Southampton, Blackpool and Hull top the list of the most promising areas to purchase a buy-to-let property. Personal finance writer Neil Faulkner takes a look.
There's a common, albeit simplistic, way for buy-to-let investors to measure how good their investment is.
Simply divide the annual rent by the purchase price and multiply by 100.
Hence, £6,000 in annual rent on a purchase price of £100,000 is a 6 per cent "rental yield".
Using this broad measure, banking giant HSBC looked at the most promising areas to purchase buy-to-let properties today.
Top 10 buy-to-let locations
||Rental yield / average rent
||Average property price
||7.98% yield on average rents of £709
|Kingston upon Hull
||7.81% yield on average rents of £450
||7.35% yield on average rents of £488
||7.26% yield on average rents of £1,036
||7.20% yield on average rents of £702
||7.13% yield on average rents of £900
||7.04% yield on average rents of £524
||6.56% yield on average rents of £494
||6.38% yield on average rents of £802
||6.36% yield on average rents of £825
What's a good rental yield?
When looking at rental yields over the past 25 years, a yield of less than 6 per cent has meant you can expect a property price crash and even a fall in rental income.
However, a yield of above 9 per cent has been outstanding.
Using that as a simple rule-of-thumb, landlords buying today in Manchester and Kingston upon Hull are looking pretty okay then, with their yields of more than 7.5 per cent.
Contrast that now with the bottom 10 buy-to-let locations in HSBC's top 50 and you'll get a worrying picture if you want to be a landlord in many parts of London.
Landlords in the capital typically receive less than half the yield of the top 10, and far below the 6 per cent crash barrier.
Bottom 10 buy-to-let-locations
||Rental yeild / average rent
||Average property price
|Kingston and Chelsea
|2.87% yield on average rents of £3,131
|3.15% yield on average rents of £2,600
|Hammersmith and Fulham
||3.23% yield on average rents of £2,145
||3.40% yield on average rents of £1,387
||3.46% yield on average rents of £2,383
||3.64% yield on average rents of £600
|Richmond upon Thames
||3.71% yield on average rents of £1,950
||3.94% yield on average rents of £1,248
||3.95% yield on average rents of £650
||3.98% yield on average rents of £1,200
One-bed flats highest rental yield
If the average price of £69,135 for a Hull property seems too steep for you, UK lettings agent Countrywide has found that one-bed flats currently return the highest rental yield.
So spending less on a property can lead to a better return on the money you put in.
Protect your investment
An important area for prospective landlords to consider is insurance, as standard home cover is unlikely to protect your property after you rent it out.
Dedicated landlords insurance or buy to let insurance policies differ from residential cover in a number of ways.
For example, the maximum period the property can be left unoccupied is usually longer - 90 days for example, instead of 30.
You can also opt for cover against tenants failing to pay their rent, and for insurance against any emergency maintenance issues that could arise, such as a boiler breakdown.
It is also worth adding legal cover, to protect you against any claims arising from accidents suffered by tenants, or to pay the cost of any legal disputes with tenants.
*Stats updated May 2015