Is buying Solihull Property still the best place for my windfall?

I had an interesting email from someone in Solihull a few weeks ago that I want to share with you.  The gentleman lives in Shirley, he is in his mid 60’s and still working. 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 had recently inherited money from a relative. One option he told me was to put it into a savings account. The best he could find was a two year bond with the Post Office which paid 1.9%; meaning he would get £4,370 in interest a year. Another option is to buy a property in Solihull to rent out and he wanted to know my thoughts on what he should buy.  He had concerns as he didn’t want to take a mortgage out at his time of life and he was also worried about all the tax changes he has read about in the papers for landlords.

Notwithstanding the war on Solihull landlords being waged by George Osborne, the attraction of bricks and mortar is still an attractive option for many. As the gentleman is a cash buyer, he would not have to deal with the intricate cut to mortgage interest tax relief that will diminish the profits of many Solihull landlords. It’s true he will 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 Solihull buy to let property is all about the total return on investment. He could put the money in the Post Office bond and receive his interest of £4,370 a year or invest in a Solihull property. The average yield (yield being the equivalent of the interest rate on the property) at the moment in Solihull is 4.52% per annum, meaning our potential first time landlord should be able to, depending on what he bought in the town, earn before costs £10,396 a year. However, I told him there is plenty of opportunity in Solihull to earn half as much again, if not more, if he was willing to consider more specialist investment types of properties – again, if you want to know where – look at my blog or drop me an email.

The bottom line is that the success of investing in Solihull buy to let property versus a savings account with the Post Office (or whatever Bank or Building Society is 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. Property values in Solihull have risen in the last twelve months by 5.6% meaning, that if our chap had bought a year ago, not only would he have received the £10,396 in rent, but he would also have seen an uplift of £12,879 meaning his overall return for the year would have been £23,275.

Some will say property values can go down like they did in 2008, 1988 and 1979 however, after 1979 prices bounced back to their ’79 levels by 1984 and went on to grow an additional 58% in the following four years. Then again, they dropped in 1988 and took 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 Solihull currently stand 5.13% above the January 2008 level, and anecdotal evidence suggests that in the more desirable parts of Solihull, we are well above these sorts of levels. Therefore, all this talk of property crashes is unfounded.

What would that £230,000 get you in Solihull? A decent 2 bed apartment in Malvern Park, a really nice 3 bed terrace in Shirley or a lovely 3 bed detached in Acocks Green .