Well, as a New Year roars away I remembered that a few days before Christmas, I got chatting with one of my out of town landlords who was back in Dundee visiting his family. Brought up in Dundee, he went to the Harris Academy back in the 1970’s and is now a University Lecturer in central London. To enhance his retirement, he has a small portfolio of four properties in the town and wanted my advice on where to buy the next property in Dundee (as he lives in a college owned flat and anyway, would never dream of buying where he lives in Kensington (where the average value of a flat is £1.62m and a town house £4.1m. Eye-watering to say the least!!).
Before I could advise him, I reminded him that the most important thing when considering investing in property is finding a Dundee property with decent rental yields for income returns, yet at the same time, it must have the potential for capital growth from rising house prices over time. Going into 2016, Dundee landlords will be under more pressure to find the best permutation of yields and capital growth, as extra stamp duty charges for buying properties and a squeeze on mortgage interest relief will raise their costs.
However, (you knew there would be a however) before we look at yield and capital growth, one important consideration that often many landlords tend to overlook, is the propensity of how likely the rent will increase. Interestingly, the average rent of a Dundee property currently stands at £713 per month, which is a rise of 6.0% compared to twelve months ago (although it must be noted this rise in rents is for new tenancies and not existing tenants).
Anyway, back to yield and capital growth, the average value of a Dundee property currently stands at £160,000, meaning the average yield stands at 5.35% per annum, which on the face of it, many landlords would find disappointing. That is the problem with averages, so if I were to look at say 1 bed flats in Dundee which are the sort of properties a lot of landlords buy, in Dundee, the average value of a 1 bed flat is £67,800, whilst the average rent for a 1 bed flat is £374 per month, giving a yield of 6.62%. However, if that wasn’t high enough, there are landlords in Dundee who own some specialist properties with specialist tenancies, that are achieving nearly double that yield – again it comes down to your attitude to risk and reward (give me a tinkle if you wanted a chat about those sorts of properties – although they can be fun and games!).
Ultimately investors want to be making gains from both rent and house price growth. When combined, the rental yield and capital growth gives you the return on investment, and that is what I told our University friend from Kensington. Return on investment is everything. So, looking at property values in Dundee have risen in the last year by 1.7% …. which means the current annual return on investment in Dundee for a typical 1 bed flat is 8.32% a year …. not bad.
Whether you are a soon to be new landlord or existing seasoned landlord in Dundee, you might be interested in a blog about the Dundee Property market, where you will find similar articles to this one about what is happening in the Dundee Property market …. the web address is www.dundeepropertyblog.co.uk …. and to answer the question on what he should buy, well on the same blog, once or twice a week, I post what I consider to be the best buy to let deals in Dundee, irrespective of which agent it is being marketed with. Maybe you should visit the blog as well?
