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November 6, 2007    

Buy-to-let favorites need up-to-date research

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by Gill Montia

Buy-to-let investors are predominantly opting to purchase flats and terraced houses.

According to research from Paragon Mortgages, flats make up 46% of the average landlord’s portfolio; terraced houses account for 34% and semi-detached homes make up 13%.

Detached properties are the least popular and make up just 6% of the average portfolio.

Paragon’s buy-to-let index shows that terraced houses are often cheaper to purchase than flats and maisonettes and are therefore the highest yielding property type, achieving average yields of 6.4%.

This type of property is popular with students and immigrants who want to share a house, thereby giving landlords the opportunity to receive rent from several tenants in one property.

However, if the property is large it may need to be registered under the Houses in Multiple Occupation requirements, and this will involve some cost.

According to John Heron, managing director of Paragon Mortgages, it is essential that landlords research the level and type of tenant demand in a particular area before purchasing an investment property.

Good returns are dependant upon an understanding of both the specific market that a landlord plans to operate in and the type of tenant he or she may want to attract.

For example, flats make up a large proportion of the average buy-to-let portfolio because they have traditionally been a popular investment option.

Landlords who purchased flats some time ago are able to achieve a yield that is much higher than if they bought now and current rental yields are slightly below the average achieved on other property types.

In addition, some landlords investing in new flats have become the victims of unscrupulous sales practices and have purchased overpriced properties that are difficult to let.

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