YES, MY JAW DROPPED TOO WHEN I WORKED THIS OUT…
Last week, a couple from the Purley area came to discuss potentially investing in property for Buy to Let. One of the most important considerations you will make before investing is the balance between annual return/yield and the annual value increase/capital growth.
Purley is one of the most sought after places to live within the CR postcode (CR8), and holds the impressive Webb Estate where properties reach in excess of £4m. The average four bedroom semi detached house sells at around £575,500 (from the last year) and rents are roughly £1900pm.With this in mind, it was a surprise to find that similar sized four bedroom semi detached houses in Thornton Heath (CR7) averaging out at £338,800 with rents around the £1550pm.
The yield which could be achieved from a property in Thornton Heath would typically achieve 5.49% per year. When we compare this to the possible 3.97% in Purley, it’s nearly 38% higher in Thornton Heath! Those figures might worry the Purley investors, however, to get a clearer picture on your investment (and remember it is an investment), you must look at capital growth / appreciation and yield.
The average price of a detached house on Groveland’s Road (middle of Purley) in 1995-1997 was £127,690. Compare this to £124,350on Brigstock Road (middle of Thornton Heath) in 1995-1997. The average in the last couple of years on the same roads are £460,000 (Purley) and £294,375 (Thornton Heath)
Now, while Thornton Heath may demand better rental yields, Purley has in fact increased in capital growth by 260.72% compared to 136.68%in Thornton Heath. That means that if you bought a £150,000 semi-detached house in both areas in 1995, today, the same house in Purley would fetch around £540,100 (increase of £390,100) and £354,500 in Thornton Heath (increase of £204,500).
So as you can see, investing is not always just about rental yield, maybe your game is different and are going for capital appreciation. With Croydon as a centre point between the two locations, an investment in either area would be a wise due to the £1bn regeneration scheme (details about that on the Blog). Remember that there are other considerations that affect the yield / capital appreciation. I’ve been in this game long enough to have seen the changes in the market affect various properties.
If you want any advice, tips or just a friendly chat, give me a call or pop into the office and we can go over any questions you have (it’s free obviously!).