HOH Average Property Purchase Price
HOH Average Gross Rental Yield
HOH Value Of Property Purchases To Date
Property investment provides an opportunity for investors to achieve Capital Growth or Income. Some investors will look for both, but as with any investment a combination of both usually results in a mediocre return from either perspective.
Our strategy in the North is fundamentally yield driven, with cash flow positive investments, supported by a relatively low entry cost and densely populated rental environment.
How do we achieve this?
In the Land Registry House Price Index report of February 2016, the data shows extremes of average pricing, with London having an average price of £530,368 versus a UK national average of £190,275, whilst the north east continues to have the lowest average price of £97,582. The North East of course, covers a number of areas from North Yorkshire to Northumberland, so this average is simply that, an average.
Between December 2014 and December 2015, the number of houses available for sale under £50,000 in the whole of the UK dropped by 24% from 1051 to 794. Homes or Houses bought 21 (or 1 in 38) of these.
The rental market is strong and the shortage of housing well publicised, however, this does not provide a positive cash flow investment for properties where the purchase price is above the efficiency point for rental prices. For example, in the North East where the average price is £97,000, rent of £600 per month produces a cash flow return of 7.42%, whereas a property at the UK national average of £190,275 achieving £600 per month rent has a cash flow return of 3.78%.
For discussion could be the subjective nature of how much is rent reasonable and how much are tenants really prepared to pay. In London where the average property price is 5X higher than the North East, we explored a London average price 4 Bed at £545,000 and researched the achievable rent. We found that £2000 per month, producing a cash flow return of between 3.9%, seemed to be the cut-off point in terms of affordability and what tenants are prepared to pay.
This is, of course, absolutely subjective from a tenant’s perspective and their cut off points could be based on necessity, shortage of supply or even on who is responsible for the rent. We do know however, that there is an efficiency point, where property prices continue to increase and rental prices flatten, as the gap widens the cash flow return is reduced.
For further information from us on the benefits of cash flow positive investment contact us.
So how does the cost of property affect the yield?
The below table shows the correlation between purchase price, rent and the affect that the aforementioned factors can have on the R.O.I. (Return on Investment).