7 key factors to assess before you invest in property
One of the major problems with taking notice of property news is that it is almost always national news. Headlines and analysis are based upon a whole-of-country view. If you ignore these headlines and look closer, you’ll see that there are always pockets of outperformance. The trick is to find them.
Looking for high demand and limited supply
Profit in property boils down to one simple equation and simple supply and demand economics. When demand outstrips supply, property and rental will increase. In this article, you’ll learn about the major factors that affect supply and demand. These are what you must consider when searching for the best places to invest in property UK.
1. Take stock of the local economy
If you own investment property in a town with one major employer, and that employer pulls out, you will probably lose money. Jobs will be lost, people will move elsewhere for work, and demand for property will fall. Rents will decrease, and it will be difficult to sell your property at a reasonable price. When you are looking at the local economy, ask if:
- There are several employers across a diverse range of economic sectors
- The number of jobs is increasing or decreasing
- Wages are rising or falling
The ideal is many large employers (private and public), across a range of sectors, offering a range of jobs.
2. Remember that people want the convenience
People want convenience. They don’t want to drive 30 minutes to the nearest supermarket. They don’t want to drive at all to enjoy a night out. So, invest where it is easy to:
- Visit local shops and supermarkets
- Find recreational activities on the doorstep – parks and green spaces, bars, bistros, and restaurants nearby
- Join gyms, leisure centres, and sports facilities
3. Keep education in mind
Ask parents about what they want for their children, and you’ll hear the same answer. They want to give them the best education possible. So, look for locations that are in the catchment areas of schools that are highly rated by Ofsted. Speak to local estate agents and letting agents and learn the best locations in an area for families with children.
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4. Invest where transport is easy
People need to get around. They must travel to work. They want to visit friends and relatives. Even if the shops are only a couple of miles away, they probably won’t want to haul heavy bags while walking home.
Buy property near local public transport hubs, and in locations that benefit from good road networks. Many studies have shown that people who live in urban areas want to live no further than 15 minutes’ walking distance from a bus or railway station. That’s around three-quarters of a mile to a mile.
How much difference could it make to invest near a transport hub? The son of a friend of mine has recently moved to London. He had two options for his rental property. The first is five minutes’ walk from the tube station he uses to travel to work. The second is 10 minutes further away. He chose the first property, even though it costs him almost £500 more every month to rent.
5. Understand that crime doesn’t pay
There has been a lot of news about violent crime in London recently, especially knife crime. You might be forgiven for thinking this is a widespread problem, but it is very localised.
Each town and city in the UK suffer from crime. Some locations are worse than others. People want to live where it’s safest, so you should invest in the safest locations. It also makes sense to avoid places where your property is more likely to be burgled or vandalised.
6. Regeneration is key to investment
I’ve highlighted infrastructure as being factors for investment selection – shops, schools, transport links, and major employers – but you should also look for locations that are benefiting from regeneration. Look at local authority plans, and determine whether investment in regeneration and infrastructure building and upgrade is budgeted and on its way. You’re looking for commitment here, not just plans to regenerate.
7. Think barriers to supply
All the above factors answer the demand side of the equation. But what about the supply side?
There are what I call barriers to supply, which could also enhance the returns on your investment. If you are investing in a location that is attractive for people to live and work in, you’ll benefit from higher demand. If that location is also difficult for developers to build new homes, you’ll benefit from the restricted supply.
The types of barriers that might keep supply restricted include:
- Rivers and geography that make expansion of building difficult
- Protected green belt
- Parks, universities, and schools
- Landmarked for commercial and retail expansion
When we assess these seven factors for our property investors, we use an 89-point checklist to run due diligence on an investment opportunity. This disciplined approach takes the emotion out of an investment decision and makes sure that you consider every pertinent fact associated with the property on offer.