Finding your perfect investment spot: how to assess buy-to-let rental value in different locations

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Location, location, location. It’s a tired cliche, but it’s true; if you’re looking to build a profitable buy-to-let portfolio, geographic location plays a huge role in the kinds of rental income you can expect to earn. We’ve collected a few tips on how to investigate the rental yields of different areas, and how to value a lettings business.

Use a Rental Price Calculator

Online calculators are a good place to start when researching the rental value of a particular area

For example, OpenRent’s calculator tool enables you to get an estimated rental figure simply by inputting your postcode, property type, and number of bedrooms and bathrooms. L&C Mortgages offers its own similar calculator tool.

However, calculators can only provide a limited projection of rental prices. Keep in mind that other factors – including the condition of your desired property and the current ratio of supply and demand – can vastly influence how much rent you’ll be able to charge.

Review Property Portals

Platforms like Rightmove and Zoopla aren’t just useful for finding buy-to-lets available to purchase. They can also be a valuable research tool for optimizing your investment strategy.

Start by running a search for your particular desired area. From there, you can use filters to narrow down the listings and see properties that are more similar to the types of properties you’re looking to invest in.

This will help you gather a general idea of how much other landlords are asking for; but what about how much tenants will actually pay?

Look for a ‘let’ or ‘let agreed’ tickbox. This will include recent properties that have been successfully rented out (or soon to be successfully rented out) in your results, which is great for getting a more realistic view of how much rent you can actually charge.

It’s also handy for assessing the demand in a given area by comparing the ratio of open listings to ‘let agreed’ listings.

If there are lots of the former and not many of the latter, you might struggle to find tenants without lowering your price; especially if the available properties have been on the site for a long time.

(Keep in mind, however, that property portals tend to only keep ‘let agreed’ listings on their sites for a limited time; so you’ll only be able to see the most recently let properties.)

A few rules of thumb for weighing up locations

Ultimately, finding the right location simply comes down to carefully researching the market at both the micro and macro level; comparing property prices in your chosen area with the rental yields you’ll need to afford the mortgage payments and maintenance costs while also turning a profit; and deciding on a rental figure that offers the right ratio of risk-to-reward for your investment strategy.

Here are a few tips for choosing locations at the nationwide level:

  • Buy-to-lets up north tend to offer better rental yields than those down south.
  • If you’re just starting out with property investment, it’s best to stick fairly close to your local area. This not only keeps your travel expenses low, but you’ll likely have a stronger knowledge of your own region and the sorts of postcode areas that may be more desirable to tenants.
  • Rental yield isn’t everything. Sometimes it’s worth taking a lower rental income now, in return for strong capital growth and a better return on disposal of the property; but make sure you do your homework and get a realistic estimate of the potential ROI!

Focusing down to the city level, here’s a few tips for narrowing down your search:

  • Property size is often less important than location. A tiny flat in a high-demand postcode can potentially offer better rental profits than a large flat or house in a low-demand postcode.
  • Local shops and amenities play a huge part in the kinds of tenants you’ll attract; and therefore the kinds of rents you can charge. A property located near a university will attract students with limited income; whereas a similar property located in the city center is more likely to attract young professionals with more disposable income.
  • Less attractive locations can gradually become more appealing to tenants throughout the years, and vice versa. Don’t just consider the current desirability of any given area, but also how the neighbourhood is likely to change in the future; and how those changes might affect your rental profits for better or worse.

Need a hand with your property investment numbers? With over 30 years of tax and accounting expertise, GNS Associates are specialists in helping both new and established landlords get to grips with their finances.

Call us on 0208 090 2604 or email our team at info@gnsassociates.co.uk to arrange a consultation today.

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