We have reached the two weeks of the year when Wimbledon receives more attention than any other residential area in the world. But after the tennis fans, players and officials go home, Wimbledon Village remains an area where landlords generate healthy returns.
This is despite the government introducing a 3% stamp duty surcharge on second homes, which pushes the tax payable on an £845,000 two-bed ground floor apartment in Burghley Road from £32,250 to £57,600.
To work out the level of return an investment property will deliver, landlords need to calculate the rental yield – the rental return as a percentage figure of the property purchase price.
LendInvest reports that rental yields between 2010 and 2016 in the whole of the SW postcode was 4.8%, although this calculation assumes landlords take in £19,500 in rent each year.
To calculate your buy-to-let investment’s rental yield, take the total rent received over a year. Assuming the two-bed property in Burghley Road has a rental value of £3000 per calendar month, that would work out to be £36,000.
Next, take the purchase price of the property (£845,000) and add that figure to its buying costs (£57,600 stamp duty plus £2000 professional services fees). That gives you a total of £904,600
Now perform the following calculation: 36000 ÷ 904600 x 100 = 3.97%.
However, the above calculation assumes the investment property was purchased without the need for a mortgage.
To work out your annual return or yield taking the property loan into account, the annual mortgage costs must be subtracted from the £36,000 received in rent.
Let’s assume the investor takes out an interest-only buy-to-let mortgage for 80% of the purchase cost (£676,000) at a rate of 3%. That would result in monthly payments of £1689 or £20,268 per year.
Subtracting that figure from the annual rent receipts of £36,000 leaves a pre-tax profit of £15,732 per year.
To calculate the yield, take the deposit put down (£169,000) and add that figure to the purchase costs (£59,600). This gives a total of £228,600.
Now perform the following calculation: 15732 ÷ 228600 x 100 = 6.88%
A quick glance at the best savings rates available on easy access accounts, reveals no more than 1.3% is currently available. Not only that, the value of property in Wimbledon Village is likely to appreciate in value if the investment is held for 10 years or more.
It is wise to bear in mind, however, that a landlord’s true income from a buy-to-let investment is the amount of rent left over after all the other expenses associated with the property have been met. These can include variables such as void periods, maintenance, insurance and the fees charged by letting agents.
But even subtracting 25% from the £15,732 annual pre-tax profit gives a yield of 5.16% on top of any appreciation of the property’s value.
Every buy-to-let investment can deliver a different yield depending on the cost of the property and the rent charged. For this reason, the figures quoted above are for illustration only.
Robert Holmes & Co has a database of buy-to-let investors who have expressed an interest in a wide range of property in and around Wimbledon Village. If you want to maximise the sale value of your property, contact us today and learn what it could be worth.