Buy To Let Hot Spot, a hot or not spot?

“Potential buy-to-let landlords should be wary of “buy-to-let hotspots.” Despite what a lot of people think, you can't just buy any old property in a so-called “hotspot” and hope to gain. In instances where high proportions of developments are being sold to investors rather than owner-occupiers, the only thing that differentiates one property to the neighbouring one is the price. In this case landlords may be forced to drop their rental level to keep up with the competition. This drop could be dangerous for amateur landlords who would be hit hard without a portfolio of properties to cushion them against periods without rent or interest rate fluctuations.

Potential investors should however, be careful not to rule out the surrounding areas of “up-and-coming hotspots.” Here properties may be less costly and tenant demand may be transferred as those looking to rent are priced out of the localised market. Often it is better to look beyond the hype of “hotspots” and consider purchasing a property as close to home as possible. The ability to be a “hands-on” landlord makes it much easier to deal with problems and can save you money normally spent on letting agents.

From an investment perspective, a hotspot is one that gives both high rental yields and high capital growth. As regional markets evolve, rental values tend to drop as competition for tenants grows but net capital growth may still be high. The majority of areas follow a cyclical pattern so that over time, both rental yields and capital growth tend to drop as a local market cools. The notion of “hotspots” is a fluid one and without having tenant demand and high rental yields, landlords are left vulnerable as they become heavily reliant either on capital appreciation or a strong rental market in the area.”

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