Do I look up North the high yields or down South the capital appreciation?

Discussion in 'Buy-to-Let Property Investment' started by nmb, Feb 1, 2016.

  1. nmb

    nmb Well-Known Member

    The buy to let market in the UK has been headline news for some time now with an array of changes brought in by the UK government. While there may be some short-term volatility in the market it seems unlikely long-term growth will be blown off course. So, I am looking for a buy to let investment, do I look up North for higher yields or down South for greater capital appreciation?
  2. KGeeson

    KGeeson Property Forum Staff Forum Partner

    You should always buy for cashflow and capital appreciation should be a bonus :)

    Having said that, it depends on the level of cash you have to invest (which could well restrict whether you can even afford to buy in the south!)
  3. Luke Masters

    Luke Masters Member Premium Member

    @nmb There is still the opportunity to have both capital appreciation and a good yield in the South, this is generally from converting properties to Houses of Multiple Occupancy (HMO's), I have recently sourced a property for a client which is in Reading and after converting to a HMO (cost 30k) he will be receiving a Gross yield of 12% which in comparison to the usual yields in the South is great.

    I'd love to hear your opinion and thoughts on this.
  4. nmb

    nmb Well-Known Member

    Hi Luke

    A yield of 12% for any investment is very impressive indeed - in theory (even taking into account running costs) the property should pay for itself in maybe 10 to 15 years? After that it then becomes a cash cow to fund other investments as well as an additional asset upon which to raise money?

    I would be interested to hear of you criteria when looking for properties to convert to HMO's - all sounds very interesting.
  5. Nicholas Wallwork

    Nicholas Wallwork Editor-in-Chief Staff Member Premium Member

    I think you can get an excellent return going the HMO route as Luke says... remember you make your profit when you are buying!
    You need to buy at the right price and ADD VALUE... this way you are locking in some good equity from day one with good refurbishment works and you're getting the property at a great price because the mainstream buyers might not like it as it needs work...

    As for North vs South you will get a better yield the further north you go purely because prices are cheaper and rents are still strong. However if you buy in the SE at the right price then your capital growth is likely to make that up (and some) in the longer term (10years+).

    It's also a good tip to invest near (within an 1 hour roughly) where you live that way you can become a master in your market, get good local contacts over time and manage the portfolio better e.t.c.
  6. nmb

    nmb Well-Known Member

    Will we ever crack the North/South divide? What would be required to create more opportunities for capital appreciation for property investors in the North as opposed to a greater emphasis on rental yields?
  7. PropEx

    PropEx Member

    HMO is certainly good on paper, but isn't there a very high turnover of tenants? Also, it is harder to get your rent from them because usually they are from a lower social economic class, generally speaking.
  8. Nicholas Wallwork

    Nicholas Wallwork Editor-in-Chief Staff Member Premium Member

    Yes there is a perceived higher turnover but in reality in a 10 bed HMO (the way we develop them I.e. Very high spec) the turn over is the same as 10 single let studios... It's just the increased volume of tenants but if you had more single let properties you have the same!

    In this example (and most HMOs) you only need around 60% occupancy (property dependant) to cover your costs so I actually see a well managed HMO portfolio far less risky than a traditional BTL model... 40% voids an your mortgage is still easily covered!

    We also make MORE money when we have tenant turn over and play this to our advantage. We charge a small check out fee (some charge a check in fee) and this covers any losses for turnover and in an area of high demand you'll make an even higher yeild (not less).

    The market has changed for a lot of Uk landlords... HMOs are not the grotty, horrible house shares they used to be associated with and are now turning into high end (almost corporate) style, professional house shares, more akin to studio living but still with the shared kitchen amenities etc.

    We rent only to professionals and have very few rent collection problems. Being quick to follow up late payers, taking guarantors where possible and 6 weeks deposit helps us reduce any defaulting tenant risks...
  9. Asan Aryal

    Asan Aryal New Member

    I agree, a property which has a reasonable yield is more attractive to me. Appreciation on capital is a bonus factor, but also is a variable slightly out of control. Buying in an area, which has decent employment and decent rental demand with a steady rental income, I have found to work.
  10. KGeeson

    KGeeson Property Forum Staff Forum Partner

    Totally agree. Have you bought investment property in different locations to spread any risk or have you invested in the same area which you know well (and know it works)?

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