Derby investment properties – the eternal bedroom question!

Last week, a Derby landlord emailed me, after reading the Derby Property Blog, to ask if he should extend his terraced house, making an extra bedroom in the loft. He had a builder friend who owed  him a  favour, and thought it a good way to achieve an ‘inexpensive’ extension.

Having more useable space is generally thought to be consistent with better quality accommodation and homeowners and tenants are prepared to pay for it. If you added a bedroom to a two bed terraced to make a three bed terrace, it will add around 10% to the value of the property.  Turn a three bed terraced into four bed terraced, and approximately 9% will be added to the value. Looking at semi detached properties, and turn a two into a three bed and around 12% will be added to the value, whilst making a three bed semi into four bed will add 9% in value.

However, before you rush off to the planning department there are some important considerations, whether you are a homeowner or landlord.  What would be the cost of making that extra bedroom? The average value of a terraced house in Derby is currently £115,800 whilst the average value of a semi detached house is £145,900, meaning to make money the cost of the extension would need to be less than £11,001 on the terraced property and £15,319 on the semi detached house. 

Talking to a number of trade’s people in the City, most are booking up into the New Year. Also, no matter how good a friend he was, I know of no builders that would charge as little as that! Maybe the builder was just thinking of a bit pointing work on the chimney!

Well, that got me thinking about how bedrooms affect rental prices and rentability. Interestingly, you will see below that whilst bedrooms do have an effect on the rent that can be achieved and the rentability of the property – the difference does not really warrant the expense, hassle and trouble of extending.

18.8% of the one bed properties on the market to rent in Derby have a tenant paying an average rent of £411 per month

43.3% of the two bed properties, have a tenant paying an average rent of £541 per month

39.8% of three bed properties costs a tenant an average rent of £571 per month

21.5% of the four bed properties have a tenant with an average rent of £669 per month

Now, if you want to increase the value of your property, be you a Derby landlord or homeowner, there are things that cost a lot less than building extra bedrooms. Spruce up the exterior, decorate all the rooms, install fresh carpets and curtains. For homeowners, a matter of a few hundred pounds will add thousands whilst for landlords, these things can add an extra 10% to the rent that you can achieve.

If you would like to discuss this topic in more detail or anything related to residential lettings in the Derby area then please don't hesitate to contact me on:

07977 235545

or via email on:

simonj@professionalproperties.co.uk

Buy to Let in Derby. It’s all about Supply and Demand

I had a lot of enquiries and conversations following my recent article about the state of the Derby Property market and in particular what had happened to rents in Derby since 2008. If you recall, I said that rents in Derby are still 4.68% lower than they were in 2008. One particular Derby landlord rang me after reading the Derby Property Blog wanting to know more of the story of what was happening to rents in the City. The reason he asked was that his current agent hadn’t increased his rent for a number of years and he was questioning whether he was getting the best return from his buy to let investment.

The Derby rental market is all about supply and demand - isn’t it so in all parts of the economy? On the supply side, 565 rental properties have come up for let in the last 31 days in Derby. It sounds a lot doesn’t it until you consider there are 15,943 rental properties in Derby, that means only 3.54% of the rental stock of properties in Derby is coming onto the market and it is normally around 5%.  One reason for this lack of new rental properties coming on the market is the fact that tenants seem to be staying in properties longer.

With this lack of supply, newer tenants have to pay more to secure the property they want. This is the crux of the matter.. properties they want. Older properties in Derby, that haven’t been maintained, still retain their wood chip wallpaper from the 1970’s and thread bare carpets have seen their rents drop. Tenants want either modern properties with all the mod cons or older style properties that have been presented to an exceptional standard – and, generally, they are prepared to pay for the privilege. Rents for top quality properties in Derby have risen by 0.4% in the last month. Any properties, old or modern, put on the market in good or excellent condition will rent in a matter of a few days.

  

Interestingly, looking at Derby property values, the Land Registry has just released it’s latest set of data on property values. Throughout April 2015, the latest set of data, property values remained static in Derby, with 0% growth, meaning they are now 3.3% higher than they were a year ago.  When one looks at the regional picture, the East Midlands average property values rose by 1.4% in the last month. The difference doesn’t concern me, as the regional and local property values always even themselves out over the months.

 

Looking forward, after considering all the statistics and talking to other property professionals, I expect property values in Derby to rise by 3% to 5% over the coming 12 months, following the Election result.  In a forthcoming article, I will discuss how the number of properties changing hands each month has dropped considerably in the last 10 to 15 years in the City.

..and so back to my chat with the landlord.. Each property is unique and so, as his tenancy agreement allows him to inspect the property with notice to the tenant, we will be visiting the property next week!

Keep reading the Derby Property Blog or get in touch; 

Investing in Derby – Should you look further afield?

I was at a recent business networking event in Derby, when a landlord who already owned a couple of properties, bent my ear on where the next hot spot town or city is to invest his money in and where the best rental yields are. Now it can be tempting to just look at Derby when growing a buy to let property portfolio, but there can be big differences in the amount of rental income you receive and how much your property will appreciate by considering other locations in the country.

Now regular readers of my articles of the Derby Property Blog know of my love of the ‘buy to let seesaw’. On one side of the seesaw is return and the other, capital growth. Landlords should be looking for a high rental return so that they can comfortably cover any mortgage payments and make some profit from the income return, but you also want the property to rise in value over time so you can get some capital growth when you come to sell. However, high yielding property in such areas as the Pear Tree area in Derby - sees the seesaw return arm go up - will suffer from low capital growth - so the capital growth arm goes down.  The relationship works in reverse as well, so in such areas as Littleover, properties offer good capital growth, but at the expense of a decent yield.

  

The North East and North West of the UK are landlord magnets for great yields. The average yield in Derby today is around 4.64%, which when you compare with say Hartlepool in the North East, which achieves 7.73% or 9.43% in the Anfield area of Liverpool, doesn’t look too healthy. Now of course, these are only averages and some of my Derby landlords are achieving 6% to 7% on some of their Derby properties, but at the expense of capital growth. Anyway, after wasting a tank full of petrol up the A1 to Teeside or the M1 to Stanley Park,  that Liverpool property, would have dropped in value by 2.2% in the last 12 months and the Hartlepool property would have dropped by 1.4%.

When you compare the long term house price growth, it gets even worse. Looking at the graph, since 1995, property values in Derby have risen by 142.6%, compared with Hartlepool at 21.02% and Liverpool at 90.11% – it just shows you shouldn’t always chase the yield because of the poor increases in property values in those two places.

As I always like to explain to landlords when they either email me, pick up the phone or pop into my offices for a coffee, a decent yield is important, but when you come to sell your buy to let property it would also be nice to make a decent profit.

At the end of the day, as a Derby landlord, you want to be making gains from both your rent and house price growth, particularly when you want to sell, because when combined, the rental return and capital growth, that gives you the real return on your investment. 

Finally, do you know Hartlepool and Liverpool as well you know Derby? Do you know where the good and bad areas are in both those places? Are you happy that it would require you to take a day out of work if there was an issue with your property in the North? If you can’t answer yes to all three questions, then maybe you should be considering a property closer to home?

If you want to get in touch you can email me by clicking on the link below:

simonj@professionalproperties.co.uk

Or you can give me a call on the mobile:

07977 235545

With the Derby Rental Market, everyone’s a winner!

With the election now over and the stability of Downing Street secure, with David Cameron and his Blue Tory’s as the largest party in Westminster, in Derby, as in the rest of the UK, average wages are beginning to grow faster than inflation. This is good news for the Derby housing market, as some buyers may be willing or able to pay higher prices given the more certain political outlook and attractive inexpensive mortgage rates.  However, sellers who think they have the upper hand due to the lack of property for sale should be aware that we should start to see an increase in the number of people putting their properties on to the market in Derby giving buyers some extra negotiating power.

At the last election in May 2010, there were 2,067 properties for sale in Derby and by October 2010, this had risen to 2,609, an impressive rise of 26% in five months. An increase in the supply of properties coming on to the market could tip the balance in the demand and supply economics seesaw, thus potentially denting prices. However, as most sellers are buyers and confidence is high, this means there will be good levels of property and buyers, well into the Summer, as demand will continue to slightly outstrip supply.

Just before we leave the run up to the election discussion, it is important to consider what the uncertainty in April did to the Derby Property market. I mentioned a few weeks ago that property values, defined as what properties were actually selling for, had dropped by 0.4% in March 2015. Now new data has been released from Rightmove about April’s asking prices of property in Derby. It shows that pre-election nerves finally came home to roost in the final weeks of electioneering, with the  average  price of property coming  to market only increasing by a very modest 0.7% - this takes on more significance when you consider that April is normally one of the best months of the year for house price growth. I am sure our local MP’s, Margaret Beckett and Amanda Solloway, would agree that the biggest issue is the lack of new properties being built in Derby. The Conservative manifesto pledged to build 200,000 discounted starter homes for first-time buyers in the next five years. For Derby to gets its share, that would mean only 185 such properties being built in Derby each year for the next five years, not much when you consider there are 102,271 properties in Derby!

On the face of it, it seems that housing is not a big issue for Conservative voters and because London is an increasingly Labour city where the biggest housing issues are found by a country mile, so will it remain on the ‘to do list’ but probably won’t get recognition it deserves.  We may have to wait until another political party gets back into power before something will seismically change in the property market, thus demand for housing will continue to outstrip supply, meaning property values will increase; good news for existing landlords and homeowners! However, as rents tend to go up and down with tenant wages, in the long term, rents are still 4.68% lower than they were in 2008; good news for tenants!... in the private rental sector, it seems, everyone wins!

Don’t forget, you can call in and see me at our offices on St. James’ Street to chat about everything lettings!

Property values fell by 0.4% in Derby

Property values in Derby fell by 0.4% in March. This follows several months of sluggish activity in the Derby property market in the run up to the Election, putting the average price of a property in Derby at £170,400, 3.7% higher than in March 2014. Despite the not so insignificant fall in March, the figures showed property values in Derby were still higher in the first quarter of 2015 than in the last quarter of 2014.

Interestingly, the Council of Mortgage Lenders and Estate Agent trade bodies over the last few months have reported seeing a fall in mortgage lending and enquiries from prospective homebuyers. This is important because it comes amid an overall fall in housing market activity in Derby. Data from the Land Registry state that completed house sales in Derby in the three months to January 2015, (the most up-to-date figures available) fell by 10.49% (compared to the same three month period up to January 2014).

However, I believe that the slowdown in property sales in Derby is actually supporting Derby property values, as there is a shortage of houses coming onto the market. Even though in the whole of the first Quarter of 2015, Derby property value increases may seem subdued when compared to 2014, let us remember, property values are still rising well above the level of inflation.

As I have said many times before, the population in Derby is growing at a much higher rate than the number of properties being built. This increasing demand for a roof over people’s head in Derby, which is outpacing the supply of new houses being built in Derby, is creating  a severe imbalance in both the Derby and the rest of the UK housing markets, thus making homeownership an ever increasingly distant dream for many of Derby’s potential first time buyers.

In fact, I still maintain the view that house prices are likely to rise by around 3 to 5% in Derby in 2015, even after taking into account this blip at start of the year. The reason being is that the rise reflects both strong economic conditions and steady market conditions with and, this is the most important factor, very low numbers of properties on the market.

Many Buy to Let landlords know that investing in the Derby property market is a long term strategy of 10, 20 even 30 years. Governments come and go, but unless the powers that be start to build thousands of new properties a year to make up for the shocking lack of supply, we will continue to have problems. Derby people will always want a roof over their head, and irrespective of which party is in power, if there aren’t any council houses and they can’t, or are unable to buy, a demand for rental properties will always remain.

As my existing Derby landlord clients will testify, whether you manage your property yourself, or another Derby agent manages your properties, everyone is always made to feel welcome when they pop in for a coffee at our offices in Derby to discuss anything to do with the Derby property market, and how Derby compares with its closest rival towns. I don’t bite, I don’t do hard sell, I will just give you my honest and straight talking opinion. However, if you are too busy to pop into town, you could always visit the Derby Property Blog for advice, intelligent commentary and analysis of the Derby Property market!

What does the General Election result mean for the Derby Property Market?

After the shock of the Conservatives returning to power with a majority at Westminster, all the potential issues and possible uncertainties of a hung parliament has lifted the cloud from the Derby property market. Talking to other Derby agents, surveyors and solicitors in the area over the last few days, there are signs this has started a new impetus the Derby property market after a subdued six months, when an amalgamation of tougher lending conditions, a natural correction after the strong recovery in Derby property prices in 2014, and political uncertainty ahead of the General Election slowed demand.

Against the back drop of Labour’s election promises of rent controls and three year tenancies, some Derby buy to let landlords were waiting to see how these new policies would be implemented before they committed themselves to buying more property for their portfolio. Now that uncertainty has been removed, the long term picture is very positive.

So, where next for the Derby property market? Well, with inflation at zero and with the Money Markets happy that David Cameron is still at No.10, the Bank of England have no reason to raise interest rates until 2016 at the earliest. As mortgage rates are at their lowest levels since 2010, landlords with larger deposits will now be wooed by the mortgage companies in the coming months with low rates.

Over the past couple of years, Derby landlords have benefitted from a booming Derby job market. Unemployment in the city has dropped to 3.15%, as a year ago, 5,357 people were claiming unemployment benefit compared with today’s 3,287. With more jobs and better pay, as the level of rents is directly linked to tenant’s wages, there has been an increase in the rental prices tenants are willing to pay for good quality Derby properties.

Some landlords might be nervous about the Tory’s plans for the housing market in the next five years in terms of tenant demand for their rental properties. One plan is for Housing Association tenants to have the right to buy their property. However, these tenants were never in the private rented sector and will actually increase the supply of properties in the housing stock in decades to come. The Government ‘Help to Buy Scheme’ has only helped to buy 180 Derby properties since April 2013. Considering 4,366 properties have changed hands in the last year alone in Derby, I don’t think it has made a huge difference to our local property market.

The biggest matter, when it comes to tenant demand of rental property going forward, comes from the shift in the mindset and attitudes towards renting itself. Twenty years ago, in some quarters, you were seen as a second class citizen if you rented a property. Not any more! In Derby, as in the rest of the UK (apart from Central London), renting continues to offer good value for money for tenants. 

If you are an existing landlord in Derby or thinking of becoming one (or as we like to call you.. a FTL.. a ‘first time landlord’), then I must recommend you out seek specialist advice and opinion. Like many agents in Derby, we will happily give you our opinion on the current state of the market and the advantages/disadvantages to investing in the Derby property market, so why not you pop into our offices for a chat. However, if time is at a premium, another source of information on the Derby Property Market is the Derby Property Blog!

1303% return for Derby landlords since 1999...

Investing in property is essentially different from investing in stocks and shares or putting money in the Building Society. Whilst these other investments (Building Society Passbooks, Stocks and Shares etc) are passive  i.e. once the  money has been invested it you leave it alone, with buy to let, things are more hands on, in fact it’s almost a business!

One thing the landlords I speak to say is the fact that they like buy to let because it is both an investment as well as a business. It is this factor that attracts many of my Derby landlords – they are making their own decisions rather than entrusting them to others - such as City Whizz Kids in London playing roulette with their pension pots.

So if you are investing in the Derby 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, this has been strong in recent times in Derby, but the value of property does go up as well as down just like shares do but the initial purchase price rarely decreases. Rental income is what the tenant pays you - hopefully this will 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 Dairyhouse Road area of Derby. He bought a very pleasant 4 bed terraced house in 1999 for £27,000. It sold again in January just gone for £115,000, a rise of 325.92% in just over 15 years – a compound annual return of 10.14%.

However, the real returns are for those Derby 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 £27,000 purchase price of the Dairyhouse Road terraced house on an interest only 75% mortgage, he would have only needed to invest his deposit of £6,750 and then borrowing the remaining £20,250. His £6,750 would be worth £94,750 today; £115,000 less £20,250 interest only mortgage) ..a rise of 1303.7%! -  a compound annual return of 19.26%.  ..and I haven’t even mentioned the rent he would of received in those 15 years!

This demonstrates how the Derby 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 Derby 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 Derby 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 Derby for buy to let, then one place for such information would be the Derby Property Blog!