Landlords are attracted to the promise of a ‘passive income’ from a cheap cash purchase in an area with few housing options.
But consultant David Lawrenson of LettingFocus said there are pitfalls landlords must be aware of.
“There is always a reason why the property is so cheap and gross yields high. It is usually because the area has few prospects for economic growth and consequently little chance of capital and rental appreciation,” said Lawrenson.
Jobs in depressed areas are scarce and poorly-paid forcing skilled workers to move out of the area to find employment leaving a glut of empty housing and a lack of tenants to fill them.
A property management company is usually needed because the location of the house is unlikely to be in the landlord’s hometown while maintenance costs are only slightly lower than they are in affluent areas.
“Unit costs of tradesmen might be a bit lower,” said Lawrenson. “But a boiler or a new roof will cost much the same whether you are in Chesterfield or Chelsea.
“I have seen gross yields at 8 or 10% in such towns but once you factor in the maintenance and inevitable long voids, net yields are often less than 4%.”
He added: “If you are a new landlord starting out then you should be very wary of buying for income in depressed areas. Avoid them unless you are comfortable banking on some real regeneration and improvements coming along to turn things around.”
