The mindset and tactics you employ to buy your first Lancaster buy to let property needs to be different to the tactics and methodology of buying a home for yourself to live in.
When you purchase your own home, you may well pay a little more to get the ideal home for you and your family. You will be fussier. You will know what you want. Often you will end up buying at the top end of your budget as you want the best you can afford. You generally buy with your heart.
Yet with a buy to let property, if your goal is a higher rental return – a higher price doesn’t always equate to higher monthly returns – in fact quite the opposite.
Inexpensive Lancaster properties can bring in bigger monthly returns. Most landlords use the phrase ‘yield’ instead of monthly return. To calculate the yield on a buy to let property you basically take the monthly rent, multiplies it by 12 to get the annual rent and then divides it by the value of the property.
This means, if you increase the value of the property using this calculation, the subsequent yield drops. Or to put it another way, if a Lancaster buy to let landlord has the decision of two properties that create the same amount of monthly rent, the landlord can increase their rental yield by selecting the lower priced property.
To give you an idea of the sort of returns in Lancaster…
Now of course these are averages and there will always be properties outside the lower and upper ranges in yields however they are a fair representation of the gross yields you can expect in the Lancaster area.
As we move forward, with the total amount of buy to let mortgages amounting to £199,310,614,000 in the country, landlords need to be aware of the investment performance of their property, especially in the era of tax increases and tax relief reductions. Landlords are looking to maximise their yield – and are doing so by buying cheaper properties.
Yield of course, isn’t the only factor when deciding on what Lancaster buy to let property to buy. Void periods (i.e. the time when there isn’t a tenant in the property between tenancies) are an important factor and those properties at the cheaper end of the rental spectrum can suffer higher void periods too. Apartments can also have service charges and ground rents that aren’t accounted for in these gross yields. Landlords can also make money if the value of the property goes up and for those Lancaster landlords who are looking for capital growth, an altered investment strategy may be required.
In Lancaster, for example, over the last 20 years, this is how the average price paid for the four different types of Lancaster property have changed…
- Lancaster Detached Properties have increased in value by 216.5%
- Lancaster Semi-Detached Properties have increased in value by 235.8%
- Lancaster Terraced Properties have increased in value by 239.7%
- Lancaster Apartments have increased in value by 248.3%
It is very much a balancing act of yield, capital growth and void periods when buying in Lancaster. Every landlord’s investment strategy is unique to them. If you would like a fresh pair of eyes to look at your portfolio, be you a private landlord that doesn’t use a letting agent or a landlord that uses one of my competitors – then feel free to drop in and let’s have a chat.
Call me on 01524 843322 or email me at firstname.lastname@example.org