Buy-to-let hotspots: the runners and riders
London rents continue to outstrip the rest of the country, but with the cost of house purchase also high, the capital no longer represents the best place to put your buy-to-let cash.
Both home-grown and foreign investors are increasingly looking outside of the South East to find properties are far cheaper to purchase and return an even better rental yield.
Data from Countrywide shows a varied picture. The inforgraphic below outlines the average yields in six major cities across England.
Plymouth represents the best yield returns across the board, but Countrywide added that some areas of Sheffield, Birmingham and Manchester are achieving yields of more than 10%.
In comparison the capital’s best performing area, South London, returned a yield of 6.51% with some other areas returning little over 5%.
Bob Young, managing director of CHL Mortgages, says that northern areas were now proving increasingly popular amongst investors, but should you start putting your money all over the country?
“The fundamentals of buy-to-let haven’t changed – know the asset, understand the local market and don’t believe anything you haven’t tested yourself,” Young says.
“If a letting agent tells you that a certain property is an easy renter talk to a few more agents, look at the local press and count the number of ‘to rent’ signs in the area you’re looking at.”
Potential buy-to-let investors should get to know an area well, monitor house prices and find a good deal relative to each individual market. Buyers should also consider upcoming developments and regeneration schemes.
Transport links can add huge amounts to a property’s value and rental potential. Properties closest to London tube stations attract a higher monthly rent than those further away, while the upcoming Crossrail rail link is set to boost areas across the South East of England.
Some may think the effect is limited to London but suggestions are the trend is national. Research released last year by Nationwide revealed that properties located within 500 metres of a Manchester Metrolink station are typically valued at 7.3% more than similar houses in less connected areas. Rental incomes also benefit from such conveniences.
With extensions to the tram system taking place this month and further lines set to be added in the coming years, properties located in these areas could be ripe for development.
Young adds: “At present we’re seeing very high ‘potential yield’ in the North East and West. Purchase prices are depressed therefore the rent / property values tend to be quite high.
“Our experience is that many of these properties are ‘labour intensive’ requiring a very hands-on approach by the landlord (eg. going to the property on a Friday to collect the rent before it is spent).”
The financial crisis has boosted the move from home ownership to rental properties and Countrywide group commercial director Nick Dunning says his firm is seeing tenants demanding smaller properties than before.
“At Countrywide, we are finding that many tenants are preferring to rent smaller, cheaper properties over larger more expensive homes,” he says.
“We have seen a high demand for one and two bedroom flats in the majority of geographical areas we cover throughout England, Scotland and Wales.”
Investors should also remember that some lenders will not offer mortgages in certain parts of the country and many building societies have restricted lending areas.
Young said it was important to consider the time and effort required to service particular clients.
“The bottom line is that sensible landlords who manage the quality of their product are obtaining yields of between 6% – 8% after maintenance and costs.
“If you want yields of 15% these can be had but, as mentioned, a much more labour intensive approach with tenants more likely to default leaving voids and in my experience a lot of rework on the property. You wouldn’t believe the mess some tenants leave the property in.”
But no matter where in the country you decide to put your buy-to-let cash the key component to being a good buy-to-let landlord is the ability to take emotion out of the decision-making process. A property may not be to your personal taste but you should not become attached or you risk paying over the odds and diminishing your return.