Many people are drawn to investing in major cities, principally London, Manchester, and Birmingham. The perception is often that rental demand is highest in these locations as they have larger populations. However, they also have more properties and in some locations, more than is needed to satisfy the rental demand.
The important issue is the supply and demand ratio for the location and the sector the properties are in.
The location
Manchester, for example, has a population of around 550,000 within its metropolitan borough so the impression may be that the rental properties there would be in high demand. However, the city is facing an over-supply of rental properties due to the deluge of newly built apartments hitting the market. The same applies to the centre of Liverpool.
In both locations, developers have jumped in and sold huge numbers of apartments, mostly to investors on the promise of strong rental demand and attractive yields.
The reality is, neither city is like London. The business districts are much smaller and are within relatively easy commuting distance of population centres.
Most people prefer to live and work in the surrounding suburbs and towns, where there is no over-supply to impact rental yields.
It sounds simplistic, but ‘When in Rome, do as the Romans do’ – when it comes to investing, think as a local would think in terms of where to rent.
Your tenants are going to be people who live there, and your perception of the ideal rental location may be very different from theirs.
The sector
We recently assessed a property in a Cheshire town which has a population of around 100,000 people. The property is within a few minutes’ walk of a big industrial estate with over 100 companies.
Whilst there are residential areas close by, they mostly comprise family homes and there is a shortage of lower-priced co-living/HMO accommodation to service the demand from the estate.
If you are investing in the co-living/HMO sector for rental income, then you need to be close to industrial/manufacturing/distribution centres as your tenants are likely to be employed in these sectors.
We wouldn’t recommend investing in a family home in this town as a rental property, but an acol property would be a great investment.
The ‘downside’ with the property in terms of its appeal to overseas investors is that most would not have heard of the town, let alone be familiar with it.
Additionally, it isn’t near the centre of a major city where many investors perceive the strongest rental demand to be.
This is why investors should use the right developer/advisor who knows and understands the sector and takes the emotion out of the investment decision.
