirk) or email (robert@thekeyplace.co.uk).
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