The best places to invest in a buy-to-let property have been revealed, and Southend-on-Sea has come out on top.
With the average house price standing at £279,358, landlords charge an average monthly rent of £1,940. So, if you own a buy-to-let property in this Essex seaside town, you can expect an impressive average yield of 6.6 per cent.
- What is rental yield and how is it calculated?
- How to make money from buy-to-let property
- Data reveals most profitable areas for landlords in 2018
- What type of landlord insurance do I need?
Hot in the cities
British cities dominate the rest of the list. Nottingham takes second place behind Southend, with an average yield of 6.4 per cent, while the City of Westminster is ranked third at 5.1 per cent.
Taking fourth position, the Scottish capital city provides an average yield of 4.9 per cent. Greater Manchester comes fifth, averaging 4.8 per cent, and Liverpool is sixth on the list of buy-to-let hotspots at 4.7 per cent.
Why Southend-on-Sea tops the buy-to-let chart
Experts have suggested that affordable rents combined with a seaside location and good access to public transport for commuters make Southend an attractive buy-to-let location.
Shaun Church from mortgage brokers Private Finance, which carried out the research, said: “Southend is a popular spot for renters, with all the benefits of living in a popular seaside town less than an hour’s commute from central London, and with good airport connections.
“With the high cost of renting pricing many out of the city, towns in a commutable distance from London that offer a more relaxed lifestyle at an affordable price are becoming increasingly popular among young professionals.
“Rental demand is likely to grow in these pockets outside of London, offering good opportunities for buy-to-let investors.”
The importance of house prices in determining rents
House prices and mortgage costs can be just as important as rental income when it comes to deciding on the best locations for landlords to invest in.
This is because you need to know the price of a property to do a basic rental yield calculation. You take the annual rent and divide it by the property value, before multiplying this number by 100 to get the percentage yield.
So, if the annual rent is the same on two properties, the yield will be higher on the lower priced property.
The research highlights this, with Liverpool, Nottingham, Greater Manchester, and Coventry all featuring in the top 10 and benefiting from some of the lowest house prices in the country.
Profitable investments with smaller sums
This is encouraging news for landlords with smaller sums to invest, as making a profit doesn’t necessarily require spending large amounts of cash up front.
Mr Church added: “While recent Stamp Duty changes in the sector may have dampened landlords’ appetite, our analysis shows buy-to-let still remains a viable and lucrative investment.
“Strong rental incomes matched with declining mortgage costs mean that landlords can still enjoy a level of return on their investment they’d be hard pressed to find elsewhere.
“When considering a buy-to-let investment, location is often the most important factor determining the yields investors enjoy. While investors may be wooed by the prospect of strong rental income, house prices can be just as influential in determining rental yield.
Looking for areas with opportunities for house price growth can also provide landlords with the added benefit of a profit from the eventual sale of their property, in addition to a regular monthly rental income.”