Whilst location is always the key factor when investing in property, prices are a major consideration for buy-to-let landlords too. Average house prices have gone up by about 17% in the UK in the past three years, while average rents have risen by only 4.7% in that period. That means landlords could be making more money from the capital appreciation of their property than they are from the rental income.
According to research from Direct Line, the best annual rental yields are in Burnley, Lancashire. The average price of a property there is only £76,300, with the annual rent bringing in £5,388 on average, which is a monthly yield of 7.1%. Daniel Bailey of Middleton Finance said the purchase price is key to the investment. He said that the majority of his investors do not pay more than £125,000 per property. If they pay above that, then the yields are not usually as good. He said some of his investors are enjoying yields as high as 10%. According to the Direct Line research, Glasgow and Belfast are top cities for investors. Buy-to-let landlords can achieve average monthly yields of 6.9% in Glasgow and 6.4% in Belfast, which compares favourably with the national average of 3.6%. London always has high demand, but prices are restrictively high for many would-be purchasers. Although rents can bring in more than £20,000 annually, yields are on average just 4.4%. However, London is still a solid base because of demand for landlords who can afford to purchase property there.
Many investors are looking north because property prices are much lower. The cities of Manchester, Leeds, Liverpool and Sheffield are attracting attention, with a good balance between price and yields. More young professionals are opting to move to these cities for a better quality of life than they would experience in London, which is creating an increased demand for decent rental homes.
Another way to increase rental yields is by investing in off-plan properties. There are projects in and around the major cities, including London, involving build-to-lets to meet the ever-increasing demand for rental properties. Properties can be bought at lower prices before the building has even been started or completed. The purchaser benefits from capital appreciation as soon as the property is completed, as well as higher rental incomes from being able to market the new, more efficient properties.
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