Thursday, 15 January 2015

Buy to let in the villages – Awful rental returns in West Hallam?


 

I have recently been speaking with a number of landlords about the importance of a balanced portfolio, when buying and renting out property. The balance between buying properties that offer good monthly returns (high yields) but quite often offer poor capital growth (ie they don't increase in value that much over the years compared with the average) verses properties that do go up in value quicker but often offer a lower yield. Another consideration has to be the mix of town properties verses the villages.

Choosing the right village though is very important. Living in villages often has higher costs, especially transport and petrol costs. Some tenants don't buy because they can't afford the mortgage, so if you buy in the wrong village, you could limit yourself to the type of tenant who can afford those extra transport costs. However, one village that has a high demand with tenants is West Hallam and is particularly popular because of the successful primary school, Scargill C of E.

West Hallam consists of some 1,858 dwellings of different housing types and a population of 4,828 people.With an average property value of £188,860 and average rents in the order of £628 per month, the average yield achieved in West Hallam are miserable 3.99% a year .. you might as well put it in the bank! So, does that mean you should stay clear of buying a property in West Hallam as a buy to let investment ? Before I can answer that, you must really consider the capital growth vs yield question. Some Derbyshire buy to let investors often make the mistake of chasing yield over capital growth and believe that by chasing high yielding properties, in say the poorer parts of Derbyshire, they will make a faster profit than waiting for capital growth.

The problem with this is that to achieve high yield you usually have to compromise on capital growth. Therefore it would seem the most logical solution is to find a high yielding property in a strong capital growth area but, these simply don't exist and  in actual fact, most of the time, lower yielding properties have a better capital growth.  This is because there is generally a contrary relationship between yield and capital growth so the higher the yield, the lower the capital growth and the higher the capital growth, the lower the yield. Property investment in Derbyshire is about balancing the two.

A few weeks ago, I said property values in Derbyshire were 7% below the 2007 property boom, but here is the interesting news, in West Hallam they are 5.5% above the 2007 boom prices.  Just shows you need to look at the bigger picture when deciding what and where to buy your next buy to let property and I hope I have made all the property owners in West Hallam very happy after reading this!

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