Buy to Let - Is the Borough of Merton good place to buy?

I have recently been speaking with a number of landlords about the importance of a balanced portfolio, when buying and renting out property. The balance between buying properties that offer good monthly returns or high yields but quite often offer poor capital growth (i.e they don't increase in value that much over the years compared with the average) verses properties that do go up in value quicker but often offer a  lower yield. Another consideration has to be the mix of town properties within a borough.

Choosing the right town though is very important. Location is the primary factor that drives decisions from buyers and tenants. Numerous landlords have expressed a preference for investments that are in a good location with accessible transport links. One borough that has a high demand with tenants is Merton, particularly due to the Croyden Tram Link which operates from central Croyden to Wimbledon where there is an interchange for the London Underground and the British Rail.

Data from the Land Registry said the borough of Merton property market has risen by 10.6% higher than May 2014. With an average property value of £744,000 in Wimbledon and average rents in the order of £1,300 per month, the average yield achieved in Wimbledon is a miserable 2% a year... you might as well put it in the bank! An average property in Morden is £359,200 with average rents in order of £1,250, giving you yields an average of 4% a year. You'll have to go to Mitcham to see some results. An average property value in Mitcham is £302,600 and rents on average are around £1,200. The average yield achieved in Mitcham is an impressive 4.5%!

So, does that mean you should buy a property in Mitcham as a buy to let investment? Before I can answer that, you must really consider the capital growth vs yield question. Some Wimbledon buy to let investors often make the mistake of choosing yield over capital growth and believe that by chasing high yielding properties, in say the poorer parts of the borough, they will make a faster profit than waiting for capital growth. The problem with this is that to achieve high yield you usually have to compromise on capital growth.

Therefore it would seem the most logical solution is to find a high yielding property in a strong capital growth area but, these are incredibly rare, and in actual fact, most of the time, lower yielding properties have a better capital growth. This is because there is generally a contrary relationship between yield and capital growth so the higher the yield, the lower the capital growth and the higher the capital growth, the lower the yield. Property investment in Wimbledon and the borough of Merton is about balancing the two.

If you would like to discuss about property investment in the area, be it Wimbledon or Mitcham or any other towns including the borough of Merton, you can email me at sam@masonandco.co.uk.