Once you understand buy-to-let mortgages and other buy-to-let need-to-knows, you’ll need to come up with a strategy. This involves finding the right areas to invest in property.
But how do you find the best areas for investment? Well, there are numerous things you should consider. These include:
- Property Prices
- Rental Yields
- Capital Growth Potential
- Appeal to Tenants
Let’s break those factors down.
Property prices directly affect the amount of deposit you’ll need to pay for a buy-to-let mortgage.
2023 has seen property prices drop in the face of rising interest rates and inflation.
As such, it represents a good opportunity for people to get into the buy-to-let market for the first time.
However, property prices will differ depending on the region you are interested in.
For example, if you are considering property investment in London, you need to know that prices are much higher than other places in the country. These properties will require a bigger deposit than usual.
Conversely, Liverpool property investment offers much better value properties. As such, your required deposit would be much lower than if you invested further south.
If you want to know the most up-to-date property prices, consult the UK House Price Index.
Rental yields are the returns on a buy-to-let investment through rental income. This figure is represented as a percentage. You can calculate rental yield by taking the annual rental income and dividing it by property value. Multiply that figure by 100 and you’ll have your potential rental yield for the year.
Investors can use this percentage to better understand their property investment’s value.
Much like property prices, rental yields fluctuate depending on the area.
For instance, Manchester offers potential rental yields of 9.12% and London has even better potential yields of 10.2%.
Capital Growth Potential
Property investors should also consider an area’s capital growth potential as well as rental yields and the value of the property.
Economic experts like Savills offer forecasts for capital growth based on different regions in the UK. This can be used to identify areas that are set to enjoy an economic boost in the near future.
For example, Savills predicts that the North West, North East and Yorkshire will experience a significant 11.70% growth in capital by 2027. This will see jobs become more readily available in those areas, not to mention rising house prices and rental costs. As such, investors may want to consider the affordability of these areas now compared to how much property will cost in a few years.
Appeal to Tenants
Landlords also need to consider how the area appeals to tenants.
For example, if you are interested in student property investment, you would want to find an area with a large student population. In that case, you would want to consider Liverpool, thanks to four top universities (University of Liverpool, Liverpool John Moores University, Edge Hill University and Liverpool Hope University) in the area.
You should also consider local amenities, transport links, arts and culture and crime in those areas.
Remember: tenants will pay higher monthly payments for nicer areas.
Read Buy-to-Let Property Guides
If you are considering investing in an unfamiliar area, consider checking out a buy-to-let guide to get a better idea of the local property market.
We have plenty of buy-to-let guides on our website, such as: