A lovely couple came in to see me this week. They had inherited £250,000 and were toying with the idea of becoming first time landlords.
The couple were in their early 50’s, still working, had paid off their existing mortgage and were in a good place, however, their pensions, were going to be state pensions, so they were looking to invest it now with it providing a better standard of living when they retire at 67!
They wanted to make their inheritance bring in the best possible return. Now, for those of us who have been in the industry a long time, we get it, and nothing could be easier, however, when you meet someone who has never gone down this route before, the whole process can be frightening to them and where they may think they want the best possible return, they may opt for a lesser return if it brings them more peace of mind!
After, finding out a few details, we went through the various options they had. From purchasing one or two properties outright , or purchasing a HMO (house of multiple occupancy), or splitting the money and purchasing more than one property with buy to let mortgages. We also discussed leasehold flats in blocks, the importance of checking the term remaining on the leases and the how much the block management fees can be – versus – Freehold houses, as well as the areas of the properties and looked at what kind of tenants would the properties attract, how much they wanted to be involved with the investment ie the maintenance side of it and obviously the question what kind of rental yields they are likely to attract.
£250,000 – what can it buy you these days? We looked at various properties around Poole and Bournemouth with various agents as well as our sister company Landlord to Landlord Sales (which have tenants in situ already and would give a rental income from day one)
|Purchase Price||Rental Per Month||Rent Per Annum|
|Studio flats ranging from||£75,000||£410||£4920|
|1 Bedroom Flat in Bournemouth||£99,000||£525||£6300|
|2 Bedroom flat in Poole From||£125,000||£725||£8700|
|3 Bedroom Houses from||£190,000||£825||£9900|
|4 Bedroom Houses from||£230,000||£925/ £1100||£11,100 / £13, 200|
|4 Bed converted into HMO||£245,000||£1825||£21, 000|
|2 x 5 Bed HMO with 50% Mortgage||£490,000||£3560||£43, 800|
The prices above are average, conservative prices on middle end properties. There are more expensive properties in more attractive areas that would achieve higher prices.
Now, I am not a financial advisor and I would always recommend people to talk to one as well as accountants regarding tax implications, but I have been in the property industry for some 30 years now and know our local market pretty well.
With the 4 bed house I have given two rental yields, the first £925 pcm is based on a working family, the second is based on a family on full housing benefit, whichever, is the investor’s preference.
You may think the last two HMO’s would be the most attractive, however, to some it would be their worst nightmare. The two HMO’s with a 50% buy to let mortgage (which would be tax deductible) brings in far more revenue as well as gaining equity (in theory) in the property over the next 15 years or so. If properties were to double in this time, the investments would bring back £750,000 (after mortgages paid off) versus £500,000 on one.
A nice way to start your retirement off, wouldn’t you say? To sell one property, pay off the other property’s mortgage and not only have a healthy pension income but a lump sum to have fun with!
If you would like a friendly, no obligation chat regarding any property matter, then please Email firstname.lastname@example.org or telephone 01202 711169. Don’t forget Sharon now produces and presents a live weekly property show on Wednesdays 12-2pm on HopeFM 90.1 or visit the website and press the listen live button.