Which property types produce the best yields?
Online buy-to-let agency yieldit recently revealed the property types which produce the greatest yields, offering a key insight for landlords who are looking to invest – or expand their existing portfolio – in the UK’s residential property market.
The data, taken from the agency’s currently available properties, found that three out of the top five highest-yielding properties were houses with three bedrooms or more, producing net yields of up to 11%.
As such, houses with the means to house multiple tenants or larger families could make for a wise investment choice, with returns further increased by houses often being freehold rather than leasehold (which means they are self-managing and not subject to a service charge).
Houses once again came out on top when property type was analysed in relation to yields, with average net returns of 6.4%. This was followed by studios at 5.3% and apartments at 4.9%.
The research also uncovered a key difference in average yields between one bedroom and two-bedroom apartments, with the average one-bedroom apartment commanding a 1.4% higher net yield than a two-bedroom apartment, at 5.4% and 4% respectively. This, of course, indicates a greater demand for one-bedroom apartments, particularly in city centre markets where couples might struggle to afford the luxury of a spare bedroom. Consequently, many are opting to rent one-bedroom apartments, or alternatively renting in a larger group, in homes with more than two bedrooms.
By breaking down the numbers further, yieldit’s data also showed that one-bedroom apartments with parking actually had a slightly lower net yield (5.2%), on average, than one bedroom apartments without parking (5.5%). “Deciding on what type of property to invest in is one of the biggest choices a landlord has to make,” Ryan Hughes, head of sales at yieldit, said. “Houses suitable for families remain a popular choice, and yields can be significantly higher when you remove costs like ground rent, service charge and self-manage – however it’s important to note that this type of property might require more work and unexpected maintenance costs could affect annual returns.” He added: “For those looking to invest in apartments, the data suggests that there is a growing demand for one-bedroom apartments without parking.
As environmental issues become more prevalent, we can expect to see tenants opt for more environmentally friendly ways to travel and an unwanted parking space might push up the price for renters.”