Thursday, March 3, 2016

£145,000 inheritance - Is buying Melton Mowbray Property still the best place for my windfall?

I had an interesting email from a gentleman recently that I want to share with you (don’t worry he is happy that I share this with you all). In a nutshell, he lives in Asfordby, still works and is in his mid 60’s.  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 recently inherited £145,000 from an elderly aunt and was looking at options on how best to invest this.  One option he said was to put it into a savings account or a 2 year bond with the Post Office, this paid 1.9%; meaning he would get £2,755 in interest a year.  His other thought was to buy a property in Melton Mowbray to rent out and he wanted to know my thoughts on what he should buy.   He didn’t want to take a mortgage out at his time of life and was also worried about all the tax changes he had read about in the papers for Landlords.

Notwithstanding the war on Melton Mowbray landlords being waged by George Osborne, the attraction of bricks and mortar endures for many.  As our man 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 Melton Mowbray 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 Melton Mowbray buy to let property is all about the total return on investment.  Yes, he could put the money in the Post Office bond and receive his interest of £2,755 a year or, as he rightly suggested, invest in property in Melton Mowbray.  The average yield (yield being the equivalent of the interest rate on the property) at the moment in Melton Mowbray is 3.95% 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) £5,727 a year.

The bottom line is that the success of investing in Melton Mowbray buy to let property versus a savings account with the Post Office, Bank or Building Society 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 Melton Mowbray have risen in the last twelve months by 3.2% meaning, that if our chap had bought a year ago, not only would he have received the £5,727 in rent, but also seen an uplift of £4,640 … meaning his overall return for the year would have been £10,367 (not bad when compared to the alternative saving options!).

Some of you will say, property values can go down, as they did in 2008, and in 1988 and 1979.  This is true, but after 1979 prices had bounced back to their ’79 levels by 1984 they went on to grow an additional 58% in the following four years.  In 1988 they dropped 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%.   According to the Land Registry, average property values in Leicestershire currently stand 3.46% below the January 2008 level, and anecdotal evidence suggests that in the nicer parts of Melton Mowbray, we are well above these sorts of levels.  Therefore, all this talk of property crashes is unfounded.

So, what would that £145,000 get you in Melton Mowbray?   A decent 3 bed semi in Asfordby or close to the Melton town centre, maybe a 2 bed semi off Nottingham Road .. in fact, the world is your oyster.   But which Oyster?   If you want to read similar articles like this and what I consider to be the very best of buy to let deals in Melton Mowbray, irrespective of which agent is selling it, then follow this blog.

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