Buy to Let | Invest Locally or Long-Distance?
Should you stick to the safety of investing in property locally, or should you invest long-distance in the hopes of potentially greater returns? This is a very common question we get here at Sequre - whilst both options have individual pros and cons, the right option for you will depend on a few key factors.
The buy to let market
Firstly, it is important to look at the current health of the UK buy to let market.
With roughly one in five properties across the UK being privately owned rental property, an investment in buy to let is still an incredibly popular choice for investors.
In fact, the buy to let market is currently thriving. Whilst the extension to the stamp duty holiday is certainly encouraging investors and first-time buyers to purchase property (buyers can currently save up to £30,000!), we are also seeing approvals for mortgages at their highest rates since 2016.
The result of this is a very active market and a resurgence in investors purchasing second properties for use as buy to let. In fact, the number of property sales are increasing so much that prices are not only increasing but we are now facing a shortage in housing stock.
As a result, more and more people are pushed towards renting through a shortage of suitable housing, and with this creates opportunity for investors. A shortage in stock coupled with strong rental demand attracts higher levels of rent and more consistent returns through lower void periods. The forecast for the market paints a very promising picture.
So, having established the health of the market and deciding that a buy to let investment is right for you, is it best to invest locally in an area that you know, or chase higher yields elsewhere in the UK?
Investing in property locally
The first benefit to investing locally is that you are likely to have a greater understanding of the local area and market. Areas that locals would consider favourable, or less favourable, will be key knowledge in that whilst on paper an area might prove good value, an adverse reputation can impact both rents able to be achieved and void periods – you also run the risk of attracting less reliable tenants.
In fact, the majority of buy to let investors opt to purchase locally. As seen in the graph below, across the entire of the UK irrespective of yields, investors usually stay local.
The standout figures here being the massive 93.7 percent of investors in the Northeast investing locally, compared to the lower, albeit still high 68.9 percent of investors in the Southeast. This would suggest that whilst investors are likely to stay local, buyers do still look further afield for greater yields with the North leading the way for buy-to-let profitability.
Another benefit to investing in buy to let locally is that you can manage the property yourself with greater ease. You will be in a position where you can make any maintenance and repairs on the property, and you are also in a better position to deal with incoming and outgoing tenants. Ideal for a landlord who likes to be more hands on with their investment.
Investing in long-distance property
On the flipside, finding a highly reputable letting agent can allow you to have a more hands-off investment. Particularly relevant for those looking to create or build upon an existing property portfolio, the ease of being able to invest in a property and have a letting agent manage everything on the tenant side for you, as well as promoting the property itself, is a huge bonus.
Whilst there is a cost associated with this, void periods are likely to be lower through a heightened maintenance and repair service and your properties should be tenanted faster through the agencies marketing resources. They can also help you to price the property correctly for rental returns!
The other major benefit to purchasing long-distance is the opportunity for greater returns. Particularly relevant for those living in areas with lower-than-average rental returns or demand, the opportunity to invest in some of the highest yielding locations across the UK, with a positive forecast over the next 5-10 years could well be the defining success of your investment.
Property investment hotspots
Whilst the North is seeing higher than average rental yields, specifically Manchester is our choice when it comes to overall buy-to-let profitability. Not only are the yields able to be attained some of the highest across the UK at just over 6 percent (the UK average being 3.53%), but Manchester also has the second largest rental market with 31 percent of its population being private tenants.
With a young population and far lower house prices than the UK capital, many people and businesses are migrating North in search of lower property prices and yields. Manchester also has the lowest vacancy rate of any city in the UK at just 0.5 percent, meaning void periods will be low.
When making a buy to let investment, it is also important that the potential for capital gains is taken into consideration. Once again, Manchester has seen the greatest house price growth over the past decade, with a 51% rise in average house prices.
For perspective, if you purchased a £200,000 property in Bradford, as an example, you would have realised a 19 percent rise in the value of the property, or in monetary terms, a rise in value of £38,000. Whilst this is still a good investment, this would have been a £102,000 increase on average had it been in Manchester. It is certainly worth considering capital gains as well as rental yield, as you will earn a tidy profit if you decide to sell.
Where should I invest?
So, should you invest locally or long-distance? The answer to this question depends on a few key factors, the first of which being your location.
If you are already located in a high yielding location, Nottingham, Birmingham, and Manchester being a few examples here, the additional benefits of seeking higher yields in far-away locations is negligible – in this instance it is worth investing locally.
However, if you can earn just 1 or 2 percent more by investing long-distance, this is something you should consider. The security of earning greater yields will make your ROI healthier and can be the make-or-break difference when it comes to the success of your buy-to-let investment. When combined with the opportunity for greater capital gains, it is worth investing long-distance and to consider using an agent to manage the property – the increase in yields should more than cover the additional expense. Of course, this does depend on the type of investor you are, but if you have plans to grow an investment portfolio, this will be the approach you want to take.
If you are interested in investing, Sequre are specialists at sourcing high yielding buy to let investment properties in key areas across the UK. What separates us from the rest is our bulk purchasing approach, allowing investors with any budget the opportunity to purchase heavily discounted property with fantastic yield potential. Get in touch to find out more.
or call us now on 0800 011 2277