By Peter Taylor-Whiffen

Right place, right time?

How location helps the shrewd buy-to-let investor.

These are challenging times for private landlords. Tax and regulatory changes have had such an impact that it’s claimed as many as 20% of landlords were planning to offload some or all of their rental properties in the last year.

But there’s still profit to be made, if you know where to look – and crucially – if you know where to buy. “There continues to be a big upswing in the buy-to-let market,” according to broker Jeni Browne. “If you hit the right location, there’s good opportunity to invest in lower-value property which brings a higher yield.”

To call the last couple of years “tough” for the buy-to-let (BTL) investor is an understatement: the phasing out of tax relief on mortgage-interest payments; additional 3% stamp duty on the first £125,000 of a property in addition to the main home (rising to 5% up to £250,000 and 8% above that); an obligation to provide information to lenders on all their rental properties even if the mortgage is only for one of them, resulting in delayed decisions; rule changes obliging more HMO (houses in multiple occupation) properties to have a licence, with more fire and safety obligations; new energy regulations; new minimum room sizes; a Bank of England crackdown that raised lenders’ rent cover demands to 145% of the mortgage payment; and a forthcoming Tenant Fees Act restricting security deposits, capping charges for tenancy changes and restricting landlords’ chargeable services.

Safe as houses

But in spite of all this, the truism “safe as houses” means property is still a solid investment. However, as with all property, the key is location.

“Generous yields are there for the picking,” says Mark Moloney, head of brand and communications at Totally Money, which publishes an annual Buy-To-Let Rental Yield Map.

This year’s edition cites student cities as offering the most profit. Nottingham, with 37,000 undergraduates at its two universities, tops the list of hot property spots, returning a yield of nearly 12%. Six Liverpool postcodes make the top 25, with Manchester and the North East well represented. On the other hand, the top yield area in London – East Ham – returns just 4.81%, an area where the average purchase price is £354,000.

“Properties in university cities – Nottingham, Liverpool, Manchester, Newcastle, Leeds – are a safe bet,” adds Moloney. “Regular term times and a consistent flow of new students are good news for landlords.”

But it’s not just about looking at a particular place, says Browne. “It’s examining what makes somewhere a strong rental proposition. Investors should look at places with a transient workforce – such as universities, but also hospitals and airports.

“Think creatively to spot opportunities. On the flip side, look out for big employers pulling out or announcing major job losses, which could have a negative impact on the local rental market.”

Location, location, location

Location is key, agrees Alan Ward, who chairs the Residential Landlords Association – but he says other factors should be considered first. “In some towns you can pick up a property for £30,000, but is that a good deal? It’ll be that price for a reason – because no one wants to live there, or the local economy is suffering – is there a local rental market at all? You need to do your homework.

“Also consider which rental sector you want to be in. University towns do indeed have a great ongoing rental market, but are you prepared to find new tenants and re-present your house every two years with all the maintenance that goes with that? You might prefer to have older residents – 8% of UK tenants are the elderly, who might plan to stay there the rest of their lives. Do you want families, or benefit tenants? This decision will determine where to start looking for property.”

Home sweet home

And rental yield shouldn’t be the investor’s sole focus, according to Rose Jinks, spokesperson for specialist insurer Just Landlords. “Of course that’s essential in a successful lettings business,” she says, “but remember you’re providing a home for your tenant – think about investing in a location and property they’ll want to live in, as well as a secure tenancy that keeps them there as long as possible.”

Your approach to the investment itself also plays a part, says Ward. “You could get a cheap property in a cheap area, but unless you know that area will take off – with, say, a new railway line – you won’t get any quick capital gains. But such a property might suit an investor wanting an asset that will appreciate over the long term. Or are you looking to trade assets, or use an asset to get a foothold in the market, and just want a property to borrow against to buy another one?”

And even when you decide on a sector, and whether this is a long-term investment, other factors come into play. “You don’t have to live anywhere near your investment, but there are additional elements to consider,” adds Ward. “If something goes wrong with the property, and it’s near your home, you can pop out during your lunch break – it’s more tricky if it’s 200 miles away, so you need a good agent you can trust. Which means not just doing your homework on locations and properties, but also on agents.”

Do your homework

Jinks suggests investors shouldn’t slavishly follow geographical trends. “The North West has boomed, thanks to high tenant demand, relatively low prices and strong yields,” she says. “But it’s not the only place this is achievable. Even in parts of London, higher returns are still on offer in the right places.”

The answer, then, is to determine your preferred rental type and look into it carefully. “Thoroughly research your chosen area,” says Browne, “and don’t believe all the hype and adverts about what ‘guaranteed’ return you’ll get. Nothing’s guaranteed. But if you do the legwork, you can find a lucrative deal.”

Jinks shares her optimism. “Don’t get too wound up in the nitty-gritty of facts and figures,” she says. “There’ll always be peaks and troughs. The best buy-to-let location is defined by high demand, strong yields and supply of suitable property for your target tenant. In the current market, these factors aren’t hard to find.”

For more information, contact the Residential Landlords Association here.