£200,000 inheritance - Is buying Medway Property still the best place for my windfall?

I had an interesting email from someone in Medway a few weeks ago that I want to share with you (don’t worry I asked his permission to share this with you all). In a nutshell, the gentleman lives in Chatham, 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, he will have a comfortable life. He had recently inherited £200,000 from an elderly aunt. One option he told me he was considering was to put it into a savings account. The best he could find was a 2 year bond with the Post Office which paid 1.9%; meaning he would get £3,800 in interest a year. One of his other options was to buy a property in Medway to rent out and he wanted to know my thoughts on what he should buy, but he had concerns as he didn’t want to take a mortgage out at his time of life. He was also worried about all the tax changes he had read about in the papers for landlords.

Don't forget Osborne's bit!
Notwithstanding the war on Medway landlords being waged by George Osborne, the attraction of bricks and mortar endures for many. As our man is a cash buyer, he would not have to deal with the intricate cut to mortgage interest tax relief that will diminish, or even eradicate, the profits of many Medway landlords. It’s true he would face the extra 3% in stamp duty to buy a second property, but with some good negotiation techniques, that could soon be mitigated.

Buying a second home will generally mean you pay an extra 3% on stamp duty.

I told him that buying a Medway buy to let property is all about the total return on investment. True, he could put the money in the Post Office bond and receive his interest of £3,800 a year or, as he rightly suggested, invest in property in Medway. The average yield at the moment in Medway is 4.17% per annum, meaning our potential F.T.L (First Time Landlord) should be able to, depending on what he bought in the area, earn (before costs) £8,340 a year. (However, I told him there are plenty of landlords in Medway earning 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 Medway 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 – more of that in a second). Property values in Medway have risen in the last twelve months by 9% meaning, that if our chap had bought a year ago, not only would he have received the £8,340 in rent, but also seen an uplift of £18,000 …meaning his overall return for the year would have been £26,340 (not bad when compared to the Post Office!).

The doom-mongers amongst you will say, “property values can go down, as they did in 2008, and in 1988 and 1979”. Yes but after 1979, prices had bounced back to their 1979 levels by 1984 and went on to grow an additional 58% in the following four years. Then again, they dropped in 1988 and did take 13 years to reach back to those 1988 figures, but the following six years (between 2001 and 2007) they then increased by an additional 66%.

Now, according to the Land Registry, average property values in Medway currently stand 9.51% above the January 2008 level, and anicdotal evidence suggests that in the nicer parts of Medway, we are well above these sorts of levels. Therefore, all this talk of property crashes must be viewed, surely, with the realistic understanding that property prices are, and always will be, cyclic.

So, what would that £200,000 get you in Medway? A decent 3 bed terrace in Gillingham (close to the train station), a really nice 4 bed terrace in Chatham (again close to the train station) or a lovely 2 bed apartment at The Quays with views over the marina. In fact, the world is your oyster. But which oyster to choose?

The Quays, ME4

Well, my blog reading friends, if you want to read similar articles like this and what I consider to be the very best of buy to let deals in Medway, irrespective of which agent is selling it, then you need to keep an eye on this very blog!

Any questions? Please email me now.