11:00 AM, 2nd December 2013, About 9 years ago 4
Yes folks, I can confirm that double digit returns on London Buy to Let properties are still feasible! What’s more, the types of properties which produce such returns are not affected by the bubble at the high end of the London property market caused by overseas investors.
With the benefit of investigative work on what to buy, where and how to structure the financing I have concluded that is is indeed still possible to obtain a 20%+ cashflow return on capital invested. My research lead me to a two bed flat in an established area of London, walking distance from Greenwich University. Furthermore, the break-even interest rate on borrowings worked out at 9.5% having factored into my assumption that 25% of rental income would be need to be written off to fund costs over and above the mortgage interest.
I have provided a full breakdown of how this was achieved below and as you will see I haven’t factored in any capital growth whatsoever!
London properties need not cost a fortune. My stepson is living in Charlton whilst he is at Uni; he walks to the University of Grenwich daily. He shares a two bed flat with his girlfriend and a house mate and they pay £950 pcm. The capital values are circa £150,000 at market value, thus giving a gross yield of 7.6%.
I have run these figures through our Landlords Calculator and based on 60% mortgage finance with the Principality Building Society at 1.99% the figures come out as follows.
Purchase price £150,000
Interest rate 1.99% (BoE tracker rate with a margin of 1.49% for two years)
Rent £950 pcm
Gross yield 7.6%
Monthly interest £149.25
Allowance for other costs £237.50 pcm. This is 25% of rent to be used as a budget for costs of advertising/letting, management, Gas checks, maintenance, ground rents, service charges and void periods (lost rent due to arrears or when the property isn’t let.
Net monthly cashflow £563.25
Return on capital invested = 11.27%. This is your net cashflow (i.e. £563.25) expressed as a percentage of your capital invested (i.e. £60,000 deposit). I have not allowed for purchase costs but I have also not allowed for negotiating discounts on available properties in the area either.
Breakeven interest rate 9.5%
After an initial 6 months you could look to withdraw £30,000 of your capital through an Equity Loan. This would not affect your monthly payments and would increase your return on capital invested to 22.54%.
You can find properties like this in SE7 6PX. See our Property Research Tool for more details and also to use the landlords calculator I used to provide the above figures.