I had a conversation with a landlord, who lives in the Mallow Way area of Bingham, who took me up on the offer of an informal chat about the Bingham property market the other week after he read the ‘Bingham Property Blog’.
We got talking about investing in Bingham property and how different areas performed against other areas. Investing in Bingham property is a balancing act between capital growth and yield. Going for strong capital growth seems an obvious choice because of the potential to generate long term capital profit, especially with inflation eating away at our savings. However, rental yields on high capital growth properties tend to be low meaning if you are taking a high percentage mortgage, the rent doesn't pay the mortgage payments.
It became really interesting when we compared his area of Mallow Way area against Carnarvon Place, where he was brought up in the 1970’s. The average value of those larger four bed detached properties in the Mallow Way area is £348,600 and an average rent in this Road is £1,086 per month (again for those larger four bed properties). This would give our landlord a yield of 3.73% per year .. quite reasonable. Until you consider those apartments in Carnarvon Place, which sell for around £96,300 and let, depending upon condition for around £448 per month, a yield of 5.55% per year, which is a 49.6% proportionally higher yield.
However, yields are not everything in property investment. Another is how the value of the property goes up over time. Better properties in better locations don’t have the best yields, but their property values tend to go up quicker over the long term. The average value of an apartment on Carnarvon Place in 2000 was £40,700 in 2000, a rise of 136.6%. So, one would expect Mallow Way area property values to risen a lot more.
Well they have, but not at the same rate, as average values in the Mallow Way area have only risen by 128.2% since 2000. However, percentages don’t tell the whole story. Whilst an average homeowner, if they sold their property today in the Carnarvon Place would make around £55,600 gain, a home owner in the Mallow Way area would, on average, have made and impressive £195,900 gain.
Now I know there aren’t many landlords that would buy a large property in the Mallow Way area to rent out. If you wanted to buy in the Mallow Way area, as many landlords do, they are achieving yields of nearer to 4%-5% on the smaller semi detached houses.