How To Choose Your Next Investment Area
Location, location, location is something that’s often said in property investment. It’s something that’s very easy to say of course. But just how do you put the theory into practice? How do you actually choose the next area to invest in?
Choosing a good investment area is not just about whether an area merely looks good or feels right. You need hard evidence on which to base your choices.
What makes the best property investment area?
There are a number of factors which help determine the best investment areas. These include:
Demand for accommodation. If no, or few, people want to rent in that area then it is pretty much a non-starter regardless of any other factors.
Yield. How much return you will get on your investment? Again if property in that area cannot return an acceptable yield, perhaps because prices are too high, it isn’t going to work.
This post looks at how to Find Top Yields Easily Using The Buy To Let Yield Explorer.
Local employment. Although not all demand is driven by the strength of the local jobs market much of it is. Generally, the more and better paid jobs there are the more demand and the higher rents will be.
As well as what employment already exists consider any upcoming new employment such as new warehouses, office parks or a large business or government department relocation. Also consider the flipside, such as possible local business closures or redundancies.
Transport links. Consider what local transport links are to these employment opportunities, as well as local amenities. Consider not just availability of transport links but the quality of them, ie. travel time and frequency of bus/train services.
Local regeneration and investment schemes. These put money into the local area, create jobs and tend to stimulate the demand for property and potentially prices and rents too.
Schemes to look out for include a local council regeneration plan, investment from central government (such as the current Towns Fund) or the creation of an Enterprise Zone or Freeport.
Other factors. Good local amenities can attract tenants and buyers to an area. The availability of good schools and school places influence those with children. High crime levels, or perception of them, can deter people from moving to that area (and vice versa). Pollution, traffic or flood risks can also exert an influence.
Tip. What constitutes a good investment area will differ according to the type of property or project. For example, a good area for a family buy to let will not necessarily be the same as for a HMO, or for a renovation or flip project.
Tip. What makes a good investment area does not necessarily depend on how local it is to you. Although it is easier if it is, it is better to choose investment areas on the basis of factors other than proximity.
Tools and techniques to help you find the best areas
Firstly, do desk research
Desk research on potential new areas is a good first step. It saves the time and expense of physically travelling to new areas initially.
Online research. See what you can find out about that area online that may increase the demand for property.
Pull up an online map (such as Google Maps and also Streetview). Check for proximity of and distances to factors that are recognised as boosting the demand for accommodation, such as universities, hospitals, closeness to town centres and train lines.
Use search engines. Choose some factors that you feel will make a good investment area depending on your preferences. For example, ‘shortage of accommodation’, ‘new business park’, ‘new jobs’, ‘regeneration scheme’ or ‘new railway station’, plus the name of the location.
You can also visit newspaper sites for that area to find out more about these things.
Online tools. PaTMa Property Prospector can supply you with a wide range of information, and links to more information, for a property in an area you are interested in. It can tell you about: Transport links and distances to them, healthcare, schools, crime rates and provide you with a range of socio-economic data too.
You can check and compare local price and rent comparables and demand trends using PaTMa. You can also see licensing requirements and restrictions if you are planning a HMO.
Property Prospector can also help you analyse the financials behind a property you are interested in.
Next, ask local letting agents
On the basis that you’re a potential new landlord client local letting agents should be willing to provide you with invaluable information about any area which will enable you to assess demand, yield and other factors.
Letting agents should be able to give you very accurate answers to this question based on local market experience: If I buy a house in this street will there be good demand to rent it .... and what rent will it earn?
You might also ask letting agents: If I want to buy a buy to let around here where is the best place to buy it .... and why?
Finally, do physical research
There is very little to beat investing in some shoe leather and actually exploring an area you are interested in. That is, once desk research and feedback from agents has indicated it is worthwhile.
Aim to invest in ‘up and coming’ areas where possible. These areas should not only offer good yields but also potential for both rent and price appreciation in the future.
While gut reaction is of some use in assessing an area also look for evidence that an area has a sound economy, or is up and coming. For example, do the local shops, other businesses and local roads look busy during the working day? Are new businesses such as shops, eateries, gyms, motor dealerships and estate or letting agents opening up or expanding?
Also look for negatives which online research may not reveal. For example empty shops and derelict buildings which have been empty or derelict for a long time.
At the end of the day no one single factor can identify your next perfect investment area. However looking for hard evidence that an area is a good investment prospect should point you in the right direction.