Over the past two years the rental market has encountered a severe lack of supply of family houses for let. Indeed soaring house prices have made many large properties difficult to justify as rental investments in the long-term with comparatively low yields compared to, say, investing in two smaller properties with higher cumulative returns.
It is hard to believe that, at the time of posting, in Edinburgh there are only 8 houses available (excluding flats) on the open rental market at asking price £2500 or under. And a grand total of only 16 such properties available at any price (Source Citylets). This is for a population of over 500,000 people where 14% of households rent properties in the private sector (Source: Scottish Census 2022)
In line with the wider rental market, rental prices for 4 bed properties are rising and average amount time on the market is at a 15 year low (source Citylets - Note that the following data will also include 4 bed flats and HMO student properties)
Sales prices for such family homes are high, but if we look towards the fringes of the city it is possible to acquire 4 bed new build properties for around £360-400k and achieve rents £2000pm plus.
But there are pockets of the inner city where houses can be found under the ‘magic’ £400,000 level (where 6% yield is more easily achievable). Examples may be the ‘worse house in the best street’ properties or sections of post-war housing (1950-1990) sitting within areas of more in demand victorian housing.
The argument for renting to a family over the more common young professional or student demographics would be that families generally tend to stay for longer periods than the other tenant demographics. Interestingly, it was found that landlords who rented to families over other tenant groups spent around 40% less time on property management according to a 2020 survey carried out by the National Landlords Association. It’s also important to note that 4 bed properties, when not offered as HMO, are more generally rented as UNFURNISHED. A final personal observation from a seasoned landlord would be that with a single, larger property there is only one roof and one boiler to worry about.
Such are the issues of rising sales prices for family homes that the USA saw a 106% rise in Build-to-Rent (BTR) Homes Under Construction in 2022 (Source: Forbes/Fixr). This phenomenon is not specific to America and reflects a more general move towards Build-to-Rent in the West. The BTR pipeline in Edinburgh has increased to circa 4000 homes currently in development (excludes sites at the Pre-Planning stage) (Source: Scarlett Land Development)
But the supply of new rental homes is still failing to keep pace with soaring rental demand (Source Savills:Q3 BTW report).
Case Study Nov 2022: Relugas Road, Grange, Edinburgh
In the following development example, a project completed by Property Bee in November 2022, we found a property that required upgrading, situated in Grange/Blackford - one of Edinburgh’s most affluent postcodes, just over 1 mile from the city centre. The property had belonged to a heavy smoker and it also had a fairly serious damp ingress issue at ground and basement levels.
Our client was advised that altering the layout of the property was not strictly necessary and that by adding a bedroom on the basement level to create a 4th bedroom, and a general refurb upstairs (plus fixing the nicotine/damp issues), the property would deliver a generous 6% plus yield. However the client preferred to approach the project with a long term strategy to maximise the re-sale value of the property for eventual sale 10-15 years down the line, even if the yield returns were slightly less attractive. Project was undertaken on a strict budget and where satisfactory, existing features were retained.
This project required a planning and building warrant application for the structural alterations to both ground and basement level, and the addition of an en suite bathroom at ground level and new kitchen/diner plus French doors at basement level.
Financials
Total outlay in the region of £450,000 including all development costs. (Excluding LBTT and ADS taxes)
Rental expectation £2295 per month
Resulting yield 6.2%
The property went to market with Umega Lettings this week and can be viewed here .
Architect - Staran Architects by recommendation of Property Bee
Structural Engineer - Alan Lamb @www.ruddconsult.com by recommendation of Property Bee
Project Management by Property Bee
Before:
Specialist Damp Works and Project Scope
A damp specialist contractor was employed to strip out the plaster from the rear garage wall, stairwell and under stair cupboard. Faulty sills at front of property were replaced. Soak-away dug and monoblock re-laid to allow a run off into soakaway. Damaged render at foot of exiting exterior wall removed and replaced. New galley double glazed window installed to front elevation to replace rotting exiting unit.
Interior walls lined by PermaSEAL (eggshell style) damp proof membrane, fully down to ground where channel dug down to soil to allow soakaway.
Roof repaired, property re-wired, old 1960's heating system removed and insulation added to loft space. New steels installed to both ground and basement levels to allow removal of walls at ground level, and to support new french doors and full length window at basement level, to replace existing garage doors.
Partitions built to create new lounge and master bedroom with en-suite at ground level.
2 new bathrooms and kitchen installed and property redecorated and carpeted - all to client's specifications.
Completed Project
If you'd like to discus investing in family homes, or to find out more about Property Bee's Project managemennt services please get in touch.