Highest % return properties in Derby

I’ve been asked the question on which properties make the best investments in derby a hundred of times, so after being asked again today I thought it was time to put this into my blog so my readers can know a trade secret which has been very successful for me in the Derby Property Market.

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When considering investing in a property there are two things you should consider:

  1. Return on investment
  2. Capital growth

Now with 2/3 bedroom terraced houses being the most popular form of property investments in derby and successfully bringing in a healthy yield of around 6% per annum. It is a base to which portfolio landlords build on, as smaller investment amounts help spread their risk on investors’ money and give them more flexibility.

The attraction to this form of terraced houses provides a good cover for a hidden gem of an investment. This is a conversion of a terraced house into 2 flats. Let me give you an example in regards to the derby property market, here the average 2 bedroom terraced house in de23 or de22 sells at £65000 giving you a rental return of £400pcm. At least 40 of these properties have changed hands over this past year, yet a 2 flat conversion has remained on the market for a full year at £75000, it is currently let at £250pcm for each self contained flat, this is well below market value, these flats combined should give a return at minimum £600pcm which is just under 10%.

These properties are a safe haven for investors, even if one flat is vacant it is enough to cover the mortgage repayments for both through the one that is tenanted, however borrowing on these types of properties can be difficult which maybe one of the reasons they are overlooked.

If you have come across one of these properties and want to discuss please email me, or even if you have seen another property you are interested in.

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Leasehold vs Freehold – Buy to let landlords prospective

After meeting with a prospective landlord last night we started to discuss his feelings to purchase either a leasehold or freehold property. So leasehold-vs-freeholdi thought I’ll write today’s blog on what we discussed:

In general terms, there are three forms of legal ownership of property in the UK:

  • Freehold, where you own the land and have control over the building
  • Share of freehold, where you own a share of the freehold and can influence decisions of what happens to the building
  • Leasehold, where you own a lease that gives you permission to occupy the property for a certain period; a freeholder retains ownership of the land.

The majority of flats and maisonettes in the UK are sold on a leasehold basis. For houses, freehold has been the traditional type of tenure (although this is beginning to change, with registrations of new build leasehold detached houses more than doubling in 2015).

So when you’re looking for properties that would make a good buy-to-let investment, does it matter what kind of ownership you look at?

From the perspective of a landlord looking for a low-risk investment property to own and tenant for the long term, leasehold properties have different issues to freehold properties, which all landlords need to be aware of.

I have always been a fan of freehold over leasehold for a number of reasons.

  1. Leasehold means service charges and ground rents…

…which can significantly bite into your cash flow. How much? It depends on the contract with the freeholder. It might add up to less than £100 a year but you need to check it because sometimes it can be many hundreds or even thousands of pounds.

  1. Leasehold means that you will never own the property, only the lease.

Is this just a legal distinction? No – it effectively means you, the landlord, also have a landlord – with all the issues in the points to follow. Also, bear in mind the freehold can be sold to the highest bidder.

  1. Leasehold means being restricted in what you can do with the property

You cannot develop the property on your own initiative, therefore it is harder for you to add value and grow your investment that way.

  1. Leasehold means being beholden to a freeholder and their demands.

Your landlord can recover unpaid ground rent going back 6 years – they can even ask you for the full amount in one go. You will probably have to pay maintenance charges – which you might find excessive, given the quantity and quality of the work they carry out. Or when major building works are required, perhaps the price you’re paying includes an over-generous “management fee” for the freeholder.

Some freeholders are reasonable in their demands, but by no means all of them.

  1. Declining lease lengths can cause the property to decline in value.

The market value of your leasehold property depends on the length of the remaining lease.

It drops in value sharply when the lease length goes below 80 years (more detail in the next two points). Really, to preserve the value of your investment, you would want to avoid the lease going below the 90-year mark during your ownership.

  1. It can be expensive to extend a lease.

The cost levied by the freeholder to extend the lease depends on how many years are left to run, and could leave you looking at a significant outlay (take for example: the £13,000 fees being asked of homeowners in Cramlington, Northumberland). Also in most cases you would need to own the property for two years before you earn the right to extend the lease.

  1. Mortgage lenders generally prefer freehold to leasehold

If you are funding your investment with a buy-to-let mortgage you may find it difficult to get finance for a property with a shorter lease.

The exact threshold varies from lender to lender but in general, finance companies are reluctant to lend on a property with a lease shorter than 70 or 80 years

  1. Disputes can often arise between leaseholders and the freeholder.

Buying a leasehold property means entering a relationship. Just like any other relationship, it can be good or bad. Some freeholders are reasonable. Some reach aggressively for lawyers. And some seemingly cannot be contacted at all – see the next point…

  1. If the freeholder disappears, it can be a nightmare scenario to resolve.

“Absent freeholder” can be a real problem – just see the number of threads about this.

It means you’re legally bound to a relationship with an entity you don’t know and aren’t able to contact. Although in some ways this can mean a nice quiet life for a while, it can pose significant problems when it comes to buying and selling, particularly where mortgage lenders are concerned.

  1. Leasehold can mean depending on other leaseholders, too

Just as leasehold puts you in a relationship with a freeholder, buying a leasehold flat means you are potentially affected by the actions of other owners on the same building or plot. You have a commercial dependence with other leaseholders to pay their service charges. If they don’t, the whole plot or building could suffer.

  1. You depend on the freeholder for building maintenance

If the freeholder does not maintain the building to a high standard, the value of your property can be affected. As a leaseholder, you depend on the freeholder acting in your mutual best interests. As you can deduce from some of the points above, this is by no means guaranteed.

One more reason to consider freehold over leasehold…

With the sharp increase in leasehold new build houses that we’re seeing at the moment, freehold homes are becoming (relatively) scarcer. I believe that where there is scarcity, there is value – therefore freehold houses will command a premium in the future.

To my mind, landlords should now be looking to secure freehold houses. I believe that they will have better capital appreciation because they will be more desirable in the future.

So which type of ownership should you favour for buy-to-let?

As a landlord, it is vital to understand the differences between leasehold and freehold from a cash flow perspective, a future value perspective, and a “desirability” perspective.

If you want to discuss any leasehold or freehold opportunities and would like a second opinion, i would be happy to discuss !!!

298% Rise in Derby Properties since 2000

Derby house prices since the Millennium have risen by 298%, whilst average salaries in Derby have only grown by 51% over the same time frame. This has served to push home ownership further out of reach for many Derby people as they have to battle against raising considerable deposits and meet sterner lending criteria, as a result of new mortgage regulations introduced in 2014/5.  The private rental market in Derby has grown throughout the last twenty years with buy-to-let investors purchasing a high proportion of newly built residential properties that were built and designed for the owner occupier sales markets.  For example, in the city of Derby, roll the clock back 20 years and there were 94,807 properties in the City, whilst the most recent set of figures show there are 105,100 properties – a growth of 10,293 properties.

nominal-house-prices-91-600x418

 

However, anecdotal evidence suggests that quite a number of those 10,293 were bought by Derby buy-to-let landlords, as over the same 20-year time frame, the number of rental properties has grown from 32,524 to 40,043 in the city – a rise of 7519 properties.

Nevertheless, some say this historic growth of the Derby rental market might start to change with the new tax rules for landlords. Yet the numbers tell another story. Across the board, mortgage borrowing climbed to a 9 year zenith in March this year as the British property markets traditional Easter rush corresponded with landlords hurrying to beat George Osborne’s new stamp duty changes – buy-to-let landlords borrowed £7.1bn in March 2016 (the latest set of figures released) which was 163% up on the £2.7bn borrowed in the previous March.

 You see, from my point of view, I don’t think things will get worse in the buy-to-let market in Derby and these are the reasons why I believe that:

Firstly, what else are Derby landlords going to invest in if it isn’t property – the stock market? Since the Millennium, the stock market has risen by an unimpressive total of 5.54%, quite different to the 298% rise in Derby property prices?

Secondly, its true the 3% stamp duty is the first blow on top of a number of other tax changes to be phased in between 2017 and 2021, such as landlords facing a constraint in their ability to offset mortgage interest and, if sizeable numbers of landlords do take the decision to sell their portfolios, this will lead to a substantial amount of second hand properties being put up for sale. Yet that might not be a bad thing, as I have mentioned in previous articles there is a serious shortage of properties to buy at the moment in Derby: the stock of property for sale being at a six year all time low.

.. Thirdly, if there are fewer rental properties in Derby, as supply drops and demand remains the same (although ask any letting agent in Derby and they will say demand is constantly rising) this will create a squeeze in the Derby rental market and as a result rents will rise. In fact, I predict even if landlords don’t sell up, Derby rents will rise as Derby landlords seek to compensate for increased costs, which means more landlords will be attracted back.

Derby Buy to Let sees returns of 12.64%

The other day I got chatting with one of my out of town landlords who was back in Derby visiting his family. To enhance his retirement, he has a small portfolio of four properties in the derby city centre and wanted my advice on where to buy the next property in Derby (as he lives in a college owned flat and anyway, would never dream of buying where he lives in Kensington (where the average value of a flat is £1.62m and a City house £4.1m.  Eye-watering to say the least!!).

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Before I could advise him, I reminded him that the most important thing when considering investing in property is finding a Derby property with decent rental yields for income returns, yet at the same time, it must have the potential for capital growth from rising house prices over time.  Going forward, Derby landlords will be under more pressure to find the best permutation of yields and capital growth, as extra stamp duty charges for buying properties and a squeeze on mortgage interest relief will raise their costs.

However, (you knew there would be a however) before we look at yield and capital growth, one important consideration that often many landlords tend to overlook, is the propensity of how likely the rent will increase.  Interestingly, the average rent of a Derby property currently stands at £659 per month, which is a rise of 2.9% compared to twelve months ago (although it must be noted this rise in rents is for new tenancies and not existing tenants). Anyway, back to yield and capital growth, the average value of a Derby property currently stands at £179,000, meaning the average yield stands at 4.41% per annum, which on the face of it, many landlords would find disappointing.  That is the problem with averages, so if I were to look at say 2 bed houses in Derby which are the sort of properties a lot of landlords buy, in Derby, the average value of a 2 bed house is £80,000, whilst the average rent for a 2 bed house is £475 per month, giving a yield of 7.12%.

Ultimately investors want to be making gains from both rent and house price growth.   When combined, the rental yield and capital growth gives you the return on investment, and that is what I told our friend.   Return on investment is everything.   So, looking at property values in Derby have risen in the last year by 5.52% …. which means the current annual return on investment in Derby for a typical 2 bed house is 12.64% a year …. not bad.

If you would like advice on any potential buy to lets in Derby , please get in touch.

 

Derby Property Market after Brexit

Now that we have come to terms with Brexit and turn our attention to other subjects like Christmas shopping and debate about who will win premiership this season  the media are returning to their mixed messages of good news, bad news and indifferent news about the Brit’s favourite subject after the weather … the property market.

hand-holding-brexit-sign-eu-referendum

The thing is the UK does not have one housing market. Instead, it is a patchwork of mini property markets all performing in a different way. At one end of scale is Kensington and Chelsea, which has seen average prices drop in the last twelve months by 6.2%. But what about Derby?

Property prices in Derby are 5.52% higher than a year ago

and 3.2% higher than 3 months ago.

So what does this mean for Derby landlords and homeowners? Not that much unless you are buying or selling in reality. Most sellers are buyers anyway, so if the one you are buying has gone up, yours has gone up.  Everything is relative and what I would say is, if you look hard enough, there are even in this market, there are still some bargains to be had in Derby.

However, the most important question you should be asking though is not only is what happening to property prices, but exactly which property is worth buying? I like to keep an eye on the property market in Derby on a daily basis because it enables me to give the best advice and opinion on what (or not) to buy in Derby. With interest rates cut to 0.25%, cheaper mortgages on the cards and the undersupply of housing in the Derby area we can expect a steady growth

The next six months’ activity will be crucial in understanding which way the market will go this year after Brexit … but, Brexit or no Brexit, people will always need a roof over their head and that is why the property market has ridden the storms of oil crisis’ in the 1970’s, the 1980’s depression, Black Monday in the 1990’s, and latterly the credit crunch together with the various house price crashes of 1973, 1987 and 2008.

And why? Because of Britain’s chronic lack of housing will prop up house prices and prevent a post spike crash. … there is always a silver lining when it comes to the property market as demand always outweighs supply so property will always out perform any other type of investment.

DERBY VS NOTTINGHAM PROPERTY MARKET

When purchasing a buy to let property, there are two ways landlords make money through property letting
– capital growth and rental income growth.

A landlord from London, who has a number of properties in both Derby and Nottingham, asked me a few weeks ago about the difference between Derby and Leicester housing markets. He was focused on capital growth but als
o wanted to ensure his yield was relatively fair. I was quite surprised with my findings and wanted to share them
with you.

The average property price in Derby is currently £189,000. In the laderby-eevening-telegraphst 3 months property values in Derby, according to my calculations, have dropped by just over 0.8%. Whilst in Nottingham, average property prices in Nottingham are £184,000, having dropped by 0.4% in the last 3 months. Therefore, is Nottingham the better bet?

Well, not necessarily.

Over the last 5 years, property values in Nottingham have risen by 20.5% and in Derby by 25.1%, meaning over the last 5 years, property values have increased at a 23% quicker rate in Derby compared Nottingham’s. But then there is question of yield, as Derby also normally has slightly higher yields than Nottingham, but Derby’s rental market can be quite fraught.

Each Derby (and Nottingham) landlord will have different needs and requirements in his or her property investment. If you want an unbiased opinion on what (and what doesn’t) make a good property investment. Knowing what has happened to values in different cities, enables us to spot any trends or opportunities for buy to let landlords.

If you would like to discuss my thoughts on the rental markets, feel free to  send me an email to info@arboretumlettings.co.uk

Why do larger properties rent quicker in summer months

Landlords, every year we find that our larger properties in Derby are letting better in the spring and summer months. The proof in the pudding this year was when we listed a substantial 5 bedroom property in DE3 Mickleover, Derby  for £1100pcm at the end of May- it flew20150725_144941_resized out of the door within 10 days.

We have noticed trends in click through rates and portal enquiry levels for these types of properties too. A larger property (4 bedrooms plus) will have a dip in activity in the months between November and February and will notoriously pick up towards the end of March.

There appear to be several reasons for this all of which make very logical sense. Larger properties will tend to let to families with children. They need to make sure schools are all sorted to ensure a stress free move for both parents and children- this means that generally the move needs to happen before the start of September. Larger properties tend to have more garden space which of course looks much prettier and appealing in the spring/summer which does have an impact on the letting.

The other consideration for some applicants is how easy the property is to access and property manage in the winter months- will they get cut off by snow or flooding? Of course this could happen at any time of the year these days but it does seem to be more in the forefront of applicants minds in the colder months. Linked to this is the worry over heating costs- a larger property will no doubt cost more to run and in some cases, if the property is in a more rural location, it may have oil fired central heating which can be expensive. Again these points are always more likely to be thought about when it is cold.

In conclusion, if you have a larger property you are considering letting in Derby it would be a wise move to act sooner rather than later.

Feel free to email me for your free no obligation advice from a local property consultant and property management expert in derby.

Will Derby be effected by a crashing London Market

 

London-Property-Developments

The increasing property chatter about a stalling London property market particularly in investor fed Nine Elms & Battersea area is going to have repercussions outside of the City as we step through this year. We are hearing whispers from brokers, developers & estate agents that the new luxury apartments planned & now being built particularly in the area south of the Thames towards Battersea Power Station are starting to struggle finding buyers. With much of the stock there sold off plan one or more years ago to largely overseas buyers , particularly the Far East, there is real concern now being expressed as some of these buyers who were looking to sell on as they approach completion wont be able to or indeed will fail to complete their purchases.

With nearly 20,000 homes being built or planned in that one area the current combination of the weaker domestic London market alongside the slowdown in the economy of China , the pressure of the Rouble for Russian buyers & the depreciation of the Malaysian ringgit against the pound in what is a secondary London residential location will have an impact. The current statistics record that prices in London SW8 fell 8% last year & that nearly a third of the stock there has been on the market already for one year .Possible discounts of 20-30% on new homes might now be possible there for keen buyers.

An experienced London developer told us that the largely unplanned regeneration in that one area involving so many different schemes has brought just too much stock to the market at the same time and at prices which ultimately weren’t sustainable. For me it restates again that the key for successful property investing is Location Location and Location. Markets rise & fall, and during rising markets as we are now witnessing in Derby new properties can get built on areas which in previous times might not have been sustainable when the land sat empty or derelict. Sometimes these fringe locations can very quickly become absorbed into the area they sit on the border of or perhaps like parts of SW8 they sit in a mass of new housing that just takes time to become absorbed.

Derby doesn’t have the wall of money that regenerates areas at the speed which you sometimes see in some parts of London. Locations suddenly becoming trendy and seemingly overnight popping up new bars, art galleries with the area catching the vibrancy of urban excitement. Because of this it is important for potential owner occupiers & investors alike that they look properly at every new development they are considering because they too could get caught and isolated if the market here in Derby slowed down.

Going forward as a direct result of this London imbalance we might find development finance backing for these outer locations becoming more difficult if London based funders sense caution in all UK City Centres More immediately I now see over promises in the likely levels of rental return being advertised by certain developers who have schemes coming forward in these hinterland locations of the Derby City Centre. If the steady pace of regeneration slows I sense potential tenants at these higher rentals now suggested to landlords in these particular blocks will easily be tempted into more centrally located properties at those same prices. These outer locations might then see a consequent price adjustment plus possible larger void periods between tenancies.

For investors this means that they need to now open their eyes and look to buy l close to where their tenants want to be not only today but going forward in the immediate years to come. Derby City Centre is moving forward but we recommend you don’t go too far.

Another Renovation Project Completed

We have over looked yet another investment property refurbishment, This article provides landlords with simple and cost effective ideas on how to refurbish a house without spending too much.

Firstly we can have a look at the before video to see the condition of the property when it was purchased. As the house required rewiring to meet current electrical standards a lot more plaster had been taken off the walls

 

A simple plaster combined with neutral colors gives this old terrace property a modern look. We recommend landlords to laminate the ground floor of the properties as this is easier to maintain between tenancies and does not look too bad either. Wickes and BnQ budget range laminates are the most reasonably priced. Local companies such as The Carpet Stop are very reasonable in providing flooring also.

Another tip is using fire doors, they may not look the best but are very durable and hard wearing will last years.

Howdens Joinery on Ascot Drive for a flat pack kitchen is also great for tenants.

 

If you have a property to refurbish why not give us a call, i am always here for simple advice on the easiest/most cost effective method of refurbishing a property. The cost of work and decor usually depends on the type of tenant you require.

Is it the right time to buy?

 

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An investor that I have been advising over the last few years who herself lives in London has remained interested in the derby property market, because of the success she has had over the last few years.  She is a huge fan of the Graham Penny Auctions in derby, so when she asked me for advice over a few properties she has seen at the current auction this month I gave her my honest opinion, I advised her not to expect too many bargains, I asked her to wait until the next auction to get a better idea of how the property market will react to the new regulations, I predicted that with the new regulations on stamp duty coming in April, people may panic buy which will push the prices up, I explained how that combined with stricter lending rules the price in property can’t change for the better in the coming months.

So it was no surprise to me this morning I received an email from the investor saying ‘thank you, you were right’. The auction was a great success for sellers and the team at graham penny, no doubt they have invested heavily in the auctions and have worked hard to build their incredible brand, the auction had an unbelievable turnout and for sellers it was probably the auction they should have had their property listed.

The table below shows us how this auction compares with the previous two and the same month last year (only comparing properties in derby):

  Feb 2016 Dec 2015 Oct 2015 Feb 2015
Average selling guide price £77905 £66385 £60300 £73450
Actual Average selling price £99048 £78615 £72150 £90175
Increase 27% 18% 20% 22%

 

Now considering stamp duty tax is set at 3% from April, the price increase when comparing actual selling price to guide price was 9% more than the previous auction, 7% more than the auction before, and when comparing to last year’s figures it was 5% more.  So as you can see the inevitable happened, the prices did fluctuate and the houses did sell an average 27% over the guide price, we know how smart marketing and very low guide prices by the team at graham penny auctions in derby is the key to what has attracted such large crowds. But the prices of actual houses sold and guide prices should not be as high when comparing to previous auctions and future events. So in theory have buyers actually paid the stamp duty tax without knowing.

I know some of you are shaking your head and probably thinking these are only averages of all the properties in Derby and for investors these figures don’t mean anything, well just to put it into perspective I have created another table which will give you a better indication. Now terraced houses are the largest percentage of houses let on most landlords’ portfolios specifically two bed terraces, and in derby the most popular areas are DE22 and DE23 for these types of properties let. So I will compare two bedroom terraces in these areas this auction to previous auctions.

The table below compares the price change of the average two bed terraces in derby, comparing the current auction with previous auctions.

  Feb 2016 Dec 2015 Oct 2015 Feb 2015
Average Guide Price £54000 £55600 £51800 £54000
Average Sold Price £72300 £63800 £65400 £66000
Increase 33.89% 14.75% 26.25% 22.23%

 

Again you can see from the table above, when comparing average guide price to actual selling prices this auction shows the largest percentage difference, but this is not the most significant figure. When comparing the average sold price between December and October 2015 the difference was 2% which is expected, but when you compare that of December 2015 to February 2016 the average sold price increased to 12%. This figure to me is an anomaly when comparing with previous auctions a result of people panicking as surely house prices have not increased by 12% over the last 3 months, but if they have only time will tell.

Overall I believe when investing in a buy to let property the right price is one that is following current and past trends, I believe the 12% increase was a reflection of people buying with the 3% stamp duty tax coming this April in mind, but without knowing they have actually paid more then what the stamp duty tax will amount to. The future looks bright for investors with capital as I think the market will stall for a while. The house prices won’t fall, but I do think they will increase at a slower rate over the next 6 months when comparing them to last couple of years giving you extra time to save up for a deposit. As always Derby still is one of the most lucrative property markets and there are always properties giving you a healthy return on your investment even at the current sold prices the returns on some of the properties are still around 7%. If you would like to discuss any opportunities further I will happily give my opinion.

Call: 07542 801474

or email: info@arboretumlettings.co.uk