Best London borough for positive cash flow real estate investment

masters02

Hi all,

I've been looking at properties in my area, Dulwich (southwark) and found that a typical 2 bedroom for around £750,000 would only rent out for £1600 per month. That would give me an abysmal cap rate, negative cash-on-cash return and ROE (not to mention heavily negative cashflow). I should probably mention that I would be planning to get a mortgage with 20% down payment.

So, to my question: what boroughs in London would yield a positive cash flow, and perhaps a cap rate of at least 7%?

Thank you in advance!

AdrianC

Simple answer? None, unless you look at squatty dirt-cheap-to-buy dumps like Thamesmead.

mp3duck

I don't think you'll be able to achieve a 7% in London tbh.. Whilst rent prices are high, the house prices are too..In fact, I doubt you'd even get 5%..

Also, are you planning on buying with a BTL Mortgage?

If you take you £750,000 example, with your 20% deposit, you're looking to borrow £600,000.. Most lenders require that the rent covers at least 125% of the interest only payments, and they mostly use a nominal rate of a minimum 5%.. (some are even higher)

Someone else please correct me if I get the below figures/calculations are wrong, but, for a £600,000 loan, you'd need to rent for a minimum £3125 per month. This would of course be accessed by the mortgages company's surveyor before a final offer is made.

£600,000 * 0.05 = £30,000
£30,000 * 1.25 = £37,500
£37,500 / 12 = £3,125

masters02

Wow, I guess I'll have to turn to beyond the pond then.

Thanks for the replies.

oli_ro

Try google, I have seen a web site where it shows typical yield broken down by property type and borough. I don't remember how its calculated though and I think it should be used just as a guideline.

The results were somehow intuitive and contrary to my perception.

7% I have not seen.

BlaEm

Lewisham? Two beds rent for £1,300- £1,600 (obviously depending on quality of the flat and location), you could get a 2 bed for <£350k.
Also, property in Dulwich is expensive, how about other areas of Southwark e.g. Peckham (popular with young professionals, students and families) - same cost and rental profile as above.

AdrianC

BlaEm wrote: »

Lewisham? Two beds rent for £1,300- £1,600 (obviously depending on quality of the flat and location), you could get a 2 bed for <£350k.

= 4.5%, before costs.

benjus

The last place I rented before I bought somewhere, we paid £1050 / month (approx 65m2 1 bed period flat, Blackheath). We briefly discussed the possibility of buying the place from the LL and she said an agent had contacted her with an estimate of around £425k. If that was accurate it would have meant paying more in mortgage interest alone than we were paying in rent (assuming a 10% deposit).

This seems to be a common pattern in London - rents are held back by what people can afford to pay to a greater extent than property prices. So a lot of people can afford to rent in a nice area but couldn't afford to buy there unless they can somehow raise a big deposit.

Of course, my ex-LL bought the flat years ago when property was much cheaper, so she still gets a good yield. I guess that new landlords getting into London property do it for capital appreciation rather than yield.

Pixie5740

If you're looking for a 7% return you'll have to cast your net wider than the area you live in.

Why property? Why not another form of investment that is less hassle than letting property?

See New Landlords for further information on what being a landlord entails.

movilogo

If you want good yield, then forget London and buy up North. Your money will buy multiple properties there and thus you can distribute risk.

mp3duck

I read somewhere recently that Southampton had some of the best yields in the UK.. Forget where though