Hopefully, you now feel more prepared and equipped to deal with buying an investment property.
Now, it’s time to start looking at potential properties you may want.
You might already have a particular property in mind, but have you considered its location?
Location is vital to consider when buying investment property. It can dictate the rent you will earn, how affordable the properties are, future growth rates, and demand.
Ideally, you will want to target cities or towns that offer high growth rates, affordable prices, high rent, and high rental demand.
High Capital Growth Rates
Perhaps the most crucial aspect if you are planning for retirement is high capital growth rates.
Capital growth is vital for an investor, as it represents the increase in value of your property over time.
Recently, property experts Savills released their latest property price predictions for UK regions. The results may surprise you.
Currently, the North West region is expected to see the highest level of growth by 2027, with a 11.7% house price increase.
At the bottom of the table is London, with just a negative -1.2 price growth in the next four years.
These areas are integral to consider, as they are typically valued as some of the best places to buy property UK. Be sure to target regions with high growth potential in both property prices and rent to make the best investment possible.
Here’s a full list of the latest predictions.
It’s a good idea to invest in the areas with the highest capital growth rates, as it shows a place that is on the rise and has a bright future ahead of it.
But it’s not the only aspect of capital growth you need to consider; you should also look at the area’s capital growth history.
Past capital growth rates are a good signifier of an area’s potential as they can show a consistent rise in house prices, which is good news for your pockets.
Using tools like the UK House Price Index, you can see past house prices by month for each region, borough, or city and compare it to current house prices to see growth levels.
The UK House Price Index does a lot of the work for you and gives you percentages for how prices changed year-on-year or month-by-month.
If you have a location in mind, it’s a good idea to look on the website to see if a city offers the price growth potential you’re looking for.
To do some of the hard work for you, though, we have compiled a list of house price changes over the past 20 years in the UK’s major cities and destinations.
So, what does all this data mean for you?
It seems like London is one of the worst locations for capital growth at the moment. Not only is there minimal growth set for the next four years, but there’s been consistent negative growth over the last five years.
In fact, in 2020 alone, prices dropped by 15.54% in just 12 months.
On the flip side, if you’re looking at buying an investment property and want the highest capital growth potential, the most obvious options are Manchester, Liverpool, Sheffield, and Leeds.
Manchester, in particular, has seen some staggering growth over the years and has outperformed every city over a five, 10, and 20-year period.
Plus, with anticipated growth of 11.7% in the North West region, you can’t go far wrong with buying an investment property in Manchester.
Liverpool has also performed incredibly well. While its historic growth hasn’t broken records, it has been consistently increasing over the years.
In 2020, the Liverpool housing market exploded, rising by a staggering 17.59% between February 2020 and February 2021.
This has continued well into 2023, with official Land Registry data showing Liverpool houses increased by around 7.19% since 2022.
The North West is likely the best location for investment for the foreseeable future.
Another crucial factor to a location and buying an investment property is affordability.
While affordability alone isn’t a deciding factor, if you’re able to find a city that offers reasonable growth rates and is also affordable, then you’re onto a winning location.
To find current average house prices, you can go to the UK House Price Index, or use the latest data from property portals Zoopla or Rightmove to find the average house prices on their books.
Property prices can differ heavily between property types, so we have compiled a list of property price data for popular property types by city.
As you can see from the data, the most affordable location is Liverpool, with an average price of just £181,278.
On the flip side, London prices are currently valued at a staggering £741,962, according to Zoopla data.
If you’re a first-time investor, then chances are you won’t be able to afford these staggering prices in the capital.
Again, the best cities seem to be Manchester and Liverpool. While Manchester prices are higher than some other cities, the level of capital growth in the city makes the price tag worth the entry price.
Of course, these are just averages, and you can get significantly lower prices than this.
For instance, one of our Liverpool properties at RWinvest, the revolutionary The Prestige, starts at just £144,950.
Meanwhile, our luxury Manchester development, Merchant’s Wharf, starts at just £149,950.
Naturally, average rent in a location is vital for prospective investors and landlords thinking of buying homes to rent.
This is because the average rent in an area dictates how much you will charge for your property.
If you care just about rental income, there are some obvious cities that offer the highest monthly earnings.
Using Zoopla data, you can find the average rent by city.
Currently, London offers some of the highest rent, with the current average in the city sitting at £4,578 PCM.
That means every year, you will earn £54,936 on a single property.
Of course, the caveat is that it will require a fortune to tap into this market.
On the flip side, locations like Liverpool are more affordable but offer smaller rent in comparison.
Currently, the average Liverpool property commands monthly rental fees of £1,196 PCM or £14,352 per year.
While on the surface, this looks bad in comparison, it can be misleading.
This is because you could buy multiple properties in Liverpool for the price of just one in London.
In fact, you can buy six properties in Liverpool with change left over for just one in London.
This means the actual yearly income in the Merseyside city would be around £86,112, completely overshadowing the capital.
This highlights that you can’t take rental income at face value, with other factors coming into play.
Likewise, you should also consider rental growth.
Using the Homelet Rental Index, you can find current rent and rental growth rates by region.
As a whole, UK rent has increased by 9.9% from last year.
Looking at particular regions, and these numbers change dramatically.
Homelet has recorded an 11% drop in rent prices in the London region since last year.
On the other hand, the North West has increased by 9.1%, while Yorkshire and The Humber have increased by 8.5%.
It’s important to note, though, that many savvy and experienced investors don’t value monthly rent too highly.
When buying first rental property, it’s a common mistake to put all your eggs in the rental income basket.
Instead, you should focus heavily on rental yields, a measurement we will discuss in detail in a later section.
Finally, when evaluating a location, it is vital to consider rental demand and the type of tenant you will expect to see.
Now, rental demand is a complex factor to measure directly, but prominent signifiers are how fast properties sell, the number of property enquiries, population growth, and the increase in house prices and rent.
These measurements are likely to increase the more demand for property there is.
Take Manchester, for instance.
A report by Zoopla in 2020 found that the ratio between the available supply for property and the demand for it is currently 1:5.
This means that for every single property, five buyers are interested.
That’s a massive demand for property and highlights that you will have minimal void periods if you were to rent in the area.
Moreover, it’s essential to consider the local population.
Not only will this signify what type of tenant you are likely to see, but it will also show if the city is on the rise with growth levels.
Using Manchester as an example again, you can evaluate a cities investment potential based on the population.
According to reports, Manchester has seen a 27.8% population increase since 1991. Meanwhile, the Greater Manchester population increased by 7.7% between 2006 and 2016 – double the UK average growth rate.
This is significant as it shows more and more people are choosing to live in the city.
And perhaps even more significant for investors, a bulk of this population are young people.
According to data from the local government, around 37% of the city population are aged between 18 and 34.
Manchester also has a considerable student population, making it one of the biggest student cities in all of Europe.
Over 100,000 students live in the Manchester region across five universities. Of these students, around 51% choose to stay after the graduate – the second-highest graduate retention rate in the country.
So why is this important?
Well, young people are more likely to rent as they are typically unable to afford to buy their own properties.
This age group is typically referred to as Generation Rent and should be your target tenant when investing in property.
Not only does this highlight that there’s plenty of rental demand, but it also informs you on what type of property you should buy (something we will address further on in this guide).
Overall, if you’re looking at buying your first rental property, be sure to consider all these factors mentioned for a successful investment.