You might be forgiven for thinking that the more bedrooms your rental property has, the better your rental yield and therefore your profits will be. This can be true with certain types of properties, such as houses of multiple occupation (HMOs), however, it isn’t always the case.
There are lots of factors a property investor takes into account when deciding which type of property to buy. From studio flats to new-build apartments to four-bedroom houses and HMOs, all property types will have a varying degree of demand depending on local tenant demand and where they are located. As well as budget and location, one primary criterion property investors usually consider when sourcing a buy-to-let investment is the projected yield for the property. Therefore, we’d imagine having up-to-the-minute knowledge of the property type achieving the best rental yield would be an invaluable asset. So, we are delighted to say, we have the precise yield insights you need…
New research has uncovered the property type that is generating the best rental yields in the current post-lockdown market. According to the research, one-bedroom properties are securing the top-performing and highest average yield out of all property types across the major cities in the UK at the moment.
Overall, the research found that one-bedroom properties are producing average yields of 6.2 per cent. Additionally, when breaking the one-bedroom category down by area, Newcastle topped the one-bedroom buy-to-let rental list, producing an average yield of 7.9 per cent. Top-ranking Newcastle was closely followed by Glasgow with yields of 7.7 per cent, then Liverpool and Plymouth with yields of 7.1 and 7 per cent respectively.
One-bedroom flats and apartments are a popular option as buy-to-let investments for a number of reasons. Firstly, because they tend to be cheaper than houses, so are the ideal property type for people trying to buy their first investment property. These single-bedroom properties are also are more likely to be located in cities and towns, which boast good transport links, so demand is generally higher, meaning there will be plenty of professional tenants available to fill any void periods as quickly as possible ensuring the property is let for as much of the year as possible.
However, while one-bedroom properties are now proving the best financial investment when it comes to buy-to-let rental yields, they haven’t always been the top-performing property type. Two-bedroom and three-bedroom properties have also topped the highest yields lists.
For example, previous research from property management platform, Howsy found that three-bedroom properties once offered the highest returns with a rental yield of 4.3 per cent; and while the average yield for three-bedroom properties has since increased to 5 per cent, the latest figures show that three-beds are no longer the best investment option.
In fact, both one and two-bedroom properties have leapfrogged three-bedroom pads where rental yields are concerned, with the average two-bedroom property providing average yields of 5.6 per cent.
According to the research, Belfast, Glasgow and Newcastle top the 2-bedroom yield rankings, pulling in rental yields of 6.9 per cent, while Sheffield (6.7%) and Leeds (6.4%) are also proving attractive investments currently.
For those wanting to stick with the trusted three-bed buy-to-let, Glasgow again tops the table (6.9%) with Newcastle (6.4%), Belfast (6%), Leeds (5.9%) and Liverpool (5.7%) making up the top five cities enjoying the highest 3-bedroom property yields.
Four-bedroom properties trail just behind their 3-bedroom counterparts, generating an average yield of 4.1 per cent, with Glasgow (6.9%) and Edinburgh (6.4%) properties securing the same yields as the city’s 3-bedroom properties while Leeds (4.8%), Newcastle and Bristol shared joint fourth position on the table with yields of 4.7 per cent.
Source Howsy: yields based on average house price and rent for each location via Home.co.uk
By comparison, five or more bedroom properties were ranked bottom for rental yields this time around with the average yields of 3.4 per cent.
Founder and CEO of Howsy, Calum Brannan, commented: “We’re seeing a lot of changes to traditional property trends across the sector and the latest seems to be the profitability of the three-bed buy-to-let.
“While still a good investment, on the whole, tenants demand is growing for one and two-bed homes that provide them with a space of their own.
“This growing demand is leading to one and two-bed properties climbing the ranks of profitability due to their lower investment price point and higher demand pushing up rental prices.
“As the threat of the Coronavirus reduces, we will no doubt see this trend reverse as people begin to again feel comfortable about shared living and the better social lifestyle this brings.”
Essentially, while the research above suggestions that yields may be higher for one-bedroom properties currently there seems to be no magic number of bedrooms that will guarantee the best yields for your buy-to-let property investment as evidenced by the winning property type changing from one study to the next. The best decision for you will therefore ultimately depend not just on the yield but on your budget, the location you’d like to buy in and the tenant type and demand in the area.