Are rental returns in excess of 12% p.a really possible in Burton?

I regularly talk to landlords about investing in Burton and the surrounding areas.

Following a discussion with one of them last week, he asked me to look into the Waterside Estate area, and whether it was a good place for him to invest in.  There is a 3 bed semi up for sale with Guide Price of £45,000. Average rents in these types of properties have risen by 22.2% since 2008, which is amazing considering average rents in Burton are in fact 4%  lower (on average) than those being achieved in 2008.

Let’s say you buy it for £50,000, the achievable rent can be in the order of £500 to £525, depending how much effort you have put into presenting it; but being sensible, we are still looking at a yield in the region of 12% to 12.5% 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 Burton by 56.5%. One would expect properties in areas in Waterside not to have kept up with those sorts of increases, but looking at the properties that sold in 2002 and again more recently, average increases in property values in Waterside have kept pace with the rest of the town.

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 Waterside Estate area can be up to six to eight weeks, whereas in most other parts of Burton 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 Waterside 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.
Finally, the property is constructed with non-traditional means ie not a cavity wall of two skins of brick and breeze block, but of a    concrete frame. These are difficult to obtain mortgages on, so it’s only normally cash buyers who can go for these. I am not suggesting you don’t buy it, but go in with your eyes wide open and having done your homework.

Having this knowledge of the Burton property market to hand enables me to give to my landlords the best advice on what (or not) to buy for buy to let. Irrespective of you are a landlord with another agent or someone who is thinking of dipping their toe in the water for the first time as a buy to let landlord, if you want to pick my brains on any matter to do with the Burton property market, please feel free to pop through the door of our offices on the High Street, or call me on 07973 666229!

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