Property Investment in Cardiff
CPS Homes are market leaders in both sales and lettings and, as such, are ideally placed to advise both would-be investors and seasoned property developers.
CPS Homes have produced a page on Buy to Let Property Investments, which is worth reading carefully if you are an inexperienced property investor.
With all property investments, it's important to look at the return you will achieve from your investment. Too many investors in property have bought property for the wrong reasons or persuaded themselves that the property is going to give greater returns than is realistically possible.
On our Buy to Let information page we deal with many common mistakes that property investors make, and here we will give some helpful advice on working our returns on investment.
Property yield and returns
As a property investor you will often hear the words yield and returns being thrown around but what do these actually mean, and how can you work them out?
What it really comes down to is; how much money have you put into the property, and how much money will you get back out. Yield just shows your return as a percentage of what you put in which is,
Yield is "the annual rent divided by the purchase price, made into a percentage".
Worked example of yields and returns (click to show/hide)If your rental income was £1,000 this would give you £12,000 income in rent.
If you bought the property for £200,000 then it is simply:
£12,000 divided by £200,000 multiplied by 100 = 6%
However, what is important to realise is that the above calculation assumes that there is no mortgage, and that there are no costs, which is probably incorrect!
If you do not have a mortgage yet, then the BBC have an easy to use online mortgage calculator, otherwise you can take your figure from you mortgage statement.
It is important to note if you are using a repayment figure or an interest only figure. Most investors will use an interest only mortgage, and for the purposes of working out your yield, we will do the same.
£200,000 Buy To Let Mortgage, at 80% Loan to Value will require a mortgage of £160,000, and therefore a deposit of £40,000.
On top of the deposit, there are other costs such as solicitor costs etc. For this example we will allow £1,000
At 5.5% over a standard term of 25 years, the interest only repayments will be £733.
Therefore, the gross profit per month will be: -
£1,000 (the rent) minus £733 (the mortgage) = £267 gross profit per month.
Therefore, per annum: £3,204 gross profit
The annual rent divided by our costs (deposit + other costs), made into a percentage.
As per the example above:
£3,204 divided by £41,000 multiplied by 100 = 7.81%
As you can see, it is more effective to borrow money, on the right terms than to buy properties outright. With £200,000, in this example the property investor would be able to buy one £200,000 house outright, or nearly five on a 80% BTL mortgage.
The outright owned house would bring in £12,000 per annum in gross profit, whilst five Buy To Let houses would bring in £16,020 per annum in gross profit.
Cardiff Property Investment Costs
Naturally, there are other costs associated with property investment, which need to be factored into the above, to give a few examples of items which need to be considered:
Void periods - can you fill your house 12 months a year, every year? Are you letting to students, where it is the norm to offer half rent over July and August. If you are going to carry out renovation then you need to consider the lost rental income, as well as the cost of the renovation works.Tax - Gross profit is before tax, you will have to pay tax on any profit. All your properties are counted as a single business, so a loss in one can count against a profit on another, but not against other income tax bills.Maintenance - There will be on-going costs associated with the property, such as gas safety certificates, re-decoration, repair works, all of which need to be factored in.Service Charges - Apartments usually have a service charge, but these apartments usually require less maintenance, so this all needs considering. Ask to see the next five years maintenance plans as service charges can rise and fall. Sometimes, these service charges can include water, which can act as a selling point to prospective tenants. Letting Agency Fees - Letting and management fees need to be factored in to your calculations.Insurance - Your lender will insist on buildings insurance, and it is wise to have contents insurance if your property is furnished. There are a wide range of insurance products to pick from, including rent guarantee insurance to complete cover for your portfolio.Capital gains - Was your property bought under value? Is it likely to be worth more when you sell it than you bought it for? Or maybe, you could be in a position where you need to sell, when house prices are at their lowest. These items all need considering.
Your will also need to take specialist tax advice. There are a number of tax reliefs available for property investors, including allowing for wear and fair, but also a number of scenarios where you may have to pay tax, such as capital gains tax when the property is sold on. The cost of these taxes will depend on other income, and an accountant will be able to advise you further.
Property investment has to be considered on a case to case basis, and not everything can be worked out in a formula. The returns on property investment can be excellent, but you will have to work harder for your money than having it sat in a bank.
Property investment in Cardiff is an excellent option. It is a young, vibrant capital with one of its major selling points for property investment being the vast university market, which employs a huge number of staff, and of course the students.
There is still massive potential is developing areas such as
Cardiff Bay, and now the days have passed with over inflated prices, there are some excellent returns to be had when the correct property is purchased, with property prices to suit all pockets.
In the current media frenzy of dropping property prices, Cardiff is holding its prices better than the UK average. What's more rental returns in Cardiff are excellent, higher than in London.
Contact our Sales Office (click to show/hide)
If you have a property and would like to know the potential rental income from it, then please book in for a no obligation rental or Sales Valuation.
Alternatively, please contact our Cardiff Bay branch, and speak to an experienced member of staff specialising in sales on 029 20 480 490.