As an example I saw an Essex based investor earlier in the week who owns a couple of properties in Northampton already. He has some cash from a pension lump sum – about £150k – and was looking at how to generate a return from it. Thought process was as follows:
·
He
could leave it in the bank. The market leading rate for 1 year is about 1.5%, so
that would be his return.
·
He
could buy an investment property for cash spending maybe £130k. Add on some
stamp duty, purchase costs, and improvements to the property and he’d be at
about £140k, with £10k left in his pocket for a rainy day. I’d let it for him –
we assumed a price of £650 which is fairly average in that price range, so that’s
£7800 income the first 12 months. Being a cautious chap, he assumed he’d lose £2000
of that to agency fees, insurance, repairs to the property etc leaving him with
a return of £5800 on an investment of £140,000. That’s a return of 4.1%.
There was also the potential for capital improvement on the property which
could make this figure rise significantly.
His
summary was simple and offers some perspective. Some investors will look at
what’s available and conclude Buy To Let returns aren’t as attractive as a few
years ago – they may be correct, but that’s a change in the economy in general.
However they are still WAY better than leaving the money in the bank where
£150,000 will get you £2250 in interest compared to £5950 in property – and that’s
AFTER costs. 
