Thursday, 13 November 2014

Are yields of 8.4% per year on Cotmanhay Estate the best Ilkeston has to offer the investor?


 
 
I regularly talk to landlords about investing in Ilkeston, Heanor, Eastwood and Belper.  Following a discussion with one of them last week, he asked me to look into the Cotmanhay Estate area, and whether it was a good place for him to invest in.  There was a 3 bed semi up for auction in mid October with Guide Price of £76,000. Average rents in these types of properties have risen by 19.5% since 2008, which is amazing considering average rents in Ilkeston are in fact 4% lower (on average) than those being achieved in 2008.

Let’s say you buy it for £70,000, the achievable rent will be in the order of £478 to £500, depending how much effort you have put into presenting it; but being sensible, we are still looking at a yield in the region of 8.1% to 8.4% per year ... yields that are only normally achieved in risky HMO’s (Houses of Multiple Occupation ie Student housing .. with the fun and games that brings!). Property values since 2002 have risen, according the Land Registry, in Ilkeston, by 58% but looking at the properties that sold in 2002 and again more recently, average increases in property values on the Cotmanhay Estate been in the region of 41.5% over the same time frame (not bad for an ex-Local Authority area where one would think it would be considerably less than the town’s average).

So is this an investors paradise – great rental growth, great yield and reasonable capital growth?. Well, all is not as it seems. This is a great example of the headline numbers (yield and capital growth) being not the only factor to consider when choosing an investment property, as you should also consider how long it takes to find a tenant. The average time it takes to find a tenant in the Cotmanhay Estate area can be up to six to eight weeks, whereas in most other parts of Ilkeston a tenant is usually found in one or two weeks. If you take into account the extra five or six weeks of void period for your property,  every six to nine months, because tenants in areas in such as the Cotmanhay Estate tend to have a high propensity to move more regularly and the extra fees a landlord has to pay each time a tenant moves in and out, the annual overall return from the property is lower than it seems.

We don’t sell property, but we can help you to find the best investment property with our specialist lettings advice. It is in our interest that you buy a property which will rent well, and for long periods of time. If you would like any advice on choosing properties, come and see us at our office in Heanor or, email me at lettings@sprucetree.co.uk.
 

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