£170,000 inheritance - Is buying Bingham Property still the best place for my windfall?

I had an interesting email from someone in Bingham a few weeks ago that I want to share with you (don’t worry I asked his permission to share this with you all). In a nutshell, the gentleman lives in Newton, he is in his mid 60’s and still working. He has a decent pension, so that when he does retire in a couple of years time, it will give him a comfortable life. He had recently inherited £170,000 from an elderly aunt. 

One option he told me was put it into a savings account. The best he could find was a 2 year bond with the Post Office which paid 1.9%; meaning he would get £3,230 in interest a year. One of his other options was to buy a property in Bingham to rent out and he wanted to know my thoughts on what he should buy, but he had concerns as he didn’t want to take a mortgage out at his time of life. He was also worried about all the tax changes for landlords he had read about in the news.

Notwithstanding the war on Bingham landlords being waged by George Osborne, the attraction of bricks and mortar endures for many. As my contact is a cash buyer, he would not have to deal with the intricate cut to mortgage interest tax relief that will diminish, or even eradicate, the profits of many Bingham landlords. It’s true he would face the extra 3% in stamp duty to buy a second property, but with some good negotiation techniques, that could soon be mitigated.

I told him that buying a Bingham buy to let property is all about the total return on investment. True, he could put the money in the Post Office bond and receive his interest of £3,230 a year or, as he rightly suggested, invest in property in Bingham. The average yield (yield being the equivalent of the interest rate on the property) at the moment in Bingham is 4.11% per annum, meaning our potential F.T.L (First Time Landlord) should be able to, depending on what he bought in the town, earn, before costs, £6,987 a year.

The bottom line is that the success of investing in Bingham buy to let property versus a savings account with the Post Office (or whatever Bank or Building Society is offering the best rate) will depend on the performance of those assets. Unlike with a savings account, with property the capital you invested can also go up (and yes, it can go down as well – more of that in second). Property values in Bingham have risen in the last twelve months by 4.7% meaning, that if our chap had bought a year ago, not only would he have received the £6,987 in rent, but also seen an uplift of £7,990 …meaning his overall return for the year would have been £14,977 (not bad when compared to the Post Office!).

..  but the doom mongers amongst you will say, property values can go down, as they did in 2008, and in 1988 and 1979. Yes, but after 1979 prices had bounced back to their ’79 levels by 1984 and went on to grow an additional 58% in the following four years. Then again, they dropped in 1988 and did take 13 years to reach back to those ’88 figures, but the following six years (between 2001 and 2007) they then increased by an additional 66%. Now, according to the Land Registry, average property values in Nottinghamshire currently stand 5.8% below the January 2008 level, and anecdotal evidence suggests that in the nicer parts of Bingham, we are well above these sorts of levels. Therefore, all this talk of property crashes is unfounded.

… and what would that £170,000 get you in Bingham? A brand new 2 bed semi on Bowland Road or a 3 bed terrace on The Paddock ..