Thinking about investing some money in property? Local Estate Agent, Mark Townend from Appleby & Townend Estate Agents takes a look at the market and how to achieve the results you are looking for.
With the average rental value of new tenancies in the South West now at £899 having seen an increase of 5.5% when compared to last year, it seems like an ideal opportunity to explore which buy to let properties offer the best return on investment.
With a period of general stability in property prices seen over the last three years we are seeing less investors with the mind-set of taking a short term gamble on quick capital growth gains (although the strong bounce back of the market seen since last year’s General Election and the Stamp Duty Holiday recently introduced on property up to £500,000 has seen upward pressure on prices in recent weeks) with a return to a more medium to long term mindset with investments all about cash flow and the security of the asset.
With cash flow in mind, one of the most important considerations when sourcing suitable property is the rental yield. However, Shakespeare’s cautionary advice that “All that glisters is not gold” rings true – it’s no good having a yield that looks great on paper; it also needs to be achievable.
This is why sourcing the right property is essential and reducing expenses by minimising rental void periods, arrears and maintenance will enable investors to maximise their return.
The first part of the equation (where the style of the property plays a large role) is in reducing your expenses. Maintenance can be a big part of this and the age of the building and style will certainly affect it. Regardless of where you invest, you will notice certain property styles will tend to dominate. Locally, the influence of the Georgian Heritage City of Bath defines the character of many of our Wiltshire towns, although we are fortunate to also have a good stock of Victorian and Edwardian housing. Add to the mix the range of 1930’s housing estates, modern flats or ex-council developments, and you start to see the array of choices you have for your buy to let investment.
So which property style is best?
Well that depends on your area as to which property styles you have available and also your personal strategy – whether you are seeking a refurbishment project or a turnkey investment which is ready to let immediately. But to reduce your ongoing costs you need to consider that each of these property styles come with their own challenges for maintenance.
It goes without saying that the newer the building, the fewer costs you should incur, but one caveat to this is with new build flats. Typically, these come with high service charges and large ongoing maintenance funds which can easily eat into your rental yield and property profits.
Ex-council houses are generally very well built and were maintained well by the councils until many passed into private ownership in the 1980’s & 90’s with right-to-buy schemes. These can make great investments in the right areas, as they also have good room sizes and large gardens, which tend to attract long-term family tenants.
Many larger Victorian terraces which can often be found situated close to the town centre or near to train stations, can also attract long term tenants. This is because the style, layout and size provide fantastic space for couples and families alike.
Depending on your appetite, there’s also a case for short-term tenancies and room lets as these can provide very high rental yields. But for reducing costs and keeping rental voids and maintenance low, there’s no substitute for long-term tenancies. So often it can be best to focus on properties and homes which can provide for this market with good sized bedrooms and space for tenants to grow in to.
Therefore to reduce your expenses, it’s important to consider the property styles in your area that have less associated ongoing maintenance costs and will suit longer-term tenancies (traditionally families or older tenants) if you want the best buy to let properties for your investment
Maximising Your Return
Rental values have grown consistently in the UK since 2009 with the Homelet rental index showing our region to have grown faster than anywhere else in the UK having seen average values for new tenancies grow by almost 9% over the last two years (July 2018 ave. rental value £826; July 2020 £899). With rental becoming the only option for most residents, tenant demand is high for all property types.
But in an April press release from the UK’s largest lettings agent, Countrywide, they state that one and two bedroom properties provide the highest rental returns for investors. I can see why the figures behind this back up the report as larger properties are typically higher in value, and the increase in property value doesn’t always correspond to a proportionate increase in rental income, hence the differing yields.
However, from experience what I have personally noticed is that many tenants in smaller properties, tend to stay for shorter periods of time, because as their needs change, so do their demands for the property size. Often these tenants move on for work opportunities, or because they have outgrown these smaller properties with their family. These properties, therefore, tend to have a higher turnover of tenants, which leads to greater costs with tenant find fees and rental voids.
The best buy to let properties for maximising returns ultimately depends on the rental yields (which are around 4.5 – 5.5% on average across this area) and which tenant profile has the most long-term demand. But as a rule of thumb, 2 or more bedroom properties and homes with gardens tend to attract more long-term tenants.
So when it comes to maximising your return on investment, it’s not just about the headline yields… it’s also about reducing costs and making sure the property investment you pick, will fit the ever-changing needs & demands of your area’s tenant market.