Investors looking to buy a rental property in Sunderland
are often attracted to the SR4 postcode, which includes Millfield, Pallion,
Barnes/High Barnes, St Gabriels, Grindon and South Hylton. They’re attracted by
the diverse range of affordable housing and the proximity to the City Centre,
University and the Sunderland Royal Hospital on Chester Road
The obvious choice would be to buy close to the hospital
in Millfield, Pallion and Barnes, which are established rental areas and may in-fact
deliver a decent return but in doing so investors may face stiff competition
due to the large number of existing rental properties and be missing out on
better investments elsewhere
The SR4 postcode contains approx. 22% of properties that are
privately rented (a higher proportion than in the SR3, SR5 and SR6 postcodes
but a smaller proportion than in SR1 or SR2) with the majority of properties within
SR4 being terraced (55%) or semi-detached (34%) with only a relatively small
number of detached houses (7%) or flats (4%)
The most expensive SR4 properties tend to be in the West
Hill, Offerton and West Mount areas, the most expensive recent sale being a 3
bedroom detached property in Barnes View in January 2014 at £370,000. At the
other extreme SR4 does contain large numbers of inexpensive properties, the
cheapest recent sale being a 1 bedroom flat in Chester Mews at £29,000 in March
2014 & the cheapest 2 bedroom house being in Neville Street, Pallion at
£35,000
Prices in SR4 are typically lower than in Sunderland as a
whole, there were 419 sales last year in SR4 with the average sale price being
£103,466 compared to £125,555 for Sunderland. Prices are rising, albeit slowly –
sale prices in SR4 are 3.8% higher than a year ago, 7.05% higher than 3 years
ago and 12.18% higher than in 2009
There are currently 183 properties to rent in SR4,
representing 25% of the total number of properties available to rent in
Sunderland, with an average rent £475pcm
So where should you buy and what should you buy?
Covering the obvious choices first (Millfield & Pallion)
it is possible to pick up a bargain 2 or 3 bedroom terraced ‘cottage’ but
competition for tenants is fierce due to the large numbers of comparable
properties. In addition to this, the typical cottage can be prone to damp
problems and the layout with the single bathroom at the rear of the ground
floor is both not to everyone’s tastes and does risk problems with
condensation
As an aside, for anyone interested in the history of the unique
Sunderland ‘Miners Cottage’ – click below
Expect to pay upwards of £50,000 for a 2 bedroom cottage
in Pallion or from £60,000 for Millfield. At that price they may still need
work and additional spend on updating the kitchens and bathrooms (however in
doing so you will build in some capital growth from the outset), with rents in
the region of £400 - £450pcm for Pallion and £450 - £495 for Millfield
Staying close to the hospital an alternative strategy may
be to look at larger 3 or 4 bedroom properties in the likes of Sydenham
Terrace, Cleveland Road, Chatsworth Street & Jackson Street
Investors will need to pay more, but rents are also
significantly higher – we manage a number of such properties, typically rented
to professional families or occasionally groups of young sharers, with rents
around £595pcm. Crucially because such properties are not so common (and there
is generally a shortage of decent 3 and 4 bedroom houses to rent in Sunderland)
tenant demand is consistently strong
A typical 4 bedroom terrace in Chatsworth Street will
cost around £125,000 at current market values (the most recent sales in 2013
and 2014 being one sold for £122,000 and two at £125,000) however we do know of
one investor who snapped up a bargain (in need of work) at auction for only
£80,000 (click below for details)
Even building in a generous £15k for improvements & redecoration,
that would still deliver a healthy 7.5% Gross Yield based on £595pcm
Some local landlords prefer to rent ‘nice’ houses in ‘nice
areas’ (that they would be happy to live in) and for that type of investor High
Barnes is an area for consideration – we recently did some research for such an
investor who asked me whether there was a big difference between Barnes and
High Barnes, given they’re right next to each other and both are likely to be
popular with tenants, being close to Sunderland Royal Hospital
Last year the average price of a 2 bed terrace in Barnes
was £92,799 whilst the average sale price for a similar property in High Barnes
was £104,468. Generally rents are a little higher in High Barnes, averaging
£550pcm for a 2 bed terrace rather than £475pcm for a similar property in
Barnes. This equates to a gross yield of 6.3% for High Barnes compared to 6.1%
for Barnes
Whilst the gross yields are quite similar, this is not
the only consideration when Buying to Let and it would be worth also
considering the potential for capital growth, which are again broadly similar -
in High Barnes the average price at the 2008 peak being £141,070 compared to
£128,621 for Barnes so it really does come down to personal preference
We consistently
advise that investors look for 3 bedroom properties – due to the scarcity of
supply previously mentioned and also because they attract longer term tenants
(it’s not rocket science but the extra bedroom means families are far less likely
to outgrow a 3 bedroom property than they would a 2 bedroom)
With the typical
‘cottage’ being a 2 bed layout (3 and 4 bedroom versions will have had a dormer
roof conversion) SR4 offers a range of semi-detached 3 bedroom houses both
modern, such as the popular Havelock Park development or older ex-council
properties in Ford Estate - the two areas being less than a mile apart
The average rent
for a 3 bed semi on Halesworth Drive, Havelock Park is £575pcm (and we
know that such properties will be popular as we manage several on this
estate) and with an average sale price of £105,000 this would return a gross
yield of 6.5%, we've certainly seen a lot worse return for relatively modern
properties
The average rent
for a 3 bed ex council semi on Falkand Road, Ford Estate is £525pcm, which
based on an average sale price of £85,000 delivers a far healthier Gross Yield
of 7.4%
Comparing
capital growth potential, interestingly prices in both Havelock Park and Ford
Estate are up around 12% on the peak in 2007/8
Finally one of the areas we regularly tip as containing good
long term investments in Sunderland is Grindon. The location is good being very
close to the A19 and the 2 or 3 bedroom ex-council properties are both popular
with tenants and are available at prices that offer good returns
By way of example, the cheapest 3 bedroom property sold within the last 12 months in Grindon was this ‘needs work’ semi in Galashiels Road priced at
£53,500
Whilst it may be possible to achieve a little more rent, we would tend
to advise a realistic rent of around £495pcm (keeping under the magic £500 barrier) which based on the above plus a
further £15k for improvements would still deliver a cracking 8.6% Gross Yield
The above example proves there’s clearly good investments to
be had in the SR4 postcode but as always we recommend taking expert impartial
advice before making any purchase
Please call on 0191 567 8577 or email
neil.whitfield@belvoirlettings.com for objective & impartial advice on all
aspects of property investment in Sunderland
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