Some landlords only want to buy rental property in an area close to them or in an area they know well. There is nothing wrong with this approach, and there are sensible arguments for these decisions. However, an increasing number of landlords want to buy rental property where they generate the best return, and this decision process extends to the most efficient property type for their needs.
Therefore, information provided by the National Landlords Association (NLA) will be of great interest to many landlords. If you believed letting property to top end executives and high-end tenants, you may be in for a surprise. The data collected by the NLA suggests the average rental yield on property let by companies on behalf of their employees or by executives was 4.9%. This is the lowest return for property and tenant types.
Do you want a tenant with lofty expectations?
This style of tenant is looking for a high standard of service, which usually involves a significant investment on behalf of the landlord. Therefore, this eats into the return the landlord can expect, and it can result in you being very busy.
The tenant types which presented a rental yield greater than 5.6% includes migrant workers, who have a return of 6.5%, students, with a return of 5.9%, and retired people, offering a return of 5.8%. This information may lead some landlords to review their practices in the year ahead.
Another reason to avoid executives when letting property is because this is a difficult market to reach. Executives accounted for just 2% of the market, while migrant workers accounted for 7% of the market. Students made up 14% of the rental market and retired people accounted for 11% of tenants.
The largest tenant group is families with children, which accounts for 52% of all tenants, young couples and young singles. The rental yield on offer from these groups is in line with the average return.
A large detached house isn’t appealing to landlords
With respect to property types, the NLA found large detached houses provided an average rental yield of 5.4%. Houses in Multiple Occupation (HMO) offered an average rental yield of 6.5% and bungalow properties offered a return of 6.2%.
Richard Lambert is the Chief Executive Officer of the National Landlords Association, and he said; “The private rented sector has grown because there is an alignment of interests between landlords and tenants. There is high demand for rented property from particular groups of people — migrant workers, students, and retirees — and these are precisely the people who offer landlords the best return on their investment. They are also the people who will bear the brunt of government policies which end up pushing landlords out of the market.”
If you are looking for guidance in the rental market, contact Dunedin Sales & Lettings, we are pleased to say we have assisted many landlords in Rubery and surrounding areas. When it comes to making an informed decision, we are pleased to provide guidance and advice, so get in touch today.