Capital growth, rental income and flipping property. We talk through Investing in Birmingham Buy to let.
Investing in Birmingham buy to let property is different from investing in the stock market or depositing your hard-earned cash in the Building Society. When you invest your money in the Building Society, this is considered by many as the safe option but the returns you can achieve are awfully low (the best 2-year bond rate from Nationwide is a whopping 0.75% a year!). Another investment is the Stock Market, which can give good returns, but unless you are on the phone every day to your Stockbroker, most people invest in stock market funds, making the investment quite hands off and one always has the feeling of not being in control.
However, with buy to let, things can be more hands on. One of the things many landlords like is the tactile nature of property – the fact that you can touch the bricks and mortar. It is this factor that attracts many of Birmingham’s landlords – they are making their own decisions rather than entrusting them to city whizz kids in Canary Wharf playing roulette with their savings.
I always say investing in property is a long-term game. When you invest in the property market, you can earn from your investment in two ways. When a property increases in value over time, it is known as ‘capital growth’. Capital growth, also known as capital appreciation, has been strong in recent times in Birmingham, but the value of property does go up as well as down just like shares do but the initial purchase price rarely decreases.
Rental income is what the tenant pays you – hopefully this will also grow over time. If you divide the annual rent into the value (or purchase price) of the property, this is your yield, or annual return. So, over the last 5 years, an average Birmingham property has risen by £34,500 (equivalent to £18.90 a day), taking it to a current average value of £182,300. Yields range from 5% a year and can reach double digits’ percentages (although to achieve those sorts of returns, the risks are higher).
However, something I haven’t spoken of before is the more specialist area of flipping property to make money. (flipping – buying a property, carrying out some minor cosmetics and re selling it quickly). I have seen several investors recently who have made decent returns from this strategy. For example …
• One Birmingham Investor paid £130,000 for a 2 bed semi on Enville Close in August 2015. It appears some cosmetic work was done to the property and it was resold a few months ago (November 2016) for £163,500 … 25.77% return before costs (or compound annual return equivalent of 19.67% AER)
This demonstrates how the Birmingham property market has not only provided very strong returns for the average investor over the last five years but how it has permitted a group of motivated buy to let Birmingham landlords and investors to become particularly wealthy.
As my article mentioned last week, more and more Birmingham people may be giving up on owning their own home and are instead accepting long term renting whilst buy to let lending continues to grow from strength to strength.
If you want to know what (and what would not) make a decent buy to let property in Birmingham, then one place for such information would be our Birmingham Property Blog.