Well, as a New Year begins I remembered that a few days before Christmas, I got chatting with one of my out of town landlords who was back in Erdington visiting his family. Brought up in Erdington, he went to the King Edward V1 Aston School for Boys back in the 1970’s and is now a University Lecturer in central London. To enhance his retirement, he has a small portfolio of four properties in the suburb and wanted my advice on where to buy the next property in Erdington (as he lives in a college owned flat and anyway, would never dream of buying where he lives in Kensington (where the average value of a flat is £1.62m and a suburb house £4.1m. Eye-watering to say the least!!).
Before I could advise him, I reminded him that the most important thing when considering investing in property is finding an Erdington property with decent rental yields for income returns, yet at the same time, it must have the potential for capital growth from rising house prices over time. Going into 2016, Erdington landlords will be under more pressure to find the best permutation of yields and capital growth, as extra stamp duty charges for buying properties and a squeeze on mortgage interest relief will raise their costs.
However, (you knew there would be a however) before we look at yield and capital growth, one important consideration that often many landlords tend to overlook, is the propensity of how likely the rent will increase. Interestingly, the average rent of an Erdington property currently stands at £547 per month, which is a rise of 0.3% compared to twelve months ago (although it must be noted this rise in rents is for new tenancies and not existing tenants).
Anyway, back to yield and capital growth, the average value of an Erdington property currently stands at £139,200, meaning the average yield stands at 4.72% per annum, which on the face of it, many landlords would find disappointing. That is the problem with averages, so if I were to look at say 2 bed houses in Erdington which are the sort of properties a lot of landlords buy, in Erdington, the average value of a 2 bed house is £108,300, whilst the average rent for a 2 bed house is £509 per month, giving a yield of 5.64%. However, if that wasn’t high enough, there are landlords in Erdington who own some specialist properties with specialist tenancies, that are achieving nearly double that yield – again it comes down to your attitude to risk and reward (give me a tinkle if you wanted a chat about those sorts of properties – although they can be fun and games!).
Ultimately investors want to be making gains from both rent and house price growth. When combined, the rental yield and capital growth gives you the return on investment, and that is what I told our University friend from Kensington. Return on investment is everything. So, looking at property values in Erdington have risen in the last year by 4.7% …. which means the current annual return on investment in Erdington for a typical 2 bed house is 10.34% a year …. not bad.
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