Continuing on from the theme of my Blog article last week, when I talked about a case where an inexperienced Buy to Let investor had overspent on the refurbishment of his first investment property and therefore ate into his profits, this week I am writing about a case (also in Devon) where the investor had put emotion aside, done his research and made a very shrewd buy to let purchase.

The property in question was not a pretty property.  In fact it was a 2 bedroom flat in need of modernisation located above a betting shop. And it wasn’t in a particularly desirable area either. This was not your ‘Des Res’ of a property and yet the location benefited from great access to transport links and the you can reach Exeter city centre within minutes. In the other direction, the M5 motorway, A38 and A30 are only a stones throw away providing convenient access northwards towards Taunton and Bristol, south towards south Devon and Cornwall and east towards Honiton and eventually London.

So, our contributor had made a purchase that totally ‘ticked the boxes’ of his target rental market – likely to be students or young professionals needing quick and easy access to the city and therefore he was able to generate A1 rental returns. Infact, he already had a tenant lined up even before he had started the renovation work!

This is where a simple working knowledge of how ‘yield’ works comes into its own.

For an explanation of how to work our rental yields, click here…

This property was set to generate £575 per month for our investor – no more or less than better properties located in more desirable areas of the city. Yet because he was buying in a lower value location, he had managed to get this property at auction for just £61,500! That works out at a whopping 11.2% gross yield. As our contributor pointed out, you just can’t buy 2 bedroom flats in the centre of Exeter for this kind of money any more, and even taking into consideration the money he was going to have to spend in modernising the property (which he estimated to be about £5000), he was still looking at a net rental yield of over 10% - these sorts of rental yields just aren’t around closer to the city centre in more desirable areas. Because he could ‘buy low and rent high’, this rather ugly duckling of a flat could prove to a real jewel in our investor’s rental portfolio.

So how did our contributor find this gem of a rental property?

Well, as you would expect, this came down mainly to knowledge and experience of the city. Our investor had decided to concentrate on Exeter as a location and because he had a detailed knowledge of the areas within the city, could spot that this property was going to work very nicely for him. Having already bought other buy to let properties in Exeter over the past few years, he was no rookie at the landlord game and knew exactly what the city’s tenants would demand.

This concept of buying in lower value areas that which benefit from good rental demand can be termed ‘Concentric Ring Theory’. This is a technical way of describing the ‘ripple effect’ of prices in a city or area. If you imagine that in most cities there are certain districts or postcodes that are ‘Prime Locations’. They are the areas where people will aspire to live and because of this, they will command highest prices. There could be many reasons why these areas are so desirable and I won’t go into these now, but needless to say they will always be coined ‘the posh end of town’. Canny investors will look for properties that are on the outskirts of these ‘prime locations’ where either the proximity is close enough to allow people living in these neighbouring locations to move easily into the prime spot to access shops, services and facilities or otherwise the transport links in these outlying areas are such that they can easily travel. Such was the case of our ‘cash cow’ in Exeter.

Very often buying in the peripheral areas of a city can mean that you can save anything up to 20-30% on the purchase price compared with the prime location. If you also have a knowledge of where your tenant pools are likely to be, then this can lead you to the right areas to buy. As we know, universities, hospitals, large retail and industrial sites all provide employment or vocation and so buying properties in close proximity to these facilities will mean that you will be well located for tenants wanting easy access to work. Also keep abreast of town plans and new developments such as new shopping centres, roads, leisure facilities etc and follow the commercial developers into these areas. The opening of new facilities like this will not only raise the relative attractiveness of the area and desirability for both tenants and owner occupiers but will give a general ‘lift’ to the location.

That doesn't mean that every cheap property in run down locations will reap the same rewards as our Exeter cash cow and so detailed research into the needs of prospective tenants is vital, but it does show how an unappealing property that didn't particularly scream out of the auction catelogue was a shining example of a solid buy to let investment - if you know what to look for.

For more information on this topic, please visit the site store to order your SIGNED copy of Martin's book, 'Teach Yourself: Making Money From Property' available for just £9.99 plus P+P.

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