The top 10 areas for rental yields are all in London, reveals new research.
A survey by property website Home.co.uk shows that the best-performing neighbourhoods are found in the capital, which director Doug Shephard describes as a “big revelation”.
The report looked at real yield, which is the rent plus the capital appreciation of the property for two-bedroom homes.
Top of the list was Shoreditch, with a real yield of 36.55%. Just behind was Bloomsbury with 36.54%, then Bethnal Green with 33.70% and Elephant & Castle with 32.07%. Also in the top 10 were Chelsea, Bermondsey, Battersea, Hammersmith, West Brompton and Vauxhall.
Reporting the findings, Home.co.uk urges all investors to understand the real yield and not focus solely on gross rental yields. The firm says that the study presents a more realistic view of investment potential by assessing the impact of changing capital values alongside rental yields.
Many landlords know that they must take into account maintenance, insurance and other basic costs of running a rental property, but many do not consider the rise and fall of the capital value of the house, Mr Shephard explained.
He says that London districts are attractive to investors despite the initial high costs as they offer a combination of accumulating capital value and reasonable gross yields.
Central London is a specialised sub-market within the wider UK rental sector and many residents have survived the recession well, Mr Shephard continued. People in these areas are on successful career paths and their consistent high demand for properties keeps sales and rental prices moving up.
At the other end of the scale, the Home.co.uk evaluation based on real yields also reveals areas of the UK where landlords are losing money simply by owning a rental property. Even if they do not face void periods and maintain healthy gross yields, some are losing out in real terms.
Margate is one of the worst-performing areas, with a real yield of -9.8%, despite a gross rental yield of 5.1%.