Why location equals property investment profit

Why property investors ignore geography and select location

There’s one rule in property investment that everyone has heard: investment return depends on ‘location, location, location’. It’s such an important concept that there has even been a property investment television series named after it.

For above-average capital gains and lifestyle-changing rental income, ‘location, location, location’ is the x-factor in your property investment strategy. It’s what determines the best places to invest in property UK. That’s why helping you to understand the role of location is a big part of our investment education programmes.

Unfortunately, it’s my experience that a lot of property investors don’t fully understand what ‘location, location, location’ really means. Consequently, they invest in the wrong place and the wrong developments. If they’re lucky, they come out with a profit – but that profit is never as significant as it could have been.

In this investment education article, I’m going to look at what the edict means and one of the biggest mistakes made by uneducated property investors. Stick to the former and avoid the latter, and you’ll make above-average capital gains and maximise your profit from rental income.

Location equals property investment profit

There’s no doubt that when you invest in a property, the location is the absolute key to your potential profit. It determines the amount of any possible capital gain. Property in the right location will merit a higher rent than a same property in the wrong location.

Consider a town with a 60-minute commute into London, as against a town with a 30-minute commute into London. In the country’s capital city, there are more job opportunities, a vibrant economy, great retail and entertainment, and so on, than in the two provincial towns. I think you’d agree that the closer you live to the buzz of London, the higher property values will be. Rents will be higher, too.

Now consider that a plan has been announced to provide a new fast-speed train service between London and the town that was a 60-minute journey away. Travel times are going to reduce in half. What do you think will happen to property values in the town that has been magically transported closer to London?

What is location in property investment?

The above example highlights the secret that investment education teaches us about property investment: location is not about geography. When uncovering the best property investment opportunities, remember that ‘location, location, location’ means a whole lot more than simply location!

We call the factors that affect the potential of an investment property its ‘property fundamentals’. The more of these that are positive, the better the potential for the property investor. When you invest in the right location, you’ll be buying a property that has the potential to be in high demand where buyers and tenants want to live.

Profit from property investment boils down to a question of supply and demand. There are plenty of things that can affect demand, and mostly these break down to economic potential. In an area that benefits from growth, new business and development, demand for places to live is likely to be strong. That demand will support property values and rental prices.

Don’t make this common property investment mistake

It’s location that affects demand for property, and not the property itself. While a sparkling property will sell for a higher price (or provide a better monthly income) than a run-down property next door, unless the property is in the right location, it will never achieve the potential you believe it should.

I’ve seen so many property investors that have forgotten this that I’ve lost count. They buy an amazing property (three-bedroom, brand new, all mod cons, energy efficient – the list goes on), but neglect to do their property investment research. They’ve paged through the local press, spent hours looking in the windows of estate agents, and decided that the £300,000 price tag is a snip. They’re certain they’ll be able to rent out for at least £1,200 per month. After all, the house sits in a leafy suburb on the edge of town: the ideal location. Plus, they’ve seen that three-bedroom flats in the centre of town are renting for £1,000. Compared to these, their investment property is a palace.

The thing is, the property investor hasn’t heeded what location really means. Near to those flats, the streets are lined with restaurants, bars, and shops. There are a couple of gyms, and a new coffee shop is opening on the corner of the high street. It turns out that it’s a Starbucks. There’s also a railway station within a ten-minute walk. The flats have off-road parking and are fully serviced.

In contrast, the investor’s property is a 15-minute drive to the station. Then there’s the car park to pay for, and the drive home through the rush hour traffic at the end of a long day. If the tenants want a night out, then there will be no alcohol involved, or expensive taxis into town and back home.

Look for long-term growth potential

Your investment property’s location needs to be able to support growth for the long term. In our property investment blog, you’ll find plenty of discussion about the factors that affect your choice of location. These factors include the following property fundamentals:

  • Shops
  • Schools
  • Transport links
  • Major employers
  • Major investment

Our research analyses 108 data points across 324 areas in the UK (this is our Hotspots Algorithm). We rank these by investment potential, continually update them, and collate all our gathered information into an easy-to-read property investment guide for each researched area.

Look for signs of future growth

When big businesses or national retailers move into an area, they do so because their research tells them that there is growth on its way. Regeneration – backed by public and/or private funding – is a clear indicator that there is investment confidence in future potential. If local authorities or central government have announced and committed to plans for infrastructure build, it’s another sign that business growth will be supported. Jobs will follow, and that will pump up demand for residential property.

Buy properties that are ‘convenient’

Taking you back to the investor who bought the suburban three-bedroom house instead of the town centre apartment, he purchased a property that lacked convenience. Today’s life is lived at a fast pace, and people want to live where it’s convenient:

  • They want to live near shops and schools
  • They don’t want the weekly shopping trip to be a half-day excursion
  • They want to have entertainment and leisure facilities on their doorstep
  • They want to live where it’s easy to travel to work, and easy to find a job

In other words, they want location.

Location first, then property

When investing in property, my advice is always to select location first. Only then should you consider what property to buy.

You’ll want your investment property to have the widest appeal – we call this an ‘everyperson’ property. One-bedroom properties may be cheaper to buy, but they have a restricted audience – mostly students and singletons recently moved out of the family home. Palatial mansions may rent for thousands per month, but they also stand empty for long periods (especially when the economy slips into a recession).

An every person property will appeal to the most people and therefore be in greatest demand. Void periods are reduced, and rental income profit is maximised.

Download your free Property Investment Guides. This is the definitive book for property investors wanting to learn about the UK property market, minimising risks with proven principles and strategies.

If you’d prefer, book a meeting with one of our portfolio managers on +44 (0)207 923 6100. You’ll have all your questions answered, and benefit from an open discussion that explores your financial objectives and the role that property investment may be able to play in achieving them.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
December 4, 2016

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