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Best places to invest in property.

Best places to invest in UK Property: 3 key things you need to know first before deciding where to buy your first investment property.

Best places to invest in UK property? Spoiler alert! If you are expecting to find out in this article where ‘the secret golden goose’ is, then you might feel disappointed. After all, if there were only one city or a three-areas list as ‘the best places to invest in UK property’, I presume everybody would be investing there, which ironically might even affect and put into question how ‘good’ that area really is due to logical market saturation.

There are many things that you need to consider before deciding the best places to invest in property. In this article* I will share three key points I have based my research on when I started my own property business.

I have personally researched several areas -both online and on the ground- such as Nottingham, Stoke on Trent, Crewe, Mansfield, Nuneaton, Hinckley, Walsall, and several towns around Birmingham in order to ensure what was best for me. It was not easy, and it did take a considerable amount of patience, time, and petrol.

We all like the idea of owning properties in one of the greatest and fast-moving cities in the world like London. For others, it may be the ‘land of the Beatles’, Manchester or other major cities.

However, many up-and-coming areas may offer better returns such as investment properties in Crewe. It is important to do your research and consult with professionals before making any important decisions. From the investment perspective, getting into a market before it peaks is always a sound approach. We can’t read the future, but as investors, it is imperative to be well-informed and compare past trends and markets and try to anticipate what the future might bring. In simple and general terms, these are three key factors to consider: Rental Yield, Capital Growth, and Rental Strategy.

Rental Yield to decide the best place to invest

Rental yield is an important metric for any investor looking to make money from their investment properties. The rental yield is also divided into gross rental yield and net rental yield, the latter includes the monthly operating expenses of the property.

A good rental yield is one to consider when choosing an area. According to Zoopla for instance, the City of Stoke on Trent which is one of our target areas has an average yield of 6.63% for Buy to Let as of September 2022. Having said that, the rental yield considerably varies depending on the rental strategies, sometimes with a rental yield of over 12% in Stoke on Trent as well as other areas we operate in.

More on rental strategies later in this article. For simplicity, however, we will refer to the following section only to the Buy to Let strategy.

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What is a Gross Rental Yield?

Gross Rental yield is a quick way to measure an investment property performance and it is expressed as a percentage of its value. It measures the overall profitability of an investment property by taking into account the total rent received and the price paid for the property. This helps investors compare different investments and determine which one will provide them with the highest return on their capital. By taking into consideration both purchase price and expected monthly rents, investors can calculate their expected returns and compare different properties and cities against each other before making an informed decision about which one and where to invest in.

Calculating Gross Rental Yields

Rental yields can be calculated by taking the annual rental income divided by the purchase price of the property – multiplied by 100 – and then expressed as a percentage. For example, if you spend £150,000 to purchase a property and it generates £750 per month in gross rental income (£9,000 annually), your rental yield would then be 6%. That is £9,000 divided by £150,000 x 100 = 6%.

What is Net Rental Yield?

To calculate your net rental yield, simply subtract your annual costs and operating expenses from your annual gross rental income. This will give you your actual net profit for the year, which you can then divide by the cost of the purchase to get your net percentage yield.
Let’s use the same example illustrated before. You spend £150,000 to purchase an investment property that gives you a gross £9,000 rental income per year but now you take into account the operating expenses and management agency fees. These operating costs combined are £150 per month, that is £1,800 a year. Then your net rental yield would now be 4.8%.

 

Do I need to calculate gross rental yield or net rental yield?

The above two formulas are important and can be used to compare investment properties between different locations and even within the same city before making a purchase decision. A basic check could easily be done at home via Zoopla & Rightmove, by comparing the purchase prices against the rental prices of similar properties on those same streets. Speaking to established estate and letting agents are always another good way.

Remember, the rental yield of a property is not the only decisive point, but rather an important factor among other things to consider. Another one is….

Capital growth to know where is best place for you

At its core, capital growth in property investment is any potential price rise a property appreciates over time. Is when you as an investor purchase a rental property and while benefiting from its rental profit you also wait for its value to increase. Once the value has increased enough, you can then sell it for more than you bought it for—this is known as capital gain or capital growth.

There are many factors to evaluate any potential growth in the future of any city which determines the up and coming property areas in the UK. We have pointed out a few in our article about Stoke on Trent Regeneration Schemes and Hotspot. You can also read some of our research criteria behind our blog about why to invest in Crewe, which is another of our target areas.

Following the same formula may help your research into which nearby cities of yours are worth investing in. Rightmove also has a few general points on this along with others.

Rental Strategies to fit the best are for your investment

Whether you’re a first-time investor or an experienced landlord, this is perhaps one that it is imperative that you liaise with local experts as it includes how to best rent a property depending on your location and type of property to maximize its potential.

Rental strategies are multiple such as Buy to Let, Social Housing, Holidays Let, House of Multiple Occupancy, Asylum Seekers, Serviced Accommodation, and even variations of the same.

All of the above-mentioned strategies have pros and cons and may affect both your rental yield and even capital growth. Certainly, good management is key, hence why it is so important that you liaise with local experts and that you have a good team on the ground to help you. One of the niche strategies we have focused on in several cases for our clients is student accommodation in Stoke on Trent.

If you are pursuing property investment as your next business venture, then all the rental strategies within your chosen area may be important to consider area even if only one is suitable to your needs right now. For example, if Buy to Let is your first strategy to start with but are in the view of diversifying your portfolio to House of Multiple Occupancy (or HMO) in the future, then an area that has a market for both would be important unless you are prepared to start again researching ‘from scratch’ in a new area later on.

Conclusion:

Neither the rental yield, capital growth, or rental strategies should be a separate deciding factor, but rather a combination of these. You may also wish to include your own personal circumstances, such as where you live, whether you own a portfolio elsewhere or not, the expertise of your team on the ground, and how much you want to grow. After all, diversifying your portfolio is a key element for your future or existing property empire.

If you have any questions, please refer to our post about what to consider before starting your property business in your chosen area, or feel free to contact us.

Most of us started possibly in the same way as you are today.

Rico Pieroni

Director of Treasure Tower Property Consultants

 

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Rico Pieroni

Treasure Tower Director | Sourcing Agent | Property Investor | Entrepreneur
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While trying to keep clients updated and provide valuable content, it is important however that you seek independent advise about everything you do. Treasure Tower Ltd and Rico Pieroni do not offer investment advice on the merits or sustainability of products and no information contained within this website or presentations should be construed as such. Examples are for information purposes only and must not be treated as advice or recommendation. Should you wish to seek advice, please contact an Independent Financial Adviser.

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