Villages Compared with Grantham Town Property
It is a fact that most landlords tend to live close to the rental properties that they own, as they know the market and feel comfortable with the properties on offer. In addition, local property ownership offers the option of self-management, even if the property is going to be managed by a letting agent, at least for the first few years. For this reason, we have initially looked at property in the local area.
Recently an investor was looking for their next property investment and asked me whether village properties offered better growth potential and whether there was a compromise, in terms of rental yield. I grew up in a village and live in a village now, so I had a view on this but in order to try to answer this fully, I did some research.
If we consider a 3 bed terrace in Grantham, in a good rental area, such as Victoria or Stamford Street, this type of property can be purchased for around £90-100,000. With a monthly rental of around £500 and an average purchase price of £95,000, this represents a healthy yield of 6.3% gross return. If we look at capital growth, in the year 2000 similar properties were averaging around £38,500, giving a 146% increase over the original value.
By way of comparison in the villages, I wanted to consider similar type 3 bed properties and take a look at Corby Glen and Croxton Kerrial. The average monthly rental value for such a property in Corby Glen is currently around £550 and for Croxton Kerrial, the figure is around £535. The average purchase price of these properties would be approximately, £135,000 in Corby Glen and £142,800 in Croxton Kerrial, giving gross yields of almost 4.9% and 4.5% respectively.
The pure yield of the Grantham property would be greater, but let us look for a minute at the capital growth of the properties in the villages. In Corby Glen, this type of property could have been bought for around £46,500 in the year 2000 and in Croxton Kerrial the figure would have been around £48,500. These represent capital increases of 190% and 194% respectively, which are comfortably ahead of the town property for yield.
A Final Thought
In the above scenario, my investor client also realised another dimension to this. At the above pricing, with some negotiation, he could possibly buy 3 houses in Grantham (3 x £90,000 = £270,000) for the price of two in Corby Glen. At the end of the day, this investment “business” as with any other is about choices – exciting choices! London offers the potential for higher capital growth, but yields are lower at around 3-4% and £75,000-£100,000 would be the entry level investment. However, there are towns in the UK that offer 8-10% yield with low entry level pricing, where £20,000 would cover the deposit and fees and give an entry into the world of property investment.
If you would like discuss this or any other aspects of property investment, letting and management, then please get touch.