Are yields of 9.2% p.a. in Mackworth the best Derby has to offer?

I regularly talk to landlords about investing in Derby. Following a discussion with one of them last week, he asked me to look into the Mackworth Estate area, and whether it was a good place for him to invest in.

There was a 3 bed semi up for auction in mid September with Guide Price of just £65,000. Average rents in these types of properties have risen by 18.8% since 2008, which is amazing considering average rents in Derby are in fact 4% lower (on average) than those being achieved in 2008.

Let’s say you buy it for £70,000, the achievable rent can be in the order of £525 to £550, depending how much effort you have put into presenting it; but being sensible, we are still looking at a yield in the region of 9.1% to 9.2% 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 Derby, by 55% but looking at the properties that sold in 2002 and again more recently, average increases in property values in Mackworth have been in the region of 98% over the same time frame.

So is this an investors paradise – great rental growth, great yield and great 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 Mackworth Estate area can be up to six to eight weeks, whereas in other other parts of Derby 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 this area 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 i.e. not a cavity wall of two skins of brick and breeze block, but of a concrete frame. These are notoriously difficult to obtain mortgages on, so it’s only normally cash buyers who can go for these. I am not suggesting that you don’t buy it, but go in with your eyes wide open and having done your homework.

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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