If you’re building a buy-to-let empire, or simply looking to buy one house to rent out, you should know where the rental hotspots are. The big surprise is, they’re not in London.
Manchester has far and away the best returns per pound spent, with average rents of £719 and yields of 7.98%. Arguably the capital of the North, Manchester has heavy demand for property and not enough supply, hence rents are relatively high compared to the initial outlay.
Kingston-upon-Hull comes in a surprise second place. It’s cheap to rent, with an average rental of £450, but it’s at the cheaper end of the buying market in the first place thanks to a massive oversupply of houses for sale. High unemployment in the region means that mortgages aren’t readily available, too, which means that there is competition for rental properties and that helps drive up yields, which means that at 7.81%, the northern town is suddenly an interesting investment opportunity.
Blackpool comes in third place, ahead of Forrest Heath, which has a much higher average rent at £1,036, but an average yield of 7.26%
If you just take rental yields into account, Coventry is the fourth best place in the country to put your buy-to-let money. That makes a mockery of the phrase ‘being sent to Coventry’, but again reflects the fact that competition for rentals is high thanks to the shortage of properties and the relatively depressed economic outlook, which means mortgages are a pipe dream for much of the population.
Southampton, Northampton, Liverpool, Cardiff and Portsmouth round out the top 10 and none of these truly fit the ‘property hotspot’ mould. They do provide the greatest yields, though, and are buy-to-let powerhouses.
These figures come from HSBC, which releases an annual buy-to-let guide that reveals the best places to invest your money. It does not include the capital gains, which means this isn’t an absolutely perfect insight into the buy-to-let market, but it is a helpful guide for those that aren’t sure about where to invest.
The yield is the amount of income you can expect to generate from your rental property and it is normally presented as a percentage of the overall price. So if you buy a buy-to-let for £100,000 and this produces £500 a month in terms of rent, that will provide a 6% yield and that is quite typical when it comes to rental returns. Of course, you can charge far greater rents in the heart of London, but it’s the yield that is the critical factor. If you can buy four properties in the North of England and get a higher yield than one apartment in the centre of London, then that is, on paper, a better place to invest your money.
You also need to think about things like property management. You won’t be able to manage a property yourself if you’re hundreds of miles away, so you’ll have to factor in the cost of a lettings agent or at least a property management company. Capital gains is also a big factor, so you have to find a compromise between the best yields and the fastest growing property prices.
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