A new report looking at the areas of the UK where buy to let landlords can expect to see the highest rental yields has shown key hotspots to be in densely populated urban and suburban areas of Birmingham (Nechells: 10.6%), Kent (New Romney, Greatstone-on-Sea, Littlestone-on-Sea: 10.5%) and Merseyside (Broadgreen, Dovecot, Knotty Ash, Page Moss: 9.6%). The areas tend to be where you need to make a relatively low capital investment in the property, but where demand for housing is high.
This does not of course mean that all landlords should rush out to buy in these areas. It is unlikely that these low capital investment properties will register as much capital growth over time as properties in areas where it is more desirable to purchase a property as owner-occupier. So if you are after capital growth rather than high net rental yield, you should stick to the more consistently desirable areas such as Greater London.
You also must remember that if you live far away from the hotspot areas, it may be harder to market the property if you do not know who your target tenants are. And, from a practical point of view, it will be more difficult to manage it; you may incur extra costs by having to use a property manager. Also, as the properties will tend to be cheaper and less desirable, they may be more attractive to tenants on Housing Benefit and so you must be comfortable with a potentially less financially secure tenant, especially with the introduction of the Benefit Cap and Universal Credit, whereby you will not be able to receive the rent directly from the council.
Of course, if you are happy with all of this then these findings will be of great interest. After all, fundamentally demand is high in these areas so you should be able to find the tenants. All we suggest is that you consider the full implications of any purchase before proceeding.