March 27, 2017
Investing in Cardiff 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 Cardiff’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 Cardiff, 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 Cardiff property has risen by £42,300 (equivalent to £23.18 a day), taking it to a current average value of £228,000. Yields range from 6% 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 Cardiff Investor paid £130,000 for a 3 bed semi on Broad Street in September 2015. It appears some cosmetic work was done to the property and it was resold a few months ago (October 2016) for £185,000 … 42.31% return before costs (or compound annual return equivalent of 38.89% AER) http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=59170415&sale=88661703&country=england
- Another Cardiff Investor flipped a lovely 2 bed terrace on Heritage Park, paying £115,000 in February 2016 and selling it again after some doing some basic cosmetic works, sold it for £137,000 a few months ago (December 2016) … 19.13% return before costs (or equivalent 25.23% AER) http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=57270629&sale=88940649&country=england
This demonstrates how the Cardiff 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 Cardiff landlords and investors to become particularly wealthy.
As my article mentioned a few weeks ago, more and more Cardiff 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.