I was at a recent business networking event
in Solihull, when a landlord (who it transpired had a couple of Buy to let
properties) bent my ear on where the next hot spot town or city is to invest
his money in and where the best rental yields are.
Now it can be tempting to just look at Solihull when growing a buy to let
property portfolio, but there can be big differences in the amount of rental
income you receive and how much your property will appreciate by considering
other locations in the country.
Now regular readers of my articles of the Solihull
Property Blog know of my love of the ‘buy to let seesaw’. On one side of the
seesaw is yield and the other capital growth. Landlords should be looking for a
high rental yield so that they can comfortably cover any mortgage payments and
make some profit from the income return, but you also want the property to rise
in value over time so you can get some capital growth when you come to sell. However,
high yielding property in say such areas as Kingshurst in Solihull, (so the
seesaw arm with yield on it goes up on one side), will suffer from low capital
growth (so the other arm with capital growth on the seesaw goes down). The relationship works in reverse as well, so
in such upmarket areas as Knowle, properties offer good capital growth, but at
the expense of a decent yield.
The North East and North West of the UK are
landlord magnets for great yields. The average yield in Solihull today is 4.96%,
which when you compare with say Hartlepool in the North East, which achieves 7.73%
or 9.43% in the Anfield area of
Liverpool, doesn’t look too healthy. Now of course, these are only averages and
some of my Solihull landlords are achieving 6% to 6.5% on some of their Solihull
properties, but at the expense of capital growth. Anyway, after wasting a tank
full of petrol up the A1 to Teeside or the M1 to Home of the ‘The Reds’, that Liverpool property, would have dropped
in value by 2.2% in the last 12 months and the Hartlepool property would have
dropped by 1.4%.
When you compare the long term house price
growth, it gets even worse. Looking
at the graph, Since 1995, property values in Solihull have risen by 124.94%,compared
with Hartlepool at 21.02% and Liverpool at 90.11% – it just shows you shouldn’t always
chase the yield because of the poor increases in property values in those two
places. As I always like to explain to landlords when
they either email me, pick up the phone or pop into my offices for a coffee (both
my own and even landlords who use other agents (you are all welcome at ours),
together with soon to be FTL’s (first time landlords)), a decent yield
is important, but when you come to sell your buy to let property it would also be
nice to make a decent profit. Any profit you can make when
you come to sell it, on a buy to let property is known as the ‘capital gain’ ie capital growth.
At the end of the day, as a Solihull landlord,
you want to be making gains from both your rent and house price growth,
particularly when you want to sell, because when combined, the rental yield and
capital growth, that gives you the real return on your investment. Finally though, do you know Hartlepool and Liverpool as
well you know Solihull? Do you know where the good and bad areas are in both
those places? Are you happy that it would require you to take a day out of work
if there was an issue with your property in the North? If you can’ t answer yes to all three
questions, then maybe you should be considering a closer to home?
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