Investing in property to rent can be a lucrative business, and buying property in some cities can give an excellent return on investment, allowing landlords to make a substantial profit on their initial investment.
We wanted to find out which cities are the best for landlords, so we delved into the data of average house prices versus average rental prices to discover which cities offer the best return on investment.
In order to work out ROI, we took the average price of a house in each city and worked out the mortgage repayments based on a 35-year term, 20% deposit and 3% interest rate. By comparing the monthly repayment costs to the average monthly rental prices, we were able to find the annual profits, converting this into a percentage of the overall cost of a house to give the ROI.
The North is the place to invest according to our research, with the Lancashire city of Preston offering the best return on investment. The average home sells for £176,378 while the average rental price is £981 PCM. This gives landlords a profit of £438 per month and £5,256 per year, giving an ROI of 2.98%.
Properties in Scotland ranks very well in the top ten, with three Scottish areas appearing. Glasgow, Dundee and Paisley all offer an excellent return on investment for landlords.
If we look only at Scotland, we can see that there are plenty of cities north of the border that offer the perfect situation for landlords. Glasgow offers the best profit potential, with the average house costing £181,245, while the average rental cost is £961 PCM. This gives a monthly profit of £403 and an annual profit of £4,836 with an ROI of 2.67%.
While some cities offer an excellent return on investment for landlords, others have house prices so high that it can be hard to turn a profit. Of course, these figures are averages, so this doesn’t mean that all landlords will be making a loss on their properties. However, Warrington ranks as the worst city for landlords in terms of ROI. While the average house costs £254,189, the average rental price is just £566 pcm, making it a great place for renters, but a less lucrative city for landlords.
When we look at the average prices and profit potential across all the cities, we can see that there is a wide difference in ROI between England and Scotland. Taking an average of all prices and figures, Scotland appears to offer much more profit potential to landlords than England.
While the average annual profit for a Scottish landlord would be £1,909 with an average ROI of 1.06% according to our figures, English landlords are more likely to struggle to make a profit, with an average loss of £227 per month and an average ROI of -0.06%.
We took our list of cities from the most populated cities in the UK according to World Population Review, as well as the most populated Scottish cities.
We used Money Advice Service to work out the mortgage repayments based on a 20% deposit, 35-year mortgage term and 3% interest rate. When compared to the average rental prices PCM, this gave us average profits.