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Tuesday, April 14, 2015

Phenomenal buy-to-let returns - I'm sceptical

I'm sceptical about some research from the Wriglesworth Consultancy on buy-to-let investment returns.  Going on my experience of holding a small portfolio of 8 properties in the Midlands.  The figures that suggest for every £1000 invested in 1996 would by the final quarter of 2014 be worth almost 15 times this amount seems phenomenal and a little unbelievable.  Even with the beneficial impact of gearing which increases any landlord potential returns by being able to leverage their investment capital  and thereby increase the returns by almost 3 times seems to over estimate the returns I've experienced.

Figures seem over inflated
It leaves me thinking that these figures over egg the returns.  Clearly, a big part of looking at returns for any asset class is the period you pick.  As not only a property investor and landlord I also have a significant portfolio in shares.  Having kept my nerve after the financial crash I know that my portfolio of shares has more than doubled since the dark days in 2008.  Residential property does have a large advantage over equities in that rarely does the value reduce in real terms which means that you very rarely have to nurse a capital loss (although landlords buying over priced city centre apartments may have different stories to tell).

Landlord returns have benefited from low borrowing costs

The revelation for many landlord has been the historically low interest rates since the crash.  This means that net annual rental returns which for many landlords have been very small are now significant.  This obviously increases dramatically historic returns.  I also suspect that these figures also reflect an aggregate figure for UK residential property market which of course includes London.  If you strip London house price rises out of the equation I suspect that the figures would still be good but slightly less stellar than the returns that these figures suggest.  For peoples reference the relative returns for investment of a £1000 in the period from the final quarter of 1996 - 2014 is as follows:

1. Buy-to-let £14,897 (geared investment borrowing 75%)
2. UK commercial property £4,494
3. UK government bonds £3,329
4. UK equities £3,119
5. Cash £1,959

Finance my investment - mortgage search

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