Choosing the best investment location isn’t always straightforward for property investors, with several different factors to think about, but it’s certainly worth knowing the hotspots.

Depending on your investment strategy, you might be tempted to hone in on the location that promises the best rental yields, in order to bring in an ongoing income (and often to pay off the mortgage). If you’re looking at growing a portfolio, on the other hand, opting for an area with strong house price growth prospects is more likely to help you achieve your goals.

According to many Property investment experts, including Marc von Grundherr of Benham and Reeves, ideally Property Investors should be keeping both of these aspects in mind when selecting an investment.

He puts it in a nutshell: “Your rental income is what pays the day to day costs of your investment and the vast majority of landlords opt for an interest only mortgage payment as they see capital growth as the real nest egg of buy-to-let investing.

“So if your desire is to generate income immediately, you should lean towards higher yields, but if you have a longer term investment view, capital growth is the key when investing.”

Where can property investors find both?

First of all, while many property Investors will use a combination of independent advice, crunching the numbers and looking at things such as the future regeneration prospects of an area, others may not have this choice. For example, accidental landlords may simply be letting out a house due to circumstantial reasons, such as an inheritance.

At the same time, it is important to consider your target tenant type, as well as your ideal property type. If you’re looking for the potentially high yields that can come from HMOs or student lets, you’ll need to focus on areas where there is a strong demand for this, close to educational institutions or large employers.

While London has historically been an investment hotspot in terms of capital growth and tenant demand, the market has slowed there considerably. According to Land Registry data, property investors who bought in the capital eight years ago will, on average, have seen no capital growth at all, or very little.

On the other hand, if you’d invested in Manchester eight years ago, your investment’s value would have increased, on average, by 65%. The north west city has seen the greatest level of property price growth in the UK over recent years, and remains ahead of most other cities when it comes to capital appreciation.

Focus on Manchester

One of the reasons this growth is expected to be sustained is due to the ongoing high level of regeneration and redevelopment taking place in and around the city. In Deloitte’s crane surveys from recent years, Manchester was reported to be one of the most active cities in the country in terms of new development.

While some parts of the country are reporting difficulties facing the construction sector, Manchester continues to thrive, and building activity is holding up thanks to the “resilience and ingenuity of the talent pool within Manchester’s construction sector”.

This is hugely important, as it keeps the spotlight on Manchester for property investors looking for locations that are still on the up. These are the places that will continue to see house price growth over the coming years, allowing property investors to be confident in future returns, while also keeping yields strong due to high tenant demand.

In terms of yields, Manchester was recently named the third-highest yielding location in the UK, with average gross rental yields for property investors of 11.6%. The top-yielding city was Leeds with 12.8%, followed by Bradford with 11.8%.

Look at transport, regeneration and tenant types

James Needham, director of Alesco, reiterates the need for property investors to keep an eye on locations that tick the above boxes.

“Focus on areas experiencing regeneration, particularly transport improvements,” he said. “Tenants are always looking for the best spots with easy commutes.

“Greater Manchester and greater Liverpool are locations we feel are set for further house price growth in the immediate future. We focus on anything that can get a potential tenant into a city centre within 20 minutes.

“The best locations usually have great transport connections, whether train, roads or buses, allowing for easy commutes. One trick is to follow the estate agents. If they are opening branches it bodes well for the future.

“Bearing in mind that most tenants are your working professionals, this is the number one consideration when they choose a property. Make sure your investment is aligned with this.”

If you’re looking for your next property investment opportunity in Manchester, or one of the UK’s other leading cities, get in touch with BuyAssociation today.