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Capital growth, or a monthly rental income?

This week we have two great deals on the table. When deciding which one to go for it is important NOT to look at the properties but at yourself first and see what really suits your circumstance.

When we ask a potential investor what they want from their investment property, capital growth or income, the answer 9 times out of 10 is both. This is because they some how think if they say one they will not get any of the other so they play safe and say both.

When it has been explained that they may end up giving a portion of their high income away they then tend to think again.

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My school teacher Mr Ali used to say there are only four things in maths: adding subtracting, multiplying and dividing, no matter how clever it gets, it is only it a combination of these four actions which make up mathematics. Similarly there are only two ways to make money from property: capital growth and income. There is no third way. So it is important to identify which one you wish to go for and how much of it you require.

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The reason we ask this question is to help the investor identify what types of property would suit their circumstances. It does not make sense for everyone to buy a property where the bulk of the profits comes from rentals. The main reason being half of it could be eaten up by the tax man, it doesn’t take much for the government to start taking a large chunk of your income. The pain starts at the modest threshold of £34,371 at which point 40% starts being paid and at over £150,000 the rate hits 50%. Someone in this category may be better of going for capital growth rather than a property where the bulk of the income is produced by the rental income.

Someone earning over £34,741 may not like the idea of purchasing a property where the income generated is handed over to the taxman, unless of course they’re about to retire soon, so limiting the time period where tax is paid.

It is important to note these properties are not exclusively earning money this way, simply that most of the returns are produced in this way.

Ignoring tax, when looking at investing a lump of money a combination of the two may yield the best results. If someone had £500,000 to invest for example a good strategy would be to split their funds. They might invest £250,000 so they can have a passive income of £25,000 from high yielding properties and then the rest of their funds might be employed more aggressively in development projects focused on capital growth. The £25,000 will pay the interest payments for the projects which tend to be more lumpier in returns. This way if a property takes longer to sell than necessary it does not cause undue pressure on the investor, as the £25,000 income will be making the interest payments of the development loans.

The two properties we are offering this week are at different ends of the scale. The first is a beautiful large one bedroom flat with bay windows in a very strong location. The prospects for capital appreciation is solid and the entry price cheap. This property in our opinion is about £50,000 below what it should go for. The income from this property will only be £3,000 after all expenses. This property will suit a high income earner who wants his/her growth to be in the price of the property rather than rental income. The rental used here is £350pw, this is easily achievable in this location.

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The second is a cash cow, meaning it gives income every month, after expenses. This property should give you an income of £13,000 p.a after all expenses.

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This property will of course rise in value due to the location and the on going £2bn regeneration happening in Kings Cross. This is an excouncil property and therefore the growth generally is not as high as a privately owned property.

The above figures for both properties are based on a 75% borrowing at a 5% interest rate. It is important to note we are not tax advisors andwhen looking at investing in property it is important get sound holistic advice.

If either of these properties appeal to you call our office now.

The Real Deal One bedroom flat in Bayswater, London W2 Purchase Price: £300,000

A good sized one bedroom property on the second floor of a portered block. Westbourne Court is conveniently located within close proximity to Paddington (HeathrowExpress) and a short stroll from Queensway, with its array of shops and amenities. The flat offers the chance for the new owner to put their own stamp on it.

Service Charge: £1,326 per annum approx

Lease: 116 years (approx)

Hawkshead, Stanhope Street, NW1 Purchase Price: £370,000

In brief the property is a cash producing flat with strong capital growth prospects!

* Superbly located four bedroom flat in Camden at £370,000.

* The most desirable student location – short walk from the University College of London and University of Westminster. That means high demand for accommodation from foreign students.

* Currently rented at £585 per week.(£30,420 per annum)

* Open green spaces of Regents Park are another benefit that students love.

* Ongoing King’s Cross regeneration project, worth £2bn, will have a strong impact on capital growth in the area.

Service Charge: £1,150 per annum approx

Lease: 114 years(approx)

Suresh Vagjiani

Sow & Reap

A Property Investment Company

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! Tips of the Week

* Pay attention to things like schools, shops and transportation when buying a property, this will ensure a strong rental demand and onward sale

* Remember even in this climate banks are willing to lend you the majority of the money to purchase your BTL property, this is because they know medium to long term it’s a sound investment.

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We offer a Property Sourcing Service, so call us now to see how we can help on 0207 096 1083 or email info@sowandreap.co.uk

Our Address: Westbourne House, 14-16 Westbourne Grove, London, W2 5RH

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