If you’re considering joining the ranks of Britain’s landlords or expanding an existing property portfolio, the temptation might be to buy an investment property in your local area. Doing so may have the advantage of being easier to manage, but could cost you dearly in the longer term. Investing in a buy-to-let hotspot offers the benefits of higher rental yields, growing rental income, and potential capital growth.
Rental yield and capital growth
Conventional wisdom is that property investors either make money through capital growth (for example by property development/refurbishment) or through rental income by acting as landlords. However, if you invest in a buy-to-let hotspot it is entirely possible to take advantage of both types of investment return, while seeing your income from rent growing consistently in real terms.
How to find a buy-to-let hotspot?
If you are looking for a great place to invest, you’ll want to make sure you buy in an area where property is likely to be in demand. People will want to live there, and landlords want to buy because of this. Look for areas that:
- are seeing inward migration;
- are benefitting from investment in infrastructure;
- have good transportation links for employment and leisure activities;
- have the advantage of a strong local economy.
When these four factors line-up strongly, you’ve found a buy-to-let hotspot where prospective landlords will be rushing to buy. This demand will help to produce even stronger capital growth.
The hard work done for landlords
Doing this type of research is hard work, and puts off many would-be investors. Fortunately, there is a range of analysis available – some is free and some is paid for research. Here is our pick of buy-to-let hotspots, with the data based upon average house prices as published by the House Price Index England: February 2018 and median rental income data extracted from www.home.co.uk.
Some areas, such as Manchester, benefit from high demand from students for rental properties. In fact, if you look at only rental yield, Manchester is top of the pile with a yield of 7.98% (average monthly rental is £719 and the average house price is £108,870). However, when capital growth is also taken into consideration Manchester landlords have actually seen rental yields retract by 0.70%.
Our list of the current top five buy-to-let hotspots (in alphabetical order) takes into consideration rental yield and the growth in rental yield:
|Location||Average House Price||Average Rent (Monthly)||Average Rent (Annual)||Gross Rental Yield||% Growth in Yield (YoY)|
|Kingston upon Hull||£69,135||£450||£5,400||7.81%||4.50%|
Locations such as Forest Heath in Suffolk and Southend-on Sea in Essex are benefitting from population migration from London and improving transportation routes. Kingston upon Hull offers property investors the cheapest step onto the first rung of the landlords’ ladder, with an improving economy and nearby universities providing strong rental demand.
When searching for the best buy-to-let hotspot for landlords, look at commuter areas and locations where there is a traditional and growing demand for rental properties. Infrastructure – current and planned – could provide clues as to potential rental demand (eg. hospitals, universities, other large employers), and look also for a history of rents outpacing the growth in house prices. If you then add in the services of a good property management company, you’ll find you have a winning recipe for long-term capital growth and great rental yield for steady and growing income.