I reminded them that one of the most important considerations you will have to make before investing is considering the balance between annual return and the capital growth of the property that you buy.
One of the most sought after places to live in is Allestree on the North Eastern side of Derby. There are 5,956 households here and an impressive 89% of the properties in Allestree are owner occupied, yet only 416 of those households (or 7%) are privately rented. Allestree has many different types of housing, but the very popular average 1950’s three bedroom semi-detached houses sell at around £225,100 (although there are some rather more expensive ones in certain parts of the area) and rents are on average £761 per calendar month.
Chaddesden on the other hand is a different story altogether. Only 3,854 of the 11,300 Chaddesden households are home owners (34.1%) and surprisingly, only 1,073 are rental properties (9.4%), the rest being made up of local authority owned housing. With this in mind, I carried out some further research and found that three bedroom semi-detached houses in Chaddesden have outperformed those on Allestree.
This is because a three bedroom semi in Chaddesden can be bought for around £95,100 and the achievable rents can be around £500 per calendar month. The yield which could be achieved from property in Chaddesden is therefore around 6.2% per year. When we compare this to the possible 4.0% yield on Allestree, that return is 55% proportionally higher in Chaddesden than Allestree.
We must remember however that yield is not the sole consideration when investing in Buy to Let properties. Areas which offer good yields, for example, Chaddesden, often suffer from poor capital growth as the properties in the area don’t increase in value as quick as the perceived more sought after areas.
However, looking at average property values in Allestree back to 2002, the average price has risen by 45.2% up to today, but here was the even bigger surprise; the evidence suggests average values in Chaddesden have risen by an impressive 89.6% in the same time frame!
Nevertheless, even though the percentage rise hasn’t been as great in Allestree compared to Chaddesden, those of you live in Allestree are still financially better off. Whilst the headline rate is higher, someone who bought a semi detached property in 2002 in Chaddesden would be nearly £45,000 better off due to the 89.6% rise, the 45.2% value increase for homeowners of semis in Allestree mean they are still £70,000 better off.
It just goes to show you need to look beyond the statistics and see what it means for your wallet!
If you would like to discuss anything further then please pop in and see me, send me an email or call me directly on 07977 235545.
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