Assess Tenant Demand Before You Buy Rental Property

26 Oct

Today I couldn’t resist – I had seen a 65k building going to auction with a predicted annual rental income of 22k. Yes – a whopping yield of 34%. So I knew the area – and I knew it wasn’t particularly salubrious – but at that sort of yield it’s got to be worth a look…

So what do you get for 65k…well you get 6 x 1 bedroom flats – with a market rent of c£300 per month per unit.

It’s a HUGE building…which goes on and on…and on and on!!

 

Let’s just take a look from the rear:

Admittedly it lacks any kerb appeal and it’s neglected and in need of some TLC…but just think of that yield!

So I checked the market rents and I saw we had let 1 bed flats previously in the area for £350pcm, so £300 seemed pretty realistic.

BUT…then I decided to check how long the previous flats had taken to rent – and it had taken approx 8 weeks – this is against an area average of 1-2 weeks.

I then checked the number of enquiries we had had on the previous flats we had let – and it was single digits. Again, our area average is at least 20 enquiries per property.

These two additional facts are key – and made my mind up – the demand isn’t high enough for this type of property in this area.  If this property had been situated in a different part of town I  knew these type of units would fly (even with the lack of kerb appeal) but in this part of town people are looking for 2 bed houses and not 1 bed apartments.

So my takeout is – don’t just look at the figures – because they may stack up on the surface. You need to drill down and look at wider factors. Work out if the type of property you are planning to buy will let to the sort of person you are planning to let to. There is no point having a huge building with the potential to earn a great yield if it remains empty for most of the time.

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