Investing in buy-to-let property can be a lucrative business. Buying property in certain areas in particular can allow landlords to earn a substantial profit on their initial investment.
Coulters revealed the towns and cities with the best return on investment (ROI) for landlords in its recently published UK Landlord Index. The estate agency and law firm looked at the data of average house prices versus average rental prices to help discover which cities and towns offer the best ROI.
To work out ROI, Coulter took the average house price in each city and calculated the mortgage repayments based on a 35-year term with a 20% deposit and 3% interest rate.
By comparing the average mortgage repayment costs per month to rental prices, the law firm was able to discover the average annual profits for a location. They then converted this into a percentage of the overall average cost of a house to give the ROI.
Towns and cities in the north of England dominated the list of the top 10 places where landlords can earn the best ROI. The north-west and Yorkshire and the Humber have been performing particularly well. Scotland was also represented by three areas on the list.
In the 10 cities with the worst ROI for landlords, six of the locations are located in the south of England. This includes Crawley, Poole, Swindon, Reading, Luton and Oxford. In some of these spots, it was found that high house prices made it particularly challenging for landlords to turn a profit.
Northern towns and cities lead the way
As an important commuter town of Manchester, Preston took the top spot. The average sale price of a property there is only £176,378, while the average rental price per month comes in at £981. With average mortgage payments at £543 per month, this leaves room for a monthly profit of £438. This adds up to £5,256 profit per year and 2.98% ROI.
It would take an average of 15 years to pay for a property in Preston. And with further investment and regeneration coming to the city, the property investment hotspot is also projected to see strong capital growth in the coming years.
Coventry came in second with landlords earning an average of £6,033 profit per year, equating to a 2.74% return. Glasgow followed with a 2.67% ROI. Then, Swansea and Dundee finished the top 5 with 2.54% and 2.47% ROI respectively.
Manchester is sixth with an average sale price of £234,204. The average rental price per month comes in at £1,139. With average mortgage payments costing £721 per month, this leaves an average of £418 of monthly profit. Landlords in Manchester make an average of £5,015 of annual profit and a return of 2.14%.
This shows that landlords are still able to earn returns in larger cities. Manchester is also expected to see strong increases in rental demand and potential capital appreciation. In the next five years, the north-west of England is forecast to see strong house price growth as housing demand is expected to continue to rise.
Then, Paisley, Leeds, York and Stoke-on-Trent rounded out the top 10 areas with the best ROI for landlords.
How to choose the best investment location
Property investment is not a one-size-fits-all solution. Landlords will see different rental yields and ROIs. The choices you make before you get started can dictate how your investment plays out in the long run.
To make the best investment decisions, be armed with information and knowledge, particularly when it comes to investment locations. Before purchasing a buy-to-let, it’s not just the sale prices that matters when it comes to ROI.
There are other associated costs to consider with most purchases. This includes stamp duty, conveyancing and mortgage fees. Also, factor in if the property needs renovating as well as general running costs. It’s useful to have an idea of the ROI you expect to achieve.
To maximise the potential of your property investment, choose a location that’s up and coming rather than one that’s already at its peak. London may have once been the obvious choice, but the market recently has stagnated there compared to parts of the north and Midlands.
House prices are also much lower outside of the capital and certain parts of the south. And in many areas of the north and Midlands, there is substantial rental and capital appreciation potential. This could allow landlords to earn a significant return on investment in the years to come.
At BuyAssociation, we have some great property investment opportunities available across the UK. Our team of experts can help you find the best investment to suit your budget and other requirements. Browse through some of our latest projects.