How tube links can boost, or break, buy-to-let returns in London

Royston Wild discusses some of the most lucrative places for buy-to-let investors in London and asks whether there are better investment options.

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If you’re looking to invest in buy-to-let in or around London, then latest research from Benham & Reeves could help you gain a serious advantage.

The estate agency analysed the hundreds of London Underground stations across the network and the average rents of buy-to-let properties in close vicinity to these stops. What the data showed was that the monthly rent for properties close to one of the capital’s 11 tube lines (and the Docklands Light Railway) was 34% higher than the London average. Properties located close to stations on the Circle Line commanded the highest average rents.

Underground Line

Average Rent

Circle

£2,848

Waterloo & City

£2,782

District

£2,221

Victoria

£2,219

Bakerloo

£2,177

Hammersmith & City

£2,131

Northern

£2,109

Jubilee

£2,061

Piccadilly

£1,964

Central

£1,902

Docklands Light Railway

£1,788

Metropolitan

£1,698

Commenting on the data, director of Benham & Reeves Marc von Grundherr, said: “Most of the time, home sellers and landlords will assume a property price premium simply due to the close proximity of an underground station. However, where buyer and tenant are concerned, there is certainly a preference when it comes to which station [and] line and some are willing to pay way over the odds for the convenience.”

Pulling out the stops

It shouldn’t come as much of a surprise that properties close to stations in the most affluent areas of Central and West London tend to command the largest monthly rents, as the table below shows:

Underground Station

Average Rent

Gloucester Road

£4,207

South Kensington

£4,207

St John’s Wood

£4,129

Knightsbridge

£3,843

High Street Kensington

£3,518

Hyde Park Corner

£3,432

Sloane Square

£3,432

Victoria

£3,432

St James’s Park

£3,432

Pimlico

£3,432

At the other end of the scale, homesteads located near tube stops on the outskirts the capital, or outside altogether, tend to generate smaller rents:

Underground Station

Average Rent

Watford

£1,079

Hornchurch

£1,200

Elm Park

£1,200

Upminster Bridge

£1,200

Northolt

£1,231

Hounslow Central

£1,235

Hounslow West

£1,235

Hounslow East

£1,235

Croxley

£1,239

Chorleywood

£1,239

Better places to invest

Despite some of the monster rents the data shows though, London is anything but the land of milk and honey for many landlords. Recent evidence actually shows there’s been an exodus of buy-to-let investors in the capital because of high property values and increased stamp duty costs compared with elsewhere.

So is the answer to take that investment cash and buy rental property outside London? Absolutely not, in my opinion. Relentless tax changes and regulation tightening in recent times are decimating landlord returns and making the business of buy-to-let ever-more problematic. What’s more, the problem’s likely to keep going and going as the government tries to free homes up for first-time buyers by penalising those in the rental sector.

A much better way to get rich from property would be to buy into the homebuilders, in my opinion. Taylor Wimpey was the most recent of these construction specialists to remind the market just how strong the homes market is last week. Some of the possible returns from the housing sector are nothing short of staggering.

This is a share that offers a forward dividend yield of around 10% but it’s not the only one. Bovis Homes Group, Crest Nicholson and Persimmon also offer yields around this level, trumping the British blue-chip average which sits around 4.5%. And such companies are also dirt-cheap, all of which mentioned above trading on forward P/E ratios of 10 times or below.

So why take a chance on buy-to-let when such lucrative returns can be found elsewhere? I own shares in the homebuilders and plan to hold them forever. My advice? Come join the party and create some giant returns.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild owns shares of Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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