Moving out of your comfort zone
Given that three of my Clients have mentioned to me in the last month that they have started to look at property outside their immediate geographical area for investment, I thought I would take a look myself to see what various areas have to offer and therefore this month I thought I would share some of my findings.
Starting with the northern most of my considerations is Scotland. Interestingly, in 2012 there were just 260 landlords with property in Scotland who were registered as living in England. That figure now stands at 1400 demonstrating a huge increase in interest. These figures are easy to obtain given that Scottish deposits need to be registered in a Scottish scheme.
The upturn in interest in Scottish property has come at a time where house prices in England have increased significantly. There has been a squeeze on yields and some legislative changes have meant that the environment “down south” is less appealing than was historically the case. Indeed a recent survey suggested that capital values were falling in two out of every five London postcodes.
With the average price of property in England at £226,000 and the average cost in Scotland at £150,000 you can see that a better yield could be achieved if you were to invest in Scotland.
In Scotland the private rented sector accounts for just under 15% of the housing stock suggesting that there is some further room for growth of this sector. Furthermore Scotland has a more attractive Stamp Duty situation. Called Land and Buildings Transaction tax, it has a nil rate up to £145,000 – almost their average house price whilst for portfolio landlords in England at £145,000 they would pay 5% Stamp Duty.
Other areas which appear to be offering a sound location for investment include those major conurbations which should offer a ready pool of professional tenants. The latest LendInvest league table shows Manchester as providing average gross yields of 5.55%. Despite strong growth over recent years, average house prices are still below the national average at around £195,000.
Some of the Midlands towns such as Leicester and Birmingham are becoming more popular for investors as they seem to provide reasonably strong yield figures and could well benefit from an appreciation in capital values as a consequence of current regeneration and the HS2 proposals.
For those London investors wanting to move just a little way beyond the M25, many of the commuter towns appear to be doing well. Towns including Luton and Colchester are still very commutable to the capital and average yields of 3.8%. Not eye watering but possibly better than that available nearer the Capital and requiring a far smaller layout financially than a central London property.
There is sense in having a portfolio of property geographically spread as arguably it could reduce your risk if an area were to decline and should provide an increased chance of capital growth to your portfolio.
Set against that you will need to change your mindset if you are going to scale up from a landlord who operates in their own neighbourhood and does everything from sourcing the tenant, repairing the broken tap and collecting the rent. You will effectively be an armchair investor having to defer to agents, trades and sourcers in an area of the Country you are perhaps currently unfamiliar with.
If you are considering some “out of area” investing then I would first advise that you are specific in terms of whether you are trying to identify a new area to provide you with income or capital growth. Once you are decided you need to thoroughly research the areas you are considering. Visit them, walk the streets, talk to agents, attend local networking events and get a real feel for the area and those who operate in it, before you take the plunge. Indeed you may wish to Joint Venture with someone so you can try a new area whilst sharing the risk and most usefully, having two of you to undergo the initial due diligence.
Successfully investing in a new area may allow you to better leverage your time as you will be forced to outsource some of the functions which you currently undertake yourself and which may, if you are honest with yourselves, not be the best use of your time.
Perhaps the next time you trawl the internet to find your next property, you should increase the geographic size of your search. You may just find that elusive goldmine area.