How Many Bedrooms Is Best for Rental Yield 2023 – BTL

A data-driven approach to rental yields filtered by the number of bedrooms in a property.

That’s what we’re looking at today.

Here’s the quick and dirty answer you’re looking for.

It surprised us…

💡 1 bedroom properties are king, followed by 2 bedroom properties, then 3 then 4. But this doesn’t apply everywhere.

Rental Yield In The UK By Number of Bedrooms

Should you get a 1-bedroom, a 2-bedroom, or a 3-bedroom property as your first buy-to-let investment?

Well rather than checking what other people have to say.

We thought we’d use a data-driven approach to see what comes out ahead when it comes to rental yield in 2023.

For this, we’ve used 14 different major UK cities and used data from home.co.uk.

All of the data is a snapshot of the current market on 16th August 2023, so the figures could change. 

For each city, we’ve looked at the median market rent and the median house price for 1-4 bedroom properties. These are based on asking prices and not sold prices. 

The reason we used the median prices is to reduce the effect of the data being skewed by really expensive luxury properties or really cheap run-down properties.

For each city, we’ve worked out the rental yield for 1-bedroom through to 4-bedroom properties to see what type of property performs the best for buy-to-let investors in the UK. 

We were surprised by the results…

First, let’s give you a quick reminder of what rental yield is.

Rental yield is worked out by taking the annual rent achieved and dividing it by the property price.

It’s used as a measure to compare rental returns between different properties. 

This way of working it out will give you gross yield, but not the net rental yield. For net rental yield, you will want to factor in all other costs like mortgage costs and maintenance.

What Number of Bedrooms Has The Highest Rental Yield?

Based on the study that we carried out, the average gross rental yield was highest for 1-bedroom properties with an average gross rental yield of 7.86% across the 14 cities.

Out of the 14 cities we looked at…

• 1 bedroom properties had the highest rental yield for 9 of the cities (64% of the cities we looked at)

• 2 bedroom properties had the highest rental yield for only 3 of the cities (21% of the cities we looked at)

• 3 bedroom properties had the highest rental yield for only 1 city (7% of the cities we looked at)

• 4 bedroom properties had the highest rental yield for only 1 city (7% of the cities we looked at)

This data surprised us as we often see 2 or 3-bedroom properties being touted as the best for rental yields. 

The other surprise was how high the rental yields were, but this may be partly to do with the way home.co.uk collect data.

Table of Results

Here’s the full table of results for the gross rental yields for each city that we looked at.

Remember that this data is based on a snapshot of data from 16th August 2023 using median asking prices and median market rents for properties with different numbers of bedrooms. The source data is from home.co.uk.

Drawbacks To This Study

Ok, so the results show that 1 bedroom properties are best for most of these cities and 2 bedrooms are second best.

But there are some drawbacks to this study.

• Wide area of properties
• Not specific to certain parts of the market
• Hidden costs
• Snapshot data

Wide Area of Properties

Within cities, there can be a lot of variance between one area to another when it comes to rental yields. moving a few streets can make a massive difference.

Because of this, it’s important to look specifically at the areas you are interested in before writing it the whole city off as an investment.

Not Specific to Certain Parts of The Market

The other thing to consider is that we are just using median rents and median asking prices, but these averages might not always be a good representation of the type of housing stock you would invest in. 

For example, London has a lot of luxury rentals in the city centre that can skew the data for both market rents and asking prices. 

But if you’re only interested in looking at lower to mid-market properties then your yield figures will be different.

Remember to always check specifically for the types of properties you are looking for. 

Hidden Costs

While this study can show that in general, 1-2 bedroom properties have higher rental yield it won’t take into account other factors. 

For example, 1-2 bedroom properties are more likely to be flats/apartments that have a service charge which would reduce your net rental yield.

The same goes for ground rent as 1-2 bedroom flats will be leasehold so this can end up affecting your net yield too.

Snapshot Data

The rental market and the price of houses change over time so using a snapshot today may not be the best way of finding accurate data.

For example, the rental yield data in 10 year later in the same places will most likely be quite different.

For this reason, it’s good to try and look at rental yields over time to get a good gauge of whether a place is worth investing in.

How To Check Rental Yield Yourself Accurately

So how do you get better data for rental yields?

Well, you have to get specific to your situation.

First, find out your budget.

Then you know what kind of purchase price you can achieve.

Now decide if you’re willing to invest anywhere or only in a specific area.

If in a specific area, look at properties in your purchase price range.

Now look at the rents for similar properties on the same road or within 1/2 a mile.

Now work out the potential rental yield for this deal and you will know what kind of rental yields you are specifically looking at.

To help you work out the rental yield you can use this simple rental yield calculator.

Further Reading

Remember that if you’re stuck on working out rental yield you can use this free rental yield calculator.

Rental yield isn’t the only thing you should look for by the way.

Making sure you get a below-market value property deal and knowing how to compare rental demand in different areas is also extremely important.

If you’re still not sure what kind of properties you want to invest in then you should learn which buy to let properties have the most rental demand. After all, you don’t want to have a really high yield but no tenants are showing up to rent your place!

To finish, here’s a helpful video if you’re still a bit unsure about what rental yield is.