London yields above 8%

I've written before about the importance of rental yields in making any residential investment purchase.  Average yields vary considerably across the country, with the lowest being in Central London (around 5%) and the highest being in the North.  I would expect to achieve at least an 8% yield in the North East.  The differential in these figures accounts for the differentials in the expected growth rates in capital values and rents.  What the markets are saying is that London property prices and rents will continue to out pace those in Gateshead.  Personally,  I think that's a fair assumption.

London yields above 8%

What happens if you could achieve gross yields of above 8% in London?  I was chatting to my tennis buddy and my accountant the other day about his idea for investing in London property by buying an apartment for one of his sons.  His initial thoughts were to buy in Docklands and he ascertained that yields there were nearing double digits. I was sceptical but said that I'd check out the details and had a few thoughts of areas to invest in from a recent visit.

Zoopla yields results

During my initial trawl of areas in the East of London that I thought could become 'property hotspots' in the future I started to use Zoopla's property market.  This is useful as you can see displayed in a single page the average asking rents and current asking prices on the same page.  Looking at the prices for Bow in the east of London the current average asking price for a 2 bet flat is £289,878 (170 flats) compared to the average asking monthly rent which is £1967 (329 flats).  Using these figures I calculate an average gross rental yield of 8.14% (not bad in any landlords estimations).

The case for London residential investment

If you believe as I do that London will continue to suffer massive under provision of rental property and that any increased supply will continue to outstrip demand then London rents only have one direction to travel in.  So in short you don't have to go North to get high rental yields.  The downside is that you may have to wait 20 years or so before these sort of peripheral East London locations are seen as desirable by the London upwardly mobile middle classes (have a look at my recent East London odyssey)  At that stage you could be talking about big capital gains as well as a healthy rental income.

Landlord Mortgages - finance my invesment