Local buy and hold landlords
Is a cheap property actually a good investment?
Local buy and hold landlords
A cheap property can be a good investment, but only if the price is low compared with what similar homes actually sell and rent for, and the numbers still work after works, finance and running costs. A low price on its own tells you very little. High gross yields on cheap homes can hide repair bills, longer voids, lender restrictions and lease problems. Judge the deal on the full cost and the cash flow, not on the asking price or the advertised yield.
A property is cheap when the price is low. It is good value when the price is low compared with what it is worth and what it will earn, after everything it will cost you. The two can be very different.
Prices are usually low for a reason. It might be the area, the condition, the construction, the tenure or the demand from tenants and future buyers. Your job is to find the reason and price it in. For more context on choosing where to buy, see our guide for local landlords.
Sellers, agents and deal sourcers often describe a property as "below market value" or "worth £X". Treat that as a claim until you have checked it.
Look at what similar homes have actually sold for, not what they are listed at. In England and Wales, HM Land Registry publishes price paid data for registered sales. Compare homes of the same type, size and condition, on the same or nearby streets, sold recently. A house in poor condition should be compared with other houses that needed work, not with renovated ones.
Check the rent you can realistically achieve. Look at similar homes let nearby, and ask local letting agents what they have let rather than what is advertised. ONS publishes official private rent figures by area, which help you sense-check trends, but they are averages, not a valuation of a particular property.
If you need a mortgage, the lender will instruct its own valuation. If it comes in below the price you agreed, you may need to find the difference in cash or renegotiate. A low valuation is useful evidence that the "discount" may not be real.
Cheap homes often need work. Get a survey suitable for the age and condition of the property, and get quotes before you commit, not after.
Add a contingency for things you cannot see. If the works are substantial, our guide to the full cost of a buy, refurbish and rent project sets out what to include.
Many cheaper flats, and some houses, are leasehold. GOV.UK explains that a leasehold property is owned only for a fixed period, and ownership returns to the landlord when the lease ends.
Check:
The Leasehold and Freehold Reform Act 2024 changes parts of the leasehold system in England and Wales, but not all of its provisions were in force when we checked. Ask a conveyancer how the current rules affect the lease you are buying.
Even a cheap property needs to be mortgageable if you plan to borrow, and later if your buyer will.
Criteria differ between lenders and change often. Speak to an FCA-authorised mortgage broker before you offer, not after.
The rent may be lower on a cheaper home, but many costs are not. Insurance, safety checks, management and repairs can take a larger share of a small rent.
Our guide to calculating rental cash flow shows how to build these into a monthly figure.
Illustrative example. These figures are invented to show the method. They are not typical prices, rents or returns for any area.
Assumptions (both properties)
Property A: the "cheap" house
Property B: the mid-priced house
| Measure | Property A | Property B |
|---|---|---|
| Gross rent per year | £7,800 | £11,400 |
| Gross yield | 10.4% | 7.6% |
| Rent received after voids | £7,176 | £10,944 |
| Management | £861 | £1,313 |
| Maintenance | £1,200 | £600 |
| Insurance | £360 | £300 |
| Safety checks and sundries | £200 | £200 |
| Mortgage interest | £3,094 | £6,188 |
| Cash flow before tax (year) | £1,461 | £2,343 |
| Cash flow before tax (month) | about £122 | about £195 |
| Deposit | £18,750 | £37,500 |
| SDLT (higher rates) | £3,750 | £8,000 |
| Legal, survey and works | £14,000 | £3,000 |
| Total cash in | £36,500 | £48,500 |
| Cash flow ÷ total cash in | 4.0% | 4.8% |
What this shows
This does not mean cheaper homes are always worse. It means the advertised yield and discount are not enough to judge either deal.
The PROXERA deal analyser lets you review the full cost before you offer. In Buy-to-Let mode, enter the purchase price and, separately, the market value your comparable evidence supports, not the advertised "worth" figure. Add legal, survey and works costs, voids, management, insurance, maintenance and any ground rent or service charge to see cash flow, net yield and the total cash you need. For a larger refurbishment, the BRRR mode shows the cash left in after refinancing.
Free online tool. Buy-to-let, HMO, BRRR, short-term let and rent-to-rent modes.
In England and Northern Ireland, the higher rates for additional homes do not apply if the property is worth less than £40,000. Above that, the higher rates usually apply if you already own a home. Scotland (LBTT and ADS) and Wales (LTT) have their own rules.
Possibly not. Many lenders set a minimum property value. When we checked, The Mortgage Works set £65,000 (£100,000 for an HMO) and Virgin Money set £50,000 up to 75% loan-to-value. Criteria change, so check with an FCA-authorised mortgage broker before you offer.
Only if recent sold prices for comparable homes support it. An asking price, a seller's estimate or a sourcer's 'worth' figure is a claim, not evidence. A lender's valuation is a further check.
There is no single figure. Gross yield ignores voids, repairs, management and finance, which are often higher on cheaper homes. Compare cash flow and total cash in instead.
Information, not advice. This article is general information. It is not a personal recommendation and does not constitute financial, investment, mortgage, tax or legal advice.
