The mind-set and tactics you employ when buying your first buy-to-let property needs to be different to buying your own home.
With your own home, you may well pay a little more to get the ‘perfect place’ and you are less likely to compromise.
Yet with buy-to-let, if your goal is a higher rental return (a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite), inexpensive properties can bring in bigger monthly returns.
Most landlords use the term ‘yield’ instead of monthly return. To calculate the yield, multiply the monthly rental amount by 12 to get the annual rent, and then divide it by the value of the property.
Thereby using the same calculation, if you increase the value of the property, the subsequent yield drops. Or, to put it another way, if a buy-to-let landlord has the choice of 2 properties that create the same amount of monthly rent, the landlord can increase their rental yield by deciding on the lesser valued property.
To give you an idea of the sort of returns in Stamford...
Now of course these are averages and there will always be properties outside the lower and upper ranges in yields: they are a fair representation of the gross yields you can expect in the Stamford area.
With the total amount of UK buy-to-let mortgages amounting to £199,310,614,000, landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions. Landlords are looking to maximise their yield, and are doing so by buying cheaper properties.
However, before everyone in Stamford and Rutland starts selling their upmarket properties and buying cheap ones, yield isn’t the only factor when deciding on what buy-to-let property to buy. Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too. Apartments can also have service charges and ground rents that aren’t accounted for in these gross yields.
Landlords can also make money if the value of the property goes up and for those landlords who are looking for capital growth, an altered investment strategy may be required.
In Stamford, for example, over the last 20 years, this is how the average price paid for the 4 different types of property have changed…
• Stamford Detached Properties have increased in value by 294.2%
• Stamford Semi-Detached Properties have increased in value by 241.1%
• Stamford Terraced Properties have increased in value by 302.3%
• Stamford Apartments have increased in value by 288.8%
It is very much a balancing act of yield, capital growth and void periods with property investment. Every landlord’s strategy is unique to them.
If you would like a fresh pair of eyes to look at your portfolio, be you a private landlord who doesn’t use a letting agent, or a landlord who currently uses one of my competitors – then feel free to drop in and let’s have a chat. You might learn something, and my tea making skills are legendary!
David Crooke
Managing Director and Owner
UPP Property Sales & Lettings 01780 484 554 / david@upp-property.co.uk
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