Property investors looking to invest in the buy-to-let market should look to university towns in the North West to find the best returns, says Peter Armistead of Armistead Property.
Although London is very popular for landlords, recent research from LendInvest shows that the North West has been the most lucrative area for average annual rental yields over the past five years.
Average annual returns between 2010 and 2015, place Manchester and Liverpool at the top for rental yields, but capital growth and return on investment is dominated by the South. Manchester comes out on top with average annual rental yields over five years with 6.02% followed by 5.15% in Liverpool. London yields are surprisingly low - just 4.86% in outer London and 4.71% in the City.
According to Savills, the five largest rental markets outside London are Manchester, Liverpool, Leeds, Bristol and Birmingham — all popular university cities, where an average of 23% of the population live in the private rented sector.
Landlords will find the best returns in urban areas, with a concentration of students and young professionals. Yields in houses of multiple occupation (HMOs) can be high. If you are targeting the student or young professionals market, buy a multiple-bedroom property near the university or City. Students and young professionals are looking for high spec accommodation with good appliances and a quality finish, that have good transport links nearby, such as train stations and main roads.
It is important to remember that yields are calculated before maintenance costs, void periods, mortgage payments and letting agent fees. So before acquiring a rental property, ensure you factor in all these costs.
An average residential property in Manchester is just £155,000, while a flat in a good area, costs as little as £120,000. A property in Manchester can provide a 5% minimum cash rental yield and a typical 12% total cash yield, including 7% capital appreciation. Demand for rental accommodation is strong and by comparison with other regions, housing is cheaper.
House prices in London are about five times what they are in Manchester, but salaries are only 30% higher. Manchester is a very affordable place to live and demand for property is soaring in the City, thanks to the expansion of the MetroLink tram system, the trendy Northern Quarter and the BBC Media City. It has vibrant restaurants, bars, clubs plus a great music scene, galleries and museums.
In the second half of this year, we may start to see a shift in investment focus away from London and towards the more lucrative and profitable BTL areas in the UK. Many investors will be looking at ways to protect potential new investments in 2016 from the impact of the Chancellor new tax measures.
If investors can purchase cheaper properties with better yields, they will have the opportunity to protect and boost their profits in the longer term. Certainly the recent changes have made it a lot harder to make money in BTL. But where there are challenges, there are opportunities if you can think outside the box.
As a landlord, Peter Armistead personally owns properties as well as through his company, Armistead Property.