Key returns 2
What returns should you be looking for from your property portfolio?
Previously I wrote about the first of two key returns in Buy to Let investment - income from renting. Now I'm looking at the second key part of the return you make - long term capital growth.
To work out long term returns you need to know how much you have invested and apply forecasts of one off costs and likely increases in the property’s value. Factor in your buying costs and projected selling costs. If you are investing for 15-20 years (quite typical) then consider the age of the property; if it's an old house such as a turn of the century terrace, you may incur one off costs such as re-wiring, replacing windows or a new boiler. If you are buying a newer property you may not need to allow for these.
Other considerations are inflation and tax. Rents ideally should be maintained at ‘real’ levels so for example at 2.5% inflation a £700 pcm rent in 2013 should be £700 x 1.025=£717.50 pcm in 2014. From a capital growth perspective to maintain its value the property should also ideally increase by 2.5% so a £150,000 property in 2013 should be £153.750 in 2014.
Property tax is not easy to calculate yourself as the tax you pay on property earnings is based on all your earnings from a job or other assets you have. Capital Gains Tax must be considered but can be mitigated by annual allowances which again may be affected by other factors within your tax affairs. If you want to find a knowledgeable property tax specialist let me know or contact me for a more in-depth look at property.
If you get it right on the 'way in' you should, with efficient property management during the lifetime of the investment, get it right when you implement your exit strategy and realise your real potential for profit.