An Edinburgh landlord was asking me recently which part of Edinburgh is best for investment. With a wide range of prices in the Edinburgh housing market it can be a challenge to find the right area for investments. Perhaps you have narrowed down the search and now know what type of property you want but where should you look?
With a one bedroom flat in Edinburgh currently ranging from £65,000 to well over £500,000 it can be difficult to know where is best. The most obvious answer to the question is your own personal budget. It is unlikely you will find many investors looking to invest half a million pounds into a 1 bedroom flat in Edinburgh. The top end of the market is obviously a bit of an extreme but there is a massive range in the middle of the market with very different house prices and rental values. To help us examine the market a bit better we will look at three different properties in three different areas of Edinburgh and compare purchase price, rental values and capital growth.
The key to a good investment is finding the right type of property but also the right area. The right property in the wrong area can be a disaster as can the wrong property in the right area!
The first area to look at is Wester Hailes. Situated in the west of the city Wester Hailes has been a cheaper area for properties. One example of the type of properties in the area is this one bedroom flat currently on the market with Aberdein Considine at offers over £79,000.
This represents a very cheap investment for a one bedroom property in Edinburgh. In terms of purchase price you will struggle to find a cheaper one bedroom flat in the city.
What about rental values? With cheaper purchase price can come lower rental values. This particular property would likely rent in the region of £550pcm giving an annual yield of 8.3%. At first glance it looks like we have found a great investment opportunity but what about the capital growth?
According to searches that particular street has seen a 20.6% increase in house prices in the last 5 years.
The one issue you might experience with this particular area is finding tenants quickly. As it is slightly further out from town it is not the most practical for commuting etc.
The next area to look at is Broughton. It is very central and close to other good areas such as Cannonmills and Stockbridge. It is very popular with professional tenants and represents a midway point in the 1 bedroom flats market. Check out this particular property that is currently marketed by Gillespie MacAndrew at offers over £148,000.
This property is in good condition and would be easy to rent for around £700pcm. This gives an annual yield of 5.6% so certainly not as high as Wester Hailes.
So far Broughton is not looking particularly great although it would be traditionally considered a good area. What about the capital growth?
This is where things change. Broughton Road itself has seen a 28.6% rise in house prices in the last 5 years. That's a whole 8% more than Wester Hailes over a 5 year period.
What does that mean in real terms? Well if those figures were to continue over the next 5 years then you would see an extra £16,274 from your property in Wester Hailes. The property on Broughton Road would have risen a massive £42,328! Obviously a lot of this extra profit is from the higher purchase price but had the property in Wester Hailes experienced the same percentage of growth it would have risen an extra £6,320 over 5 years. That extra 8% does make a difference!
The final area to consider is Bruntsfield. It has become an incredibly popular area recently with many trendy bars and coffee shops contributing to that fact. Many professional couples look to rent in this are and that has drive rents up in this area.
It has also driven up house prices with this one bedroom property on the market at offers over £265,000. It is currently marketed by VMH Solicitors and as the photos show it is in stunning condition. This is the type of property that many investors would happily live in never mind rent to others!
This property would easily rent for £925pcm giving an annual yield of 4.1%. This is rather low compared to the other two areas.
Does the capital growth make up for the lower yield? Interestingly, Montpelier in Bruntsfield has seen the same capital growth as Broughton Road over the last 5 years. Obviously the actual property has risen more in terms of cash price due to the higher purchase price 5 years ago but the percentage of rise was also 28.6%.
So, where is best? Wester Hailes will give you the best rental yield but Broughton and Bruntsfield will give you a much better capital growth. Broughton could represent better value with a lower purchase price and a slightly higher yield than Bruntsfield. Perhaps two properties in Broughton vs 1 in Bruntsfield could be the solution?
As always, if you fancy a chat about the Edinburgh property market do not hesitate to give me a call or send me an email.