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.
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.
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
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.
|x 12 months
|Letting & Management Fees @ 15%
|Ground Rent pa
|Service Charge &/or building
||(@£25 pcm) £300
||(@ £50 pcm) £600
|3* Gas Contract + Safety Report
|Net Revenue Return (before
|Net Revenue Return on capital
|Possible Capital Appreciation of
|Total RETURN before Tax:
|Net Revenue Return (as above):
|Interest @ 7.5% on...
||(75% of cost) (£3375)
||(50% of cost) (£3750)
|Return on Investors own funds
|Possible Capital Appreciation of the
property at say 5% per annum
|When expressed as a percentage
return on the investors own funds
|Total RETURN before Tax:
Reeves & Co. 05/1998)
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.
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
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.