Thursday 30 April 2015

Buying to let in the villages? Lets check out Great Leighs!

I have recently been speaking with a number of landlords about the importance of a balanced portfolio, when buying and renting out property. The balance between buying properties that offer good monthly returns (high yields) but quite often offer poor capital growth (i.e they don't increase in value that much over the years compared with the average) verses properties that do go up in value quicker but often offer a  lower yield. Another consideration has to be the mix of town properties verses the villages.

Choosing the right village though is very important. Living in villages often has higher costs, especially transport and petrol costs. Some tenants don't buy because they can't afford the mortgage, so if you buy in the wrong village, you could limit yourself to the type of tenant who can afford those extra transport costs. However, one village that has a high demand with tenants is Great Leighs, particularly due to the local schooling facilities and also the fact that the new Chelmsford City Racecourse has opened just down the road! The village consists of some 1600 dwellings of different housing types and a population of approximately 2700 people.

With an average property value of £339,156 and average rents in the order of £900 per month, the average yield achieved in Great Leighs is a miserable 3% a year... you might as well put it in the bank!

So, does that mean you should stay clear of buying a property in Great Leighs as a buy to let investment? Before I can answer that, you must really consider the capital growth vs yield question. Some Chelmsford buy to let investors often make the mistake of choosing yield over capital growth and believe that by chasing high yielding properties, in say the poorer parts of Chelmsford, they will make a faster profit than waiting for capital growth.

The problem with this is that to achieve high yield you usually have to compromise on capital growth. Therefore it would seem the most logical solution is to find a high yielding property in a strong capital growth area but, these are incredibly rare, and in actual fact, most of the time, lower yielding properties have a better capital growth. This is because there is generally a contrary relationship between yield and capital growth so the higher the yield, the lower the capital growth and the higher the capital growth, the lower the yield. Property investment in Chelmsford is about balancing the two.

If we look back over the last year at property values in the CM3 postcode, they have increased by 5.19%, but, in CM1 postcode area they have increased by 3.48% ... clearly, this shows that in Great Leighs, capital growth is worth more consideration than a high yield. 

It just shows you need to look at the bigger picture when deciding what and where to buy your next buy to let property and I hope I have made all the property owners in Great Leighs very happy after reading this!

If you would like to discuss my thoughts on the property market, feel free to pop through the door of our offices on Duke Street.

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