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Wednesday, 2 April 2014

Buy to let  - Weymouth - a  good place to buy?

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 (ie 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 town that  has a high demand with tenants is Weymouth. Located centrally on the South Dorset coast Weymouth has for over two  hundred years prided itself as being one of the UK’s premier holiday resorts.   The town, together with Portland consists of some 30600  dwellings of different housing types and a population of nearly 65000 people.

Rental prices range at the lower end from around £650 per month for a two bedroom estate house, although we recently let a lovely 1 bed  annexe in an outlying village, which literally went in hours at £600 per month. From £750 to £850 , a larger 3 bed semi can be rented whilst a £1000+ per month will get you a large 4 bed detached house. One bedroom flats go for £450/500 whilst a nice two bed overlooking the harbour will fetch £725.00 With such a  good housing stock  there is a constant high demand for property in all varieties and  the number of potential tenants constantly outstrips supply. 

So, does that mean you should buy a property in Weymouth  as a buy to let investment? Before I can answer that, you must really consider the capital growth vs yield question. Some buy to let investors often make the mistake of chasing yield over capital growth. Some investors believe that by chasing high yielding properties, in say the poorer parts of Portland, 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 simply don't exist 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 Weymouth and Portland is about balancing the two.

Not many landlords, especially those who use buy to let mortgages, can afford to service high levels of debt without a reasonable yield , which forces them to look at ways of making an investment affordable by finding the right balance between capital gain and yield.

Yield is critical to the survival of an buy to investment but it’s not the key to building wealth. Don’t chase yield for yield’s sake, but rather chase capital growth with enough yield to make it serviceable because in  the long term it is the capital growth, not the yield that will generate  you the wealth and the financial independence you are seeking.

Next week, I will show that Weymouth could just offer that right balance of yield and capital growth.

Philip Wakefield - Martin and Co Weymouth

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