You are here: Choosing a property for investment purposes
Dabbling in the property investment market has its challenges but even though times are tough it is still possible to make a reasonable return with careful planning, research and hard work.
Once you have a budget in mind you need to decide on a location. Many investors say it is important to ‘know your market’ and this means the property market as well as understanding the needs of the tenants you hope to attract. In fact, it is fundamental to buying the right type of property at a fair price in an area where your future tenants want to live. If you are planning to invest in the area where you live do not be caught out for it is easy to feel you already have plenty of knowledge about the local property market. Take time to find new information to help you purchase the right property at a fair price.
Not sure where to invest? Study the market for growth areas for example where large firms are moving to, new schools being built, where there is regeneration investment from the government, new rail links proposed, planning applications for shopping centres and improvements in services such as hospitals all of which entice people to live there and therefore increase demand for homes driving up rent and capital growth. Talk to local high street letting agents in person and find out if rental properties are in short supply, the types of properties tenants are looking for and how much rent they are prepared to pay, find out how many vacant properties there are and how long on average it takes to find a new tenant. Try to build up a picture of how strong the rental market is.
The key to any property investment being a financial success however is having a reasonable percentage return. You can work this out by dividing the anticipated annual rental income of the property by the total amount of money you think you would spend on that property including renovating it ready for rental. There is varying opinion on an ideal return, but many landlords and land ladies would not invest if the return was less than 6% - 8%. So, when choosing a location, see if the sums stack up. You also need to have enough rent each month to cover expenses such as any mortgage , house insurance, letting agents’ fees and unforeseen house repairs.
Once you have decided on a location whether it is close to where you live or a different area, visit local estate agents and find out about the state of the local property market, how much sale stock is available, what type of properties are in high demand, average length of time properties are on the market for. Online property retail websites such as Right Move, Prime Location, Zoopla and On The Market and for vendors selling their own homes without using the services of a high street agent there are sights such as The househop, Purple Bricks, Hatched and emoove are easy to use so look at them each week to get an understanding of price and property values and note which properties sell quickly and which are on for longer and which have price reductions. A pattern may emerge revealing the different pricing strategies of estate agents for example some agents price properties high then reduce them taking longer to sell so try to find out which agents price properties high and those that tend to price properties to sell fast. This is only a general guide as some vendors will ignore estate agent advice and ask them the sell their home at a guide price of their own choosing.
You can compare the actual completion prices on https://www.gov.uk/government/collections/price-paid-data this information is free and is updated every month, it can be downloaded as a spreadsheet so you can easily search for road names or towns to look for particular properties. Your aim is to form a picture of true property values and if they are going up, down or remaining constant. It is also helpful to know as a buyer how competitive you have to be to get the property you want.
Creating a good relationship with local estate agents can be key. You will not be the only one looking to invest so it is very important that you are at the forefront of the estate agent’s mind when he receives instructions to market a property. Once you have met the agent in person you need to phone them regularly, so they realise you are serious and also you are one of the names they think of if a sale falls through or they receive a new instruction. If you can build up a good relationship with them it just might be you they call before the perfect property is advertised. Then you may be able to get an early viewing and secure it.
Unfortunately, it is not possible to accurately predict the rise and fall of property prices, or a change in rental demands, if it was there would be many more property tycoons. But if you are sensible and really know your market you can still get financial rewards investing long term in the property market and build yourself a nest egg for the future.