The average buy-to-let property has returned 13% to investors over a 12-month period, according to Birmingham Midshires.
The figures, which exclude fees and mortgage interest costs, are up on the 11.9% seen for the year up to June 2006.
The research also revealed that the average price of a buy-to-let property in the UK increased by 7% over the year to June 2007, to £141,766. Actual rental yields declined slightly from 5.7% in June 2006 to 5.5% last month.
Northern Ireland has seen the strongest gains for buy-to-let investors with a total return of 35.9% to retail investors.
The surge in popularity of Northern Irish properties is largely due to a rapidly growing local economy and interest from investors in the Republic of Ireland, according to Birmingham Midshires.
The Midlands has provided lower returns than other regions of the UK with the East Midlands gaining an average of 9.6% and the West Midlands saw buy-to-let properties return 11.3%.
Tim Crawford, group economist at Birmingham Midshires, says: “The fundamentals underpinning the buy to let sector remain sound.
"While house price growth in the sector is expected to be more subdued near term, reflecting the impact of higher interest rates, the potential for further increases in rents should encourage long term investors.”
The report says that buy-to-let house price growth is likely to moderate in the near future due to rising interest rates and an easing in economic growth due to subdued real earnings growth.
Commenting on the findings, Neil Young, chief executive of property investment advisers Young Group, says: “Today’s Birmingham Midshires’ report is only broadly indicative of the market.
"The popularity of residential property investment, coupled with the recent interest rate rises, means that investors need to be more cautious than ever.
"It’s imperative that investors do their research and find value within the specific locations and developments that they invest in.
“Only buy-to-let investors who have a coherent strategy, correctly assess their exposure to risk and take a long-term view will continue to benefit from well-chosen residential property investments.”
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