An online estate agent has sought to definitively rank the best university towns and cities in terms of return on investment, and there was little surprise when the results revealed that from the midlands northwards represents the best value.
Landlords who have been looking toward Oxford and Cambridge for investments have been warned against the famous old cities in favour of the North.
The research, conducted by online estate agency Hatched, found Leicester had the lowest average house price of the cities analysed at £156,999.
Leicester, the highest ranking city, was followed by Birmingham, Leeds, Manchester and Liverpool respectively. The worst places to invest, it was found, were Oxford, Cardiff, Edinburgh and York.
The calculations were made based on the cost of investment plus renovation, return on investment projection, rental income and annual projected yields.
When applying the formula to properties purchased in Leicester, the FT reported that with an average renovation cost of £77,000 bringing the cost of investment to £233,999 and a return on investment projection of 61 per cent; a monthly rental income of £2,176 giving an annual yield of 9.3 per cent, would mean it would take 8.5 years to pay off the renovation cost.
It also found that, by applying the same formula, yields in Birmingham would reach 8.8% per year and take 9 years to pay off the renovation costs. In comparison the same formula in Leeds would result in yields that meant a repayment period of 9.5 years.
Manchester and Liverpool came out with a time period of ten years, based on their respective projected yields of 7.5 and 7.9 percent over the period. Oxford and Cambridge, in contrast, had costs of £670,108 meaning a yield of 3.9 per cent and an estimate that it would take 25 years to pay off the renovation costs.
There were caveats to the report, however, with its authors keen to point out that areas such as Oxford retain their popularity due to high student demand for rental properties.
Peter Gettins, product manager at L&C Mortgages was quoted by the Financial Times as saying: “This demonstrates the importance of doing your research and understanding your market.”
He continued, “With Leicester as the best prospect, they’re saying it’ll take nearly nine years to recoup the renovation costs so this isn’t something to take on casually. In terms of financing, much would depend on the level of renovation needed. Student accommodation is an area seeing huge amounts of new development as well, so it’ll be important to bear that in mind if you’re relying on eight-10 years performance to recover costs. “
With cities in the north and their universities growing quickly in popularity it’s not surprising that the cost of property plus high demand are resulting in tidy profits for landlords and investors.
Institutions like The University of Salford and Manchester Metropolitan University have recently invested millions of pounds into renovating their campus facilities whilst figures from the local authority for Manchester suggest post-graduates settling in the area in record numbers.
Similarly in the midlands, most are finding that the cost of living in the south of England simply isn’t conducive to post-graduates looking to start a career. The cost of living, property and travel in southern areas means that students and those who have recently graduated find it genuinely difficult to get by whilst getting the necessary experience to kick on in their careers.
Areas such as Manchester, Liverpool, Leeds, Leicester and Birmingham offer, in comparison, much more affordable living whilst maintaining the same levels of night life and facilities.
Further to this, investment in purpose built student accommodation (PBSA) compared to the traditional avenue of buying a large property and renovating it for student use, can further boost yields as these properties are often new and don’t require further investment in terms of renovation.
All in all, student landlords wouldn’t do badly to heed the advice to keep looking north.