Are lower value homes better landlord targets to improve yields?

Across the UK, more and more landlords are now seeing the value of rental properties in less fashionable parts of the UK, where yields are higher.

The rental market is more accessible for investors now than it has ever been before. A sector that was once the playground of the rich landlord who owned countless properties, the private rented market has changed over time, and it's now estimated that more than 90 per cent of investors own only one rental home. 

This has changed because people are becoming savvier about the market. In the past, investment in the rental market often meant buying expensive stock in London and renting out to those who could not afford to buy the type of property they wanted to live in. But this has changed, and now we see a reality in which buyers are able to invest with relatively low amounts of money, but still see strong levels of income. 

Properties built specifically with the rental market in mind, large developments and emerging cities have all enabled this change in the sector over the last few years. It's meant a rise in investment in cities like Liverpool, Leeds and Manchester, where high demand created by a surge of new residents chasing new jobs has given landlords who perhaps could not afford to invest in rented homes in the past the chance to do so. 

But is this emergence of new regions also playing into a new trend of landlords investing for less and getting strong returns? The evidence would certainly seem to suggest so. Whereas in the past landlords would spend big to get big profits from their rental homes, investors are now seeing the benefits of spending less. 

According to Mortgages for Businesses, in the second quarter of this year alone, the average price paid for a buy-to-let home was far lower than the overall average house price. This shows that landlords are increasingly investing in cheaper homes than the typical owner-occupant is buying. The reason is simple; stronger yields. 

They may not be able to make the quick buck that landlords buying expensive central London homes can, but those investing in cheaper rental stock are getting yields of up to ten per cent in some areas, according to Mortgages for Businesses. This allows them a much steadier and better income compared to their spend, and although they may not see a large amount of cash coming in each month, the long-term prospects for the property investment are much higher, especially for those with patience to see it through. 

It's a trend that's becoming ever more popular in the current market. Kuflink reports that more landlords than ever before are buying affordable homes in areas where rent demand is high. This is because demand creates competition, and competition pushes rents higher, giving landlords better income, and better returns against their relatively modest outgoings. 

This is particularly prevalent in areas where demand has been growing over the last few years. Manchester and Leeds, for example, are two areas where homes can be bought for lower than the national average (in Manchester, the average house price is just £153,000, compared to the UK-wide £220,000), but where the rising digital sector has created swathes of new jobs. 

The demand for rented homes that this causes means that the two have seen increasing rental prices in the last couple of years compared to those low spends, giving some areas of Manchester yields of 7.08 per cent for investors, and those in Leeds 5.96 per cent. 

 So the key to success in investing in rental properties may not just be to spend big in the initial stages. Quite often, it's those who spend less who earn more in the long run, and as studies show, more and more landlords are becoming aware of this trend and investing in this manner as a result.