How investors are going back to buy-to-let for a good return on their money

By Lauren Thompson

PUBLISHED: 05:14 EST, 10 May 2013 | UPDATED: 06:11 EST, 10 May 2013

Renting has become a way of life for hundreds of thousands of young professionals. For many, it’s not a predicament they wish to be in. But it does mean that for those entering the buy-to-let market the chances of finding suitable tenants have seldom been better.

With savers suffering dismal returns on their accounts, buy-to-let is once more a lucrative option.

Tim King, at London-based estate agency Felicity J. Lord, says: ‘Buy-to-let investors were once wealthy investors using cheap credit. Now, they’re people in their 50s who have lost trust in banks and pension schemes and are looking for a decent return on their money.’

Let the good times roll: Buy-to-let once more appears to be a lucrative option for some

Let the good times roll: Buy-to-let once more appears to be a lucrative option for some

The figures certainly look appealing. There is huge demand for rentals among young professionals struggling to get on the housing ladder, many of whom have to rent throughout their 20s, 30s and beyond. The average age of a first-time buyer sits at 30, and older for those buying without assistance.

This week, figures from Countrywide, the UK’s largest lettings agency, revealed that the average rent in England, Scotland and Wales has risen for six consecutive months to hit £842 a month in April, up 0.8 per cent year-on-year.

 

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The average yields — that is, the annual rent as a percentage of the price paid for a property — is a healthy 6.2 per cent. But that figure does not take into account mortgage payments or maintenance. And if you want a letting agent to manage the property they will charge a fee of about 10 per cent of the rent.

Investors keen to take advantage of the market must choose their property and tenants wisely.

Young professionals are generally seen as more reliable tenants than students or families with young children, who are more likely to cause accidental damage in homes. But it’s vital to carry out identity, credit and reference checks before you hand over the keys. 

THE SECRET TO BUY-TO-LET RICHES? A ONE-BED FLAT IN WALES

A one-bedroom flat in Wales may not be the most glamourous of property investments but it could deliver the best returns according to a new in-depth buy-to-let report.

Buy-to-let landlords see the best yields in Wales, the North and the Midlands and on one and-two bedroom homes, a survey of more than 50,000 rental properties has revealed.

Those letting in Wales are achieving an average 6.7 per cent yield (rent measured as a percentage of property price), beating the North and Midlands, which are both on 6.5 per cent.

The figures were delivered by a detailed report into buy-to-let income returns from the UK’s largest lettings agency Countrywide. It showed that average monthly rent in England, Scotland and Wales has risen for six consecutive months to hit £842 in April. 

But rent rises are running below the increase in the cost of living, with an annual increase of just 0.8 per cent standing against Consumer Prices Index inflation of 2.8 per cent.

 

As with any house purchase, location is key. Glynis Frew, director of lettings at estate agent Hunters, says: ‘It’s vital to choose a property that is easy to maintain and near a station, as well as shops, restaurants and a gym.’

Mr King, at Felicity J. Lord, adds: ‘Two-bedroom, two-bathroom apartments are most popular with professionals, preferably with a nice communal area.’ Recession-proof parts of London are the obvious places to chase a decent yield and capital appreciation.

Research from property search site home.co.uk reveals that the average buy-to-let property in trendy Shoreditch, East London, will attract a gross yield of 4.3 per cent, but the average two-bedroom property has also increased in value by a staggering 32.2 per cent in the past year.

Other hotspots in London with similar returns include Bloomsbury, Bethnal Green, Elephant & Castle and Chelsea.

Felicity J. Lord estate agency has Imperial Hall, a two-bedroom, two-bathroom Victorian conversion apartment on City Road, minutes from Old Street Tube and the bars of Shoreditch. Priced at £595,000, the agent expects it to achieve £2,296 per month in rent.

Outside of London, popular university cities can make good investments for landlords.

Mr Frew says: ‘Cities such as Manchester and Leeds should be the first port of call for first-time buy-to-let investors. Young professionals often settle in the city where they have studied.’

Hunters has Princess House in Manchester, a two-bedroom, two-bathroom apartment near to Piccadilly train station and minutes away from shops and restaurants on Oxford Road.

It’s on the market for £350,000 and Hunters expect it to fetch £3,000 per month rent.

Hunters also has an apartment in Wellington Street, a five-minute walk to Leeds city centre. It has two bedrooms and two bathrooms as well as a balcony and underground parking, and is on the market for £124,950. Landlords could expect to charge £775 to £795 a month.

Finally, don’t make the mistake of only considering properties you would want to live in.

Richard Patterson, a landlord and director at My Online Estate Agent, says: ‘I would never live in the property I let in Harrow; it looks like an ugly 1980s hotel. But it’s one minute to the High Street and five minutes to the Tube, which is what tenants want.’

  • Felicity J. Lord: 020 7251 9449, fjlord.co.uk. Hunters Manchester: 0161 830 5800, huntersnet.co.uk.
    Hunters Leeds: 0113 244 5111, huntersnet.co.uk.
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when your looking for a house you don't see it as a investment. its a need for some of us

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I would not house anyone on social welfare as they dont take care of the property. They must have jobs so the myth about private landlords pocketing vast gains on the back of the state and housing stortage is not the whole truth.Any taxes levied on private landlords would be recouped through the rents so the people at the bottom suffer the most. Less government not more is the answer. The landlords who offer good accommodation at reasonable prices will do well like any business. Let the market forces work rather than government interfering all the time.

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John,Dartford - Maybe you are not aware that Housing Benefit in private rentals has already been capped for over a year at 30th percentile - ie the cheapest 30% in any local market area - hence 70% of private rental units are not available to private tenants - unless they pay some or all of the rent from earnings. Beyond that - 61% of all HB goes to SOCIAL HOUSING - where rents have doubled since 1997 - rising at twice the rate of PRS rents...

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Anyone considered the Capital Gains Tax issue ?

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If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks¿will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered¿. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. ¿ Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809) ¿I believe that banking institutions are more dangerous to our liberties than standing armies.¿ ¿ Thomas Jefferson The FED, BOE and other central banks have done exactly what was feared 200 years ago! Interest rates will rise and people will loose their homes,cars, etc...to the banks...this is possibly the last boom before the bank grab. I would not be buying anything right now.

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The Government shoud note the high rents and stop subsidising them by the benefits system. Introduce a tax on second home ownership including BTL and use the money to build large numbers of homes to rent or to help FTBs. Otherwise home ownership levels will fall and there will be a small rentier class of speculators. Where then is the future of a Conservative or centre right government? After all how many who don't own their own home vote Conservative?

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Just to say that not all landlords are greedy predators.Some are hardworking fair people like myself. I ran my own small business whilst in the UK and also holding down a managerial job for 15 years at the same time and choose to sacrifice short term wealth by having a below average lifestyle in order to build up wealth for the future. No fancy cars, no debt and working long hours. Now I run a small business in Christchurch,New Zealand and have the income from the UK properties which I continue to save the money because I can live on my NZ income alone. I dont like debt and I believe that the banks are getting unfair wealth ripped off from the taxpayers expense and the whole economy will crash within the next 3 years when interest rates go up, so pay off those mortgages while you can because when rates rise, the banks will grab all the properties they can and cars and cash off people who have overstretched themselves on cheap money. If you cant afford 12% int rate, then exit now.

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I agree with Connect the Dotz appraisal. I have 5 residential and 2 commercial properties let. I have no mortgages on them, as I have paid them off whilst interest rates have been low over the past few years. The reason I continue to hold the rentals is because long term I expect to get my 'inflation adjusted' money back. The BOE is printing money like crazy and interest rates for cash in the bank is ab-missal. The theft of bank deposits in Cyprus is also a factor. So whilst I get a adequate return on my houses, depending on if tenants stay long term, which is the case because my rents are not too high, then, overall, I am happy to continue long term. I am not in the market to buy any more properties because I think the asking prices are too high. When interest rates rise, I will be in position to snap up some more cheap properties to add to my portfolio. If the whole market (i mean stocks,houses,commodities,everything) crashes, then I hope that their will be good value in property.

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Renting should NOT be a way of life,- affordable housing and mortgages should be. Renting is "lost" money, (unless of course someone else is paying the rent). Its about time Government grasped this method instead of making it easier for the buy to let "investors"dominate the markets. Helping first time buyers would also help to improve the economy.-- Its not rocket Science -- Its common sense !!!!

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What only 6% yield gross... is it really worth it?

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