I’ve just been checking out one of the latest reports on property investment locations across the UK – highlighting some of the worst.
It also highlights the need to look carefully at how you calculate yields, taking into account capital values.
So this study looks beyond gross rental yields to calculate the real yield, the new study reveals that investment in the wrong location can lead to low or even negative returns. So it tries to assess the impact of changing capital values to produce a more realistic view of rental yields and the real investment potential.
The analysis is based on typical 2 bedroom properties (ie it is based on median asking prices and rents) and combines changes in the capital values and gross rental yields.
As usual, the current top 10 areas attracting the highest real yields are all in London, but the study shows that the worst locations are scattered across the UK – and includes a number of rather surprising locations in the “affluent South”.
All of the worst performing areas reveal negative real yields and will prove very interesting reading for potential buy-to-let investors.
Doug Shephard, director at Home.co.uk, comments –
“The average gross rental yield of these areas is currently running at a healthy 6%, however many landlords fail to consider the rise and fall of capital values when assessing a buy-to-let investment. This study has highlighted that if investors in these worst affected areas are simply taking a short-term view, based on rental income then they could be in for a nasty surprise. Given our new take on yields, these are areas of the UK where landlords are losing money just by owning the property and that is even before tackling the potential issue of void periods.
Whilst there are many report of a north-south divide in the property market, 6 of the 10 worst performing areas are located in the south of England, including the relatively affluent area of Guildford. Interestingly, the east Kent seaside towns of Ramsgate, Broadstairs and Margate all report worrying real yields. In terms of rental income, these three areas can offer landlords gross yields of over 5% however the sales prices have collapsed. For example, in Ramsgate a 2-bed property took an average of just 56 days to sell in January 2007. Now the average has risen to 134 days, reinforcing the already struggling sales market and adding further pressure on the real yield.”
So, interesting points being made here – although it does look as though the data is being analysed in the context of traditional Buy To Let, without taking into account potential HMO yields.
Still, it all goes to reinforce my advice to focus on finding the Right Property in the Right Place and at the Right Price!
Del Brown, Property Investment Expert and author of Making Money From Property – Bristol Fashion
