Are yields of 7.6% per year on the Lordswood Estate the best Southampton has to offer the investor?

I regularly talk to landlords about investing in Southampton. Following a discussion with one of them last week, he asked me to look into the Lordswood Estate area - (one of the flat roofed 1960’s town houses in the Upper Shirley area near the General Hospital), and whether it was a good place for him to invest in as he wanted to know whether such properties would be of interest to the nursing profession working at the local hospital.  There was a three bed, end of terrace, town house up for sale in mid-September with a guide price of £135,000. Average rents in these types of properties have risen by 18.1% since 2008, which is amazing considering average rents in Southampton are in fact only 5.3% higher (on average) than those being achieved in 2008.

Let’s say you buy it for £139,000, the achievable rent can be in the order of £850 to £900, depending how much effort you have put into presenting it; but being sensible, we are still looking at a yield in the region of 7.6% per year ... yields that are only normally achieved in risky HMO’s (Houses of Multiple Occupation ie Student housing .. with the fun and games that brings!). Property values since 2002 have risen, according the Land Registry, in Southampton, by 45% but looking at the properties that sold in 2002, and again more recently, average increases in property values in the Lordswood area have been in the region of 136% over the same time frame.

So is this an investor’s paradise – great rental growth, great yield and great capital growth? Well, all is not as it seems. This is a great example of the headline numbers (yield and capital growth) not being the only factor to consider when choosing an investment property, as you should also consider how long it takes to find a tenant. The average time it takes to find a tenant for one of the town houses in the Lordswood Estate area is, looking back at all the rentals on that development since 2008, is 47 days, whereas in most other parts of Southampton a tenant is usually found in one or two weeks. If you take into account the extra five or six weeks of void period for your property, every six to nine months, because tenants in areas in such as the Lordswood Estate tend to have a high propensity to move more regularly, the annual overall return from the property is lower than it seems.

Finally, the property was of non-traditional construction, ie not a cavity wall of two skins of brick and breeze block, but of a concrete and steel frame having concrete infill blocks. Sometimes these are difficult to obtain mortgages on, so it’s only normally cash buyers who can go for these. I am not suggesting you don’t buy it, but go in with your eyes wide open and having done your homework.

We don’t sell property but we can help you to find the best investment property with our specialist lettings advice. It is in our interest that you buy a property which will rent well and for long periods of time. If you would like any advice on choosing properties come and see me at our offices on London Road or contact me at 023 8001 8222 or email brian.linehan@belvoirlettings.com.