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Updated: 10 Jul 2019

Where can buy-to-let landlords make their money back the quickest?

Investors in some areas could wait 35 years to recoup initial costs

Landlords letting buy-to-let properties in Glasgow could recoup their initial costs in just 13.3 years, according to new data from estate agent Benham & Reeves.

In fact, rental properties in Scotland tend to pay for themselves faster than anywhere else in the UK, with the average rent covering landlords' initial outlay in an average of 17.7 years.

In Wales, where rents tend to be lower, it could take 26.4 years to break even.

The figures are based on average property prices, buy-to-let stamp duty costs and rental data from the government.

Here, we reveal why the current housing market means rental yields are more important than ever and which areas buy-to-let landlords might want to consider for their next property.

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Best and worst cities for recouping your investment

The table below shows the five cities where landlords can make their money back fastest, according to Benham & Reeves (for more information on data sources, see the end of this article).

CityAverage house priceStamp dutyAverage rent (per year)Years to recoup investment

Glasgow was the fastest by some distance due to its combination of relatively low average property prices (£129,764) and high average annual rents (£10,140).

By comparison, the table below shows the five cities where it takes the longest to get your money back.

CityAverage house priceStamp dutyAverage rent (per year)Years to recoup investment

In Oxford and Cambridge, average rents are high - at £16,824 and £14,688 respectively - but not high enough to cover the average property and stamp duty costs, which aren't far off London levels.

Plymouth and Newport have some of the lowest average rents in the UK, which goes some way to explaining why it takes so long to recoup investment costs there.

How long does it take to make your money back in London?

On average, it takes 24.3 years to recoup your investment in London, on average, but there's a lot of variation around the city.

The map below shows the average number of years it takes for landlords to recoup their costs in each London borough.

You might think that, due to property prices in London often being much higher than the rest of the UK, it would take longer to make your money back - but as rents are much higher, too, that's not necessarily the case.

If you were to invest in a buy-to-let property in Tower Hamlets, for example, you could potentially recoup your investment in just 21.4 years; in Barking and Dagenham it's 22 years.

In fact, there are eight London boroughs where you could make your money back quicker than if you were to buy a property in Wales.

However, landlords in the City of London may have to wait a whopping 35 years before paying off their initial investment with rent - that's the longest wait in the whole of the UK.

The effect of buy-to-let stamp duty

If you purchase a buy-to-let property in England, Northern Ireland or Wales, you'll have to pay 3% extra in stamp duty (unless you've never owned a property before, in which case you'll have to pay normal home mover rates). In Scotland, there's a 4% surcharge.

As stamp duty is tiered, you'll still pay different rates on different portions of the property price - but it's a significant expense to take into consideration and can mean it will take a very long time to recoup your initial outlay.

Why are rental yields so important in the current market?

While property investment has been a surefire way of making a return in the past, recent house price stagnation across the UK means your capital investment could be less likely to grow over the long term - or at least not by as much, or as quickly.

According to the latest ONS house price index data, year-on-year UK property price growth measured 1.4% in March 2019 - a far cry from the 9.4% rate of growth enjoyed by property owners in October 2014.

With capital growth so low, you'll need to think carefully about whether you'll be able to earn enough through rent to not only cover your costs, but also give you a decent income.

But it's not all bad news. For those looking to expand their portfolios, lower prices mean there could be bargains to snap up. While property prices can vary dramatically between regions, towns and even postcodes, a slow market can generally be useful for buyers.

There's also the fact that a quarter of landlords are considering selling up within the next 12 months, meaning that more buy-to-let properties may soon be on the market.

How to choose a buy-to-let property

Selecting a buy-to-let property to invest in isn't only about the location. As a starting point, here are five questions you should ask yourself:

1. What's the local property market like? Property portals such as Rightmove and Zoopla can be helpful for seeing what's happening in the local market - for example, which types of property are easiest to let and whether any particular types of property are scarce.

2. Do you want a new-build? While new-build properties theoretically mean lower maintenance bills and less work, you'll pay more initially. Think about whether you might be able to get a better deal on an existing property than on a new one.

3. Who are your ideal tenants? Families often want larger, unfurnished properties near the best schools, while younger couples might want a modern flat. If you're offering shared accommodation, the layout will need to work for this - eg, not having to walk through someone's bedroom to access the garden.

4. What's your budget? Margins on property investment can be pretty small - so you should do your projected rent calculations, make a budget and stick to it. As you won't have an onward chain you'll be in a strong negotiating position, so be prepared to haggle.

5. Are you thinking with your head or your heart? It can be easy to get attached to properties - but don't buy one at any cost. View a property several times before committing, be particularly careful at property auctions, where there's a danger of getting carried away, and always have a property survey done to check for any major structural defects.

What is this research based on?

Benham & Reeves used the following data sources to reach its conclusions:

The researchers added the average house price in each area to the amount of stamp duty a buy-to-let investor would pay. They then worked out how long it would take to recoup this cost based on the average rent for that area.

Of course, this doesn't take into account other costs you might face, such as management fees. For a full understanding of the costs involved with property investment, check out our guide to becoming a landlord.