Common to all areas and locations is a
simple truth. It is not the most expensive properties that produce the best returns or let
the fastest. Gross returns - the rent received before taking account of the costs of
letting and management fees, maintenance and insurance - can be as high as 12-14%. This
drops by up to half for properties at the very top of the scale of values, although the
right high priced properties can show greater capital appreciation. This applies to
properties let in London, the Home Countries, the Midlands or the North whether they are
urban or rural.
Also to be taken into account in gauging a
potential return is the likelihood and possible length of void periods - the time a
property may be empty between lets. Two or three months without a tenant paying rent makes
a significant dent in the overall return and can be attributable to several factors: the
rent asked may be too high, the standard of decoration and furnishing too low, the
location is wrong or the type of property and the accommodation it offers is not in demand
in a particular local market.
Then there are the maintenance costs. The
price of caring for a ‘Dream Home’ with thatched roof, 16th century brickwork
and large gardens will probably be too high to make for a sensible investment proposition.
Despite these caveats, demand is strong for
rental property of the right type, in the right place at the right price. The average
rental return in Britain today hovers around the 10% mark, and capital appreciation is
likely to match, if not exceed, inflation for the foreseeable future.
All these figures including the interest rate used are
for illustrative purposes only, take an average interest rate and exclude repayments of
capital and any allowance for void periods.
The value of investment property can go down as well as
up. Investors are advised to seek appropriate professional advice before entering into any
contractual arrangement.
TAXATION
Net rental income is subject to income
tax at the marginal rate (23% or 40%), but all expenses of a revenue nature are allowable,
including loan interest. Furthermore, a wear and tear allowance oi 10% of the rent, less
water rates, is available where the property is furnished.
Capital gains on investment property are subject to
Capital Gains Tax, also at the marginal rate, and will vary according to the length of
time property in held.
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