Have you ever wondered how many bedrooms provide the best yields from a buy to let investment? You may be thinking that the answer is obvious – surely the more bedrooms that you have the more tenants you can rent to? But is that really the answer for the best yields?
As you may have guessed the answer is not as simple as that. You need to take a number of factors into account when investing in a buy to let property. It doesn’t matter if you are investing in a studio flat or a large property for an HMO, there is likely to be varying demand for what you have to offer where the property is located.
Two Bedroom Properties provide the Best Yields
A recent study by Howsy revealed that the best buy to let yields in the UK come from properties with 2 bedrooms. This is based on average purchase prices of properties compared to income from renting. Howsy calculate that the average yield for an English 2 bedroom property is 4.8% as at February 2020.
They looked at the average yields for different numbers of bedrooms and calculated the following yields:
- One bedroom 4.1%
- Two bedrooms 4.8%
- Three bedrooms 4.5%
- Four or more bedrooms 3.6%
Howsy also looked at where the highest yields were and found that the North of England provided the most impressive yields. The North East of England was top at 5.5% with the North West at 5.3% followed by Yorkshire and the Humber at 5.2%. All of these yields were for two bedroom properties.
Interestingly, their study found that the highest yields for one bedroom properties were in London with an average of 4.6%. This is probably due to the high demand in the capital for one bed rentals and the fact that homes are so expensive in London.
Benefits of Smaller Properties
Buy Association found that properties with a single bedroom tended to be marginally more popular (in the North West of England) than properties with more bedrooms. They put this down to the fact that it is cheaper to go for the smaller properties and the yields from them were pretty competitive.
If you are new to the buy to let market or have experience in it, you should know that flats are a very good option to consider. You tend to find more flats in urban areas where there is higher demand for rental accommodation and with good transport links and amenities available there are usually a lot of professional tenants on the hunt for good rentals.
Two bed properties are popular too and tenants will often stay longer in a two bed property. Friends can share a two bed property or couples that want or have children like them. It is essential to keep void time down to a minimum with buy to let.
Benefits of Larger Buy to Let Properties
Unless you go for an HMO, having more bedrooms does not necessarily mean that you will make proportionally more rental income. Then you have to consider the higher purchase price of a larger property.
It is a different story with HMO’s. Here you can have three or more unrelated people renting rooms and sharing common facilities. As each person has a separate rental agreement, if one moves out you will still receive rental income from the other two.
Savvy investors are taking a serious look at HMO’s because the yields are good and there is the safety net of continual rental income even if one tenant leaves. However HMO properties are expensive and there is a higher level of stamp duty and other costs to consider.