If you read the newspapers and the Landlord forums on the internet, there is a good helping of ‘Doom & Gloom’, especially with changes in the taxation towards Landlords, new 'Right to Rent' legislation on checking tenants and the general uncertainty over the the world economic situation, the 'inevitable' housing crash, rising interest rates etc
I will admit that there are a proportion of Landlords in Sunderland who have over exposed themselves in the last few years with high percentage loan to value mortgages, buying properties that were never going to be the best investments in the first place
Many who bought prior to the most recent crash in 2008 are faced with negative equity but are just about covering costs, so they are keeping all fingers and toes crossed that they can keep their properties occupied and are holding onto them until the situation improves (which in reality isn't going to happen any time soon...)
Those Landlords, with their artificially low interest rate mortgages or ridiculously low SVR's, will start to suffer, as their modest monthly positive cash flow become negative when the tax and mortgage rates rise throughout 2017 and beyond
These are the people who should be seriously thinking about selling up
As I said to my Landlord (who thankfully is not in the desperate situation described above, due to well informed purchases based on a decent investment strategy), there will inevitably be those who want to get out of the game, but I see this as creating a fantastic opportunity for those committed Landlords/Investors who have a clear & well thought out strategy and who are willing to increase their portfolios by picking up properties that will deliver positive cash flow, perhaps at 'fire sale' prices
Since January 1995, the average price paid for a Sunderland property has risen from £79,880 to today’s current average of £133,862 - a modest rise of 68% compared to some parts of the UK
However, look back to 2005, and in that year, the average property was selling for £155,439, meaning the average Sunderland property owner would have seen a modest decrease of 10% between 2005 and 2015
This isn’t good news for people who bought in 2005, and it gets even worse when you take inflation into account
Since 2005, the rate of inflation has increased by 37.14%. That means to retain its value, a Sunderland property bought for £155,439 in 2005 would need to be worth £213,169 today!
Strange as it may sound but I can see a small positive that can be taken from this otherwise gloomy data
Landlords considering incorporating their properties into a Limited Company to avoid the changes to mortgage interest relief will be faced with a Capital Gains Tax bill based on the increase in the property value between the original purchase price and when the transfer to the Ltd Co takes place
But looking at the above, many Sunderland Landlords who bought between 2004 and 2012 will escape a CGT bill if their property is now valued at a lower price than when they originally bought it, so it may be the perfect time to consider this (please take expert legal and financial advice before doing so!)
You can still make money by buying the right Sunderland property at the right price and finding the right tenant - no one should base their Sunderland property purchases on the promise of capital growth!
A successful investment strategy is also about having a balanced property portfolio that will meet your investment goals – what is a balanced property portfolio? Well, if you give me a ring on 0191 567 8577 I'd be happy to have a chat about this and I may even discuss this on a future blog post...