The report by property portal Home.co.uk looks at real buy-to-let yields – the rent plus the capital appreciation of the property.
The firm reckons most other yield calculations are inaccurate, but their research is better as including the market value of the letting property gives an investor an improved picture of their returns.
The figures put Shoreditch, East London, as Britain’s best buy to let hot spot with a 36.55% real yield.
Bloomsbury is not far behind with a 36.54% real yield, followed by Bethnal Green with a 33.70% real yield.
Also in the top 10 are; Elephant & Castle, Chelsea, Bermondsey, Battersea, Hammersmith, West Brompton and Vauxhall.
All the calculations were based on investing in a two-bedroom buy to let home.
By assessing the impact of changes in capital values, the study gives a more realistic view of rental yields and the real potential of property investment, Home.co.uk explains.
In light of the findings, director Doug Shephard is urging landlords to take account for rises and falls in capital values of their rental properties, as well as the usual costs of maintaining their lets.
Mr Shephard also adds that it comes as a “big revelation” that the highest real yields are all found in London boroughs.
Despite high initial costs for investing in the capital, the accumulating capital value and reasonable gross yields mean buy to let remains an attractive market, he explains. Furthermore, Central London is a specialised sub-market where people are continuing to enjoy successful careers, which helps to maintain strong demand for properties.
However, the research also shows that there are some areas of the UK where landlords lose money simply by owning a rental property, and this happens even if they are not facing void periods. For example, the real yield in Margate is -9.8%, despite a gross rental yield of 5.1%.
