‘Flipping’ Heck - Oxford Property Values Rise by £68.19 a day

Investing in Oxford buy to let property is different from investing in the stock market or depositing your hard-earned cash in the Building Society. When you invest your money in the Building Society, it is considered by many as the safe option. But, the returns you can achieve are awfully low (the best 2-year bond rate from Nationwide is a whopping 0.75% a year!).  An alternative investment is the Stock Market, which can give great returns, but unless you are able or willing to be on the phone every day to your Stockbroker, you will most likely invest in stock market funds - making the investment quite hands off meaning one always has the feeling of not being in control. 

However, with buy to let, things can be more hands on. One of the things many landlords like is the physical nature of property - the fact that you can touch the bricks and mortar. It is this factor that attracts many of Oxford’s landlords – they are making their own decisions, rather than entrusting them to city whizz kids in Canary Wharf playing roulette with their savings.

I always say investing in property is a long-term game. When you invest in the 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, has been strong in recent times in Oxford.  Whilst the value of property does go up as well as down (just like shares do) Oxford has enjoyed consistent year on year increases since 2006.  Rental income is what the tenant pays you - hopefully this will also grow over time. If you divide the annual rent into the value (or purchase price) of the property, this is your gross yield, or gross annual return. Deducting any mortgage and other costs such as maintenance and/or letting agent fees gives you the net yield.  

Over the last 5 years, an average Oxford property has risen by £124,450 (equivalent to £68.19 a day), taking it to a current average value of £490,800 (based on all properties sold registered in the Land Registry). Gross yields start at around 4% a year, but can reach double digits’ percentages for larger properties that have a licence to be a house of multiple occupation (HMO).

However, something I haven’t spoken of before is the more specialist area of flipping property to make money. (flipping - buying a property, carrying out some minor cosmetics and re selling it quickly).  I have seen several investors recently who have made decent returns from this strategy. For example:

• One Oxford Investor paid £290,000 for a 2 bed apartment on Cheney Lane in January 2015. It appears some cosmetic work was done to the property and it was resold a few months ago (November 2016) for £360,000 a 24.14% return before costs (or compound annual return equivalent of 12.29% AER) http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=42804441&sale=89070732&country=england
• Another Oxford Investor flipped a lovely 3 bed semi on Croft Avenue, Kidlington, paying £330,000 in May 2015 and selling it again after some doing some cosmetic works for £422,500 a few months ago (December 2016) … 28.03% return before costs (or equivalent 16.52% AER) http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=45863565&sale=89071191&country=england

This demonstrates how the Oxford property market has not only provided very strong returns for the average investor over the last five years but how it has permitted a group of motivated and active landlords to become particularly wealthy. 

In my article next week I will introduce the proprietary model I have developed to help landlords and property investors to plan their returns – understanding how to optimise a portfolio for both capital growth and rental yields.

Landlords - Use letting agents, don't rely on listings websites

The following article was published by Letting Agent Today.  It is unusual for us to re-publish an article in this way, but this is an important topic given the cost pressures many landlords are feeling.  It will be tempting to look for ways to reduce operating costs and in so doing open themselves up to unforeseen risks.

With the forthcoming ban of letting agent fees to tenants, there will be further temptation to skip credit and employment reference checks on tenants, exposing landlords to unscrupulous tenants.

As reader know, as well as being author of this Blog, I am the owner of Martin & Co, Oxford, which is a letting agency.  So, of course I do have a vested interest in Oxford landlords continuing to use a letting agent (particularly my own!).  However, with so much government scrutiny on protecting tenants from unscrupulous landlords, it is important that landlords recognise the risks presented to them from unscrupulous tenants.

In recognition of the risk to landlords of letting their property to rogue tenants we offer our clients access to a comprehensive protection policy that provides financial protection in the event that a tenant risk like this materialises, despite the credit and employment reference checks conducted by us having been passed prior to the tenancy commencing.

The article read as follows:

The founder of eviction specialist Landlord Action is advising landlords to use accredited letting agents and not try to take the cheap option of advertising for tenants on websites. 

Shamplina is a host of Channel 5’s TV show Nightmare Tenants, Slum Landlords, and on last evening’s episode he discovered what happened when one landlord decided to let her property through a listings website. 

Initially she was delighted when a young professional moved into her flat promising to look after the place. He boasted of a private education and his references showed a successful career in the City - but it didn’t take long before he stopped paying the rent. 

"We've learnt that bad tenants are more likely to target [websites] because they hope they will be subjected to fewer checks. In the future, we'd always go through an agent - although even this has no guarantee. It's the law that needs to change to make landlords less vulnerable to unscrupulous tenants” McNaught told the programme.

Shamplina says this situation is not uncommon. 

“This guy is a serial bad tenant. He has been evicted previously after running up costs of £30,000 in unpaid rent and stolen furniture from an overseas landlord. In Vicky’s case, he used false references to secure the property.” 

Shamplina says this should serve as a serious warning to landlords about using free classified websites to advertise their property to rent. 

“We’ve come across many similar cases in the past where we see serial bad tenants prey on less experienced landlords who let their properties on consumer websites. Unfortunately, the majority of these landlords are deceived by well educated con artists. With absolutely nothing in place to safeguard landlords, they find themselves in all sorts of trouble” he says. 

Average Rents in Oxford set to rise

Back in the Spring of 2016, there was a surge in Oxford landlords buying buy to let property in Oxford as they tried to beat George Osborne’s new stamp duty changes which kicked in on the 1^st April 2016. Below are the property statistics for sales either side of the deadline in OX2:

Jan 2016       –  42 properties sold

Feb 2016      –  27 properties sold

March 2016  –  91 properties sold

April 2016     –  19 properties sold

May 2016      –  23 properties sold

Normally, the number of sales in the Spring months is very similar, irrespective of the month. This shows that Government policy does affect behaviour in the housing market.

During 2016 Oxford rents rose steadily is not likely to inverse any time soon, particularly as Government legislation planned for 2017 might reduce rental stock and push property values ever upward. The decline of buy to let mortgage interest tax relief will make some buy to let properties lossmaking, forcing landlords to pass on costs to tenants in the form of higher rents just to stay afloat. Even those who can still operate may be deterred from making further investments, reducing growth in rental stock at a time of severe shortage in Oxford.

But it’s not all bad news for tenants. Whilst average rents in Oxford since 2005 have increased by 22.6%, inflation has been 38.5% over the same time frame, meaning Oxford tenants are 15.9% better off in real terms when it comes to their rent (which is a sizeable chunk of most people’s monthly household budgets).  However according to Dataloft, Oxford remains the least affordable place to rent outside of London with average rents approaching 50% of average household income (assuming household income is 1.5 times Oxford’s average earnings).

Year	Average Rent in Oxford per month
2005	2030
2006	2077
2007	2123
2008	2193
2009	2227
2010	2196
2011	2249
2012	2300
2013	2334
2014	2369
2015	2421
2016	2490

However, looking at the rent rises over the last five years in Oxford following the Credit crunch (2011), rents in Oxford have risen by an average of just 2.4% a year way below the c6% per annum increases in house prices experienced over the same period of time.

The view I am trying to portray is that while renting is often portrayed as the unfavourable alternative to home ownership, many young Oxford professionals like renting as it gives them adaptability with their life. But, as can be seen from the statistics, tenants have also had a good deal with below inflation increases in rents debunking the myth that landlords have profited from hiking rents above either inflation or the increases in costs in house ownership.  In reality, landlords have been prudent and cautious recognizing that their tenants have been living through an economic downturn.

However, there is a tightrope for landlords to walk balancing the preservation of stable income from known tenants vs. increasing rents above the long-term trend to re-balance their returns.