How to appraise property investment opportunities

Brett Alegre-Wood
December 18, 2016

10 points to research before investing in property

When you’re assessing property investment opportunities, perhaps the last thing you want to do is invest in the hotspots that are making headline news in the national press. For a start, property investors should never believe all they read in the newspaper. On top of this, you can bet your bottom dollar that by the time a hotspot has caught the attention of the media, the best growth has been and gone.

Invest in a location that has been trumpeted by the press, and you could be missing a real growth property elsewhere.

Our property research strategy includes a 108-data point analysis across 324 areas in the UK. From this analysis, we’re able to rank every location we put under the microscope. We call this our ‘Hotspots Algorithm’, and this helps our clients to identify the best places to invest in property UK.

In this article, you’ll learn about the broad areas that we research using our Hotspots Algorithm and the property-specific questions you should address before investing.

The property fundamentals

When we talk about the property fundamentals of residential property investment opportunities, we’re talking about location. Pretty much everyone has heard of the edict ‘location, location, location’. You might be surprised how few investors fully understand what the rule means.

By identifying and assessing a location’s property fundamentals, you’ll be able to assess that location’s potential for property investment returns. Don’t make the mistake of thinking that the definition of location is broad. While a certain town might be considered a property hotspot, within that town there will be good suburbs and bad suburbs. Within those suburbs, there will be good streets and bad streets.

The best place to buy property is always determined by its property fundamentals: shops, schools, transport links, major employers, and major investment.

How does the location measure up on the property fundamentals?

While the presence of one of the property fundamentals might be good enough to encourage buyers to step into the market (think schools and catchment area, for example), the more fundamentals that are present – and the stronger they are – the better.

For example, (and sticking with the theme of schools), consider two suburbs that are identical in all aspects, except that one is in the catchment area of schools that are rated as ‘outstanding’ by Ofsted, and the schools in the other suburb are all rated as ‘poor’. Property values in the former are likely to be higher than in the latter.

When appraising a location, you’ll need to consider all its property fundamentals, their depth and relative strengths. In addition to schools, consider locations:

  • That are conveniently located for access to retail. People want to live near to food stores, bars, restaurants, and other leisure facilities.
  • Where Millennials and young professionals are increasingly likely to rent and buy homes near major transport hubs. They work hard, and so want ease of travel. We’re also seeing a demographic change, where baby boomer retirees are moving from an outer suburb or rural homes and downsizing to easier-to-manage properties near their children… who happen to be the millennials.
  • In which big companies and major employers provide jobs and potential for economic growth. Such companies will have done their research too, before investing in a location. They’ll want to know that the area can support their growth ambitions. When a major employer moves into an area, it can aid local economic growth and positively impact property values.
  • In which local authorities and central government are investing in infrastructure development (road, rail, hospitals, schools, etc.).
  • Where developers are helping to regenerate ‘tired’ and ‘dated’ streets, suburbs, and brownfield areas.

Be wary of investing in a location whose economy depends on a single major employer or industry. If the employer closes down, a location that was once a hotspot could be devastated for years or even decades. You only need to look at what happened in the coal mining towns of Yorkshire after their pits were closed in the 1980s, or how Detroit has been decimated by the closing of so many car manufacturers after the Global Financial Crisis to realise the folly of investing in such a location.

Consider the local economy and property trend cycle

Having mentioned employers and jobs, ensure that you consider all aspects of the local economy. A strong economy will be the foundation of growth in property values; if the number of jobs is increasing and wages are rising, then property values are likely to move in the same direction.

There will be property investment opportunities at every stage of the economic and property trend cycle, though you will need to evolve your strategy to take advantage of them. Buying at the bottom of a cycle could produce the best potential for capital gain, but always remember to invest with property fundamentals.

What about the property itself?

Okay, now that you’ve identified the best place to invest to meet your financial goals, you’ll need to invest in the best property you can – and the one that is going to be in most demand. When buying an investment property in your chosen location, consider the following questions:

Is your goal to make a capital gain, or constant and consistent rental income?

Rental income helps to pay for a property investment (see my video on cash flow projection), while high-speed capital gains will help you build a portfolio more quickly. When your property is rising in value, you can unlock that value by releasing equity and taking advantage of the benefits of leveraging. So, the type of property you buy will depend upon your long-term strategic goals.

What is the property really worth?

You’ll need to assess the property’s value to see if the price requested offers value. Look at similar properties close by, and search the land registry for sale price history. Get an independent valuation, too. You may be able to negotiate on the price, and every pound reduction on the asking price will enhance your profitability and/or rental yield.

What’s the likely rent?

Don’t take an agent’s word for the rental potential of an investment property. Look online, in the local press, and call letting agents to discover the real rental value of a property investment opportunity. When you speak to letting agents, make sure that they have similar properties on their books. Speak to them twice: once as a potential landlord, and once as a potential tenant. You’ll find you will probably receive two rental figures: a higher one as a landlord, and a lower one as a tenant. The real rental potential lies somewhere between these extremes.

How much work will it be to own an investment?

I don’t know about you, but the last thing I want to be is a full-time landlord. So one of the things that I want to know is how much work my investment property will be. Off-plan and new build property are likely to require the least maintenance and using a property manager slashes the day-to-day job of being a buy-to-let landlord.

I invest in property because it provides the lifestyle I want – that lifestyle doesn’t include a heap of work fielding tenant calls, dealing with tradespeople, and chasing up rental payments.

What to do now

Property investment has the potential to change your life, but you need to ensure that you’re investing for the right reasons and in the right location. Book a meeting with one of our property consultants on  +44 (0)207 923 6100, and we’ll help you devise a strategy, discover the best investment locations, and buy the best property in those locations.

Live with passion

Brett Alegre-Wood

 


Tags

Beginner Property Investor, Being a Property Investor, Best Places to Invest, Investmment Opportunities, Lifetime Opportunity, Property Investment Opportunities, Property Investment Opportunity, Property Investors, Property Opportunity


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