The best property investments are often to be found in the North East and North West, with average yields of 5.2% and 5.0% respectively, according to a recent Your Move Buy to Let index for England and Wales.
This will hardly be news to anyone who watches ‘Homes under the Hammer’, where various properties for auction are highlighted; the flaws in the properties are discussed and filmed, then a return visit is made when the refurbishment has been completed. Most purchasers are private landlords, buying to either increase their portfolios or to embark on a career in property development and renting properties, and viewers can see the trials and tribulations of buying and refurbishing properties.
Property prices in the Northern parts of the country are much lower and if realistic budgets are set, there is every possibility of a very healthy return on the property investments. This could lead investors, drawn by good prices, to risk investing in an area they are not familiar with, some distance from their home town.
Whilst not always a bad idea, this can cause problems. Refurbishments at a distance can mean that the owner is at the mercy of contractors, who without close supervision could skip from one job to another, delaying completion of the refurbishment and thus, delaying the rental return.
How are contractors/tradesmen chosen, without some familiarity with the standard of work or personal recommendation – not easy to obtain if not in the locale. In addition, have the purchasers researched the area? Is it likely to appeal to tenants? What is the likely rental income for that area? In some areas, the rent will mirror what the local housing allowance rate is.
Even if the problems of refurbishing property investments are addressed and the properties are ready to rent, managing from a distance creates stresses and strains for the landlord, particularly in engaged in another occupation.
Engaging a managing agent is the solution for long-distance landlords. The owner has the same problem with that as in employing a contractor – how to find the right agent, with a good reputation and, hopefully not too high a fee, which of course reduces the return. So, though the returns can look extremely good, some thought is needed before rashly buying in an unfamiliar district.
Despite the high prices in London and the South West, it is surprising to find that the lowest yielding areas for property investments are London, with an annual return of 3.2% and the South West and South East both having a return of 3.4%. Although rental income is extremely good in these areas, the cost of buying a property is so high that the return is affected. In addition, contractors will be in high demand and can therefore charge far more than in one of the lower priced regions.
So, there are handsome returns to be made and look likely to continue, as rental prices have either remained stable or have increased slightly, which is good for landlords – they are in business after all. They cannot afford to make losses, so careful consideration must be given to where future purchases will be.
By all means go for the best return and invest in the North – but make sure any properties that are bought will be adequately managed or the result may be a costly disappointment.
For advice on buy to let issues – Ask Sharon