For those new to buy-to-let investing, the yield is the yearly rent from a property reflected as a percentage of the value of the property (one might consider it in the same light as the interest rate from your savings account) whilst the 'capital growth' is the amount the property goes up in value each year reflected as a percentage of the value of the property.
This week I have looked at OX2, a totally mixed area of Oxford when considering the housing stock, taking in Summertown, Jericho, Osney and Botley.
Without doubt, the highest demand is for 1 and 2 bedroom properties so I have looked at 2 bedroom terrace houses at both ends of the scale. One is North Oxford and one is West Oxford but they are both about the same distance from Carfax
Observatory Street, Jericho. There are 107 houses in this street which is popular with renters and owner-occupiers alike. There were 7 sales in the last 5 years with an average sale price of £525,000. One 2-bed Victorian terrace house was sold for £651,000 last September (£26,000 above the asking price!). The previous year it was on the rental market for £1420 pcm giving a miserly yield of just 2.6%. I would have been able to let it for £1600 pcm but that would still only achieve a gross yield of 3%. However, when you consider this property was bought for £401,000 in 2002 then the capital growth over the last 11 years is a cool £250,000 – the equivalent of £22,700 a year!
Prestwich Place, off Botley Road. Built in 1993, these 2 bedroom terrace houses are extremely popular with renters being a short walk from the railway station and city centre. They are cost-effective to heat with lower maintenance bills compared to the Victorian homes in Jericho. Number 19 Prestwich Place has been stylishly upgraded and is on the market for £270,000. Of the 41 houses in the street, 10 have been sold in the last 5 years with an average sale price of £238,000. If you propose to use a BTL mortgage then this property represents a great investment. I would let the property for £1125 pcm to give a very respectable gross yield of 5% which would comfortably service your debt. Number 19 was bought for £223,000 in 2005 giving a gain of £47,000 or the equivalent of £5,875 a year. Looking at the numbers, I feel this is a great buy and a great investment for the long term.
So in conclusion,not many landlords, especially those who use buy-to-let mortgages, can afford to service high levels of debt (such as an investment in Observatory Street) without a reasonable yield , which forces them to look at ways of making an investment affordable by finding the right balance between capital gain and yield.
Yield is critical to the survival of any buy-to-let investment but it’s not the key to building wealth. Don’t chase yield for yield’s sake, but rather chase capital growth with enough yield to make it serviceable because in the long term it is the capital growth, not the yield that will generate you the wealth and the financial independence you are seeking.
As Martin & Co Oxford don’t sell property, I can always give my landlords (and landlords who aren't with me but want a second opinion - and even people who are thinking of becoming landlords), my unbiased opinion on what to buy and not buy. I pride myself by knowing the market intimately, so I can give some great advice and opinion. It might not be what you want to hear but, I can assure you, it is what you need to hear. If you want to chat about property investment in Oxfordshire, then if you buy right, you will build yourself some capital growth for the future. My offices are on Woodin’s Way, just off Paradise Street in the centre of Oxford (free parking!), and I look forward to seeing you soon.
Bob Urwin - owner of Martin & Co Oxford
01865 812116 or firstname.lastname@example.org