Property tips: investing in flats above shops
- 15th August 2012
- Property Tips
London buy-to-let investors can secure great returns by investing in properties above shops
Our research revealed that flats above retail premises can return 17% more rental yield than comparable buy-to-let properties in the same area.
Often overlooked by ‘buy-to-let’ investors, flats located above shops are providing yields of around 6.3%, compared to 5.4% for similar properties nearby.
The increased yields can make a huge difference for buy-to-let landlords over the lifetime of the investment: an additional £40,500 in income over a typical 15 year buy-to-let investment.
So how can first time buyers capitalise on this surprising new avenue for investment?
1) Don’t neglect to ask your lettings agent about flats above shops
Flats above shops are typically overlooked by buyers. By contrast, these types of property are usually snapped up quickly once placed on the rental market thanks to high demand for rental accommodation in London.
Stephen Ludlow, Chairman of ludlowthompson, explains: “The higher yields on flats above shops are generated by lower purchase prices combined with similar rental values. These types of flats often sell for a big discount compared to similar properties that are not above a shop, yet achieve very similar returns.”
2) Target busy areas to minimize void periods
The best returns will be achieved by ensuring void periods are kept to a minimum. Buy-to-let investors can look for potential properties near a university or a large employer, such as a hospital, which will ensure a large number of potential tenants.
3) Buy-to-let investors will find it easier to access a mortgage
The main reason for the lower sale price of flats above shops is the difficulty for owner occupiers in obtaining a mortgage for them. However, some lenders will consider buy-to-let mortgages on flats above shops as security is provided both by the property’s value and its rental yield.
Explains Stephen Ludlow: “Sale prices on flats above shops are kept below a ceiling because of the limited number of buyers who are able to access finance to buy them. Specialist lenders will finance buy-to-let investors because they view this kind of lending as a form of commercial lending.”
4) Market your flat to young professionals
While young professionals have proven reluctant to buy flats above shops as their first home, many of them are more than happy to rent them, thanks to their close proximity to the high street and great transport links.
5) Invest in flats above restaurants or bars for the best returns
Says Stephen Ludlow: “Flats above restaurants and bars often sell for a heavy discount to similar nearby properties because the buyer will normally have to fund the whole purchase themselves.”
Rents in flats above restaurants are only slightly lower than other buy-to-let properties. This means they can be bought much more cheaply, yet can still return yields of over 15%.
Flats above shops are typically overlooked by buyers
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