Birmingham offers promising potential for buy-to-let property investors, with high rental yields and excellent locations. Discover whether it’s the right option for you with this handy guide.
Many landlords in the property market have turned their buy-to-let investments into profitable businesses. But while it has bought economic success for many, they’ll be the first to add, “It’s no picnic.”
Even with enough money to invest, the buy-to-let landscape can prove a very challenging market to navigate. Management of rental properties and taxes have changed, making buy-to-let investments more complicated.
So, if you want to see a return on your buy-to-let investment in Birmingham, you need to ensure you invest in the right property and know your duties and legal obligations as a landlord.
Can I Make Good Money as a Buy-to-Let Investor in Birmingham?
Providing you have the right strategy in place, your Birmingham buy-to-let property investment can generate a sizeable income.
The two ways of making money as a landlord depends on:
- An increase in the value of the property
- The amount of rent you receive from your tenants
In an ideal world, landlords can live the entrepreneurial dream by literally making money while they sleep. However, making a return on your investment (ROI) depends on a few vital factors.
Birmingham Rental Yield
One way of predicting whether you will make good money is to figure out the rental yield on the property. Essentially, rental yield is the profit you make on the investment property between the value and income you receive from rent.
For example, you have bought a flat in Edgbaston worth £200k. Now, you have rent on that flat for £1,000 a month, which after a year brings you £12,000. Divide £12,000 by £215k, and you get – 0.6.
Therefore, your rental yield for this property will be a healthy 6%.
The average rental yield in Birmingham is considered the third highest across the entire UK at around 5%. Only Glasgow and Manchester had a higher average buy-to-let rental yield than Birmingham.
What Is a Good ROI?
A good ROI will depend on your rental yield being as high as possible. But it’s no good charging too much rent for a property that doesn’t warrant it. Your tenants will quickly find somewhere else offering more reasonable rates.
So, an excellent rental yield would be somewhere between 5-8%.
Your ROI also depends on investing in the right property. Remember, you’re looking for the best value possible. However, if you take a risk and go too cheap, you might end up with a property that requires too much maintenance or renovation.
Obviously, as a landlord, all these costs will be on you to provide. On average, landlords spent £1,134 per month in 2021. This cost includes mortgage, maintenance, and letting agency fees.
While a newer property might be less viable for renovations, older properties can be more attractive to tenants. People like the character in an old house, but not so much ‘character’ to put someone off.
As a landlord, you'll find there’s a fine balance between generating a profitable ROI and ensuring you have respectful and loyal tenants renting for the whole year.
Most importantly, you don’t want to be left with an unoccupied property. This scenario depends on you providing a comfortable, attractive, and safe property that people call “home” and enjoy living in.
Your job is not just to get tenants through the door but to keep them inside for the foreseeable future.
Is a Buy to Let Property in Birmingham the Right Option for My Money?
Birmingham provides a superb choice for a buy-to-let investor. While there is always a risk involved in becoming a buy-to-let landlord, Birmingham offers more potential for the property values to increase and generate a high rental yield.
However, average property values in Birmingham are increasing at 4.9% per year, which is great for current landlords and property owners in the area. But if you’re looking to invest, now is the time, not later.
For example, a house worth £500k is predicted to be valued at £635k by 2026. That means as a buy-to-let property investor in Birmingham, you should look to invest as soon as possible.
Rental demands are also soaring in the UK. In the first quarter of 2021, rental demand went from 10% to 38%, with Birmingham having the most demand of all cities in the UK.
However, if you’re a first-time buyer, then different conditions will apply to your buy-to-let capabilities.
You will require more money upfront for a deposit and need to prove higher amounts of income to cover your mortgage payments. In the eyes of banks and mortgage lenders, you’ll be perceived along with your rental properties as a higher risk.
So, as a first-time buyer, because you have less experience, you must prove yourself financially able, much more compared to someone who owns property already, such as a ‘portfolio’/professional landlord with four properties or more.
What Options Do I Have as a Buy-to-Let Investor in Birmingham?
Birmingham is the second-largest city in the UK, offering a dynamic and diverse culture in the centre, alongside stunning scenery in the West Midlands countryside.
Depending on your desired demographic for tenants, Birmingham offers something for everyone, whether that's urban student accommodation or retirement cottages in countryside villages.
On current rental yield, the two best buy-to-let investment areas in Birmingham include the following:
- Birmingham City Centre
Unsurprisingly, the city centre continues to attract ideal tenants, especially in and around the Broad Street area.
Due to the progressive developments and regeneration investment Birmingham has witnessed over the past two decades, rental demands increased by 51% in 2021.
With an average rental yield of 5.2%, Birmingham City Centre is arguably the best place to buy as a buy-to-let investor, where you can attract young professionals in an area supported by a bustling business hub and vibrant metropolitan lifestyle.
- Erdington
As one of the fasted improving locations in the city, Erdington offers one of the best places to invest in the Birmingham area for buy-to-let. Compared to the city centre, property prices in Erdington are significantly less, but with a healthy average rental yield of 5%.
Situated only 4 miles Northeast of the city centre, Erdington offers excellent transport routes and an excellent option for entry buy-to-let investors planning for the long term.
Get Honest Advice from Buy-to-Let Birmingham Property Experts
While buy-to-let in Birmingham appears a dream property investment, without experience in the market, it can quickly turn into a nightmare scenario.
If you need any advice for your buy-to-let investments, contact us at Birmingham Money. As specialists in the Birmingham property market, we’ll happily offer you simple and smart advice to secure your ideal buy-to-let investment and rewards you with a solid return on your investment.
For any more information, please get in touch today.