Well, as the sands of summer begin to stop trickling through the hour glass of life, a few days ago I got chatting with one of my out of town landlords who was back in Edinburgh visiting his family. Brought up in Edinburgh, he went to the Boroughmuir High School back in the 1970’s and is now a University Lecturer in central London. For his retirement, he has a small portfolio of four properties in Edinburgh and wanted my advice on where to buy his next property in Edinburgh (as he lives in a college owned flat and, anyway, would never dream of buying where he lives in Kensington where the average value of a flat is £1.62m and a town house £4.1m. Eye-watering!).
Before I could advise him, I reminded him that the most important thing when considering investing in property is finding an Edinburgh property with decent rental yields for income returns yet, at the same time, it must have the potential for capital growth from rising house prices over time. As I have discussed before, Edinburgh landlords are under a wee bit of more pressure at the moment to find the best permutation of yields and capital growth, as extra LBTT charges (the old stamp duty to you and me!) for buying properties and a squeeze on mortgage interest relief will raise their costs.
However, (you knew there would be a however) before we look at yield and capital growth, one important consideration that often many landlords tend to overlook, is the propensity of how likely the rent will increase. Interestingly, the average rent of an Edinburgh property currently stands at £986 per month, which is a rise of 6.8% compared to twelve months ago (although it must be noted this rise in rents is for new tenancies and not existing tenants). Anyway, back to yield and capital growth, the average value of a Edinburgh property currently stands at £269,838, meaning the average yield stands at 4.4% per annum, which on the face of it, many landlords would find disappointing.
That is the problem with averages, so if I were to look at say 1 bed flat in Edinburgh which are the sort of properties a lot of landlords buy, the average value of a 1 bed flat is £127,229, whilst the average rent for a 1 bed flat is £686 per month, giving a yield of 6.5%. However, if that wasn’t high enough, there are landlords in Edinburgh who own some specialist properties with specialist tenancies that are achieving yields of more than 8% – again it comes down to your attitude to risk and reward (give me a tinkle if you wanted a chat about those sorts of properties – although they can be fun and games!).
Ultimately investors want to be making gains from both rent and house price growth. When combined, the rental yield and capital growth gives you the return on investment, and that is that is what I told my University friend from Kensington. Return on investment is everything. So, looking at property values in Edinburgh, they have risen in the last year by 4.9% .... which means the current annual return on investment in Edinburgh for a typical 2 bed house is 9.3% a year .... not bad!
If you would like a chat to find out more about investment property and property management in Edinburgh please pick up the phone (0131 603 4570) for a chat or email me (firstname.lastname@example.org).
A few more interesting articles about the Edinburgh Property Market:
- Values of Edinburgh flats smash through the £285/sq ft barrier http://bit.ly/2coIaXx
- Post Brexit property disaster - more like a ‘soft landing’ so far Nationwide claims http://bit.ly/2bW4zYB
- Capital growth AND rental yields are higher outside Edinburgh! Time for an investment re-think? http://bit.ly/2bi6g1n
- A look at how the Private Rented
Sector is performing, Summer 2016
- Property values in Edinburgh have increased by £152.42 per week http://bit.ly/2aNyepy