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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