590% Return for Solihull Buy To let landlords since 1999?

Buy-to-let is a different kettle of fish compared to investing in stocks and shares or putting money in the Building Society. Whilst these other investments (ISAs, Funds, Share trading) are passive (i.e. once the money has been invested, you leave it alone) with buy-to-let, things are more hands on, in fact it’s generally a business for most. In fact, most of the landlords I speak to, say that they like the buy-to-let option specifically because it is both an investment as well as a business. Having an ‘active’ involvement and being able to make key decisions, rather than entrusting them to others (such as city whizz kids in London playing roulette with their Pension Pot) can be very beneficial.

So if you are investing in the Solihull property market, you can earn from your investment in two ways. When a property increases in value over time, it is known as 'capital growth'. Capital growth, (also known as capital appreciation) has been strong in recent times in Solihull, but you’ll still have to bear in mind that property values do go up as well as down - just like shares do – although the initial purchase price rarely decreases over long periods of time.  Also, rental income, which is what a tenant pays you, will hopefully grow over time. If you divide the annual rent into the value (or purchase price) of the property, this is your yield, or annual return.

I was talking to a landlord who bought a terraced house in the Moorlands Drive area of Solihull. He bought a very pleasant 3 bed terraced house in 1999 for £98,950. It sold again in December just gone for £244,950, a rise of 147.54% in just over 15 years – a compound annual return of 6.23%.

However, the real returns are for those Solihull landlords who borrowed money to purchase their buy-to-let property. They have made significantly higher returns than those who paid 100% cash. If the landlord had borrowed 75% of the £98,950 purchase price of the Moorlands Drive terraced house on an interest only 75% mortgage, he would have only needed to invest £24,738 (as his 25% deposit... borrowing the remaining £74,212), but his £24,738 would be worth today, £170,738  (£244,950 less £74,212 interest only mortgage)... a rise of 590.18% - a compound annual return of 13.74%... and I haven’t even mentioned the rent he would have received in those 15 years!

This demonstrates how the Solihull buy to let market has not only provided very strong returns for average investors since 1999 but how it has permitted a group of motivated buy-to-let Solihull landlords to become particularly wealthy. In fact, if this landlord had continued to remortgage the property as it went up in value, he could by our reckoning have had an additional two or three properties (albeit with larger mortgages but greater future potential).

As my article mentioned a few weeks ago, more and more Solihull people may be giving up on owning their own home and are instead accepting long term renting, whilst buy-to-let lending continues to grow from strength to strength. If you want to know what (and would not) make a decent property to buy in Solihull for buy-to-let, please email me direct on jane.morcom@centrickproperty.co.uk .