BEGINNER'S CORNER: How to choose a goldmine area

With the whole of the UK to choose from how do you hone in on the best property investment area for you? ON THE HOUSE Writer and investor Alex Daley unfolds his map to find out more…

In last month’s issue, we covered choosing the right strategy - you can read that here. In this month’s second edition of the Beginner’s Corner, we’re going to look at the key decision of how to choose a target area. With many investors having an ‘exit strategy’ of death, or at least, looking at it as a long-term investment, getting this right kind of helps a bit. Don’t worry, we’ll talk you through it all. Let’s start off with - What are our key considerations?

1. Where you live and what you appetite is for travel.

2. How much money you have to invest

3. Your goals

WHERE YOU LIVE

Ultimately if you live in a market that suits your investment criteria well, there’s very little reason to look further afield. The list of downsides is limited to just the prospect of your tenants overhearing you arguing with your family in Aldi about whether to get the pepperoni or goats cheese and spinach pizza for dinner that evening - that’s something you can likely work with (oh and, choose the goats cheese). Being close gives you the ease of getting to viewings and to your eventual purchase, if you go down the self-managing route, you’re able to get to site quickly and your big advantage - local knowledge. You know what areas are like, you know the distances to key places, desirable areas, the works. That said, your advantage can create bias - be careful not to exclude areas that are less desirable than where you live just because you wouldn’t live there. Keep your target tenant in mind.

thumb of course is, the south is more expensive than the north. And Midlands is often a middle ground. There are places in the north you can pick up terrace houses for £40-50k and them not be in bad shape. In the south, no chance.

Having budget limitations will remove certain areas from your potential search. Of course, make this appropriate to your chosen strategy. If you’re going down the route of HMOs, it doesn’t really matter what the price of 2-bed terraces is.

If you have a modest starting pot, it may make the most sense to start looking in the midlands & north. This is a position many find themselves in, they live down south but can’t afford prices in their local area. And for many who can afford it, they might not want to, as yields are often (albeit not exclusively) much lower than in the midlands or the north.

YOUR GOALS

Some investors are all about the returns, for them, higher returns will make it worthwhile travelling further to their properties. Some investors will want a much easier investment life. How important is a higher cashflow to you? Would you sacrifice more time travelling and doing more research into areas further away for higher cashflow?

When looking at property profits, we can break them into two categories - rental cashflow and capital appreciation. There are plenty of sources (such as Zoopla, which is a godsend when it comes to property and area stats - dive into their monthly and quarterly property reports) outlining average yields, and historic property capital appreciation.

(Property yield is property price compared to rental income (annual). Expressed as a percentage. The calculation is - rental income (annual) / property price x 100)

There’s often an idea that the midlands/north is for cashflow and the south is for capital appreciation. The data wouldn’t suggest that is the case. With areas of the north (such as Manchester) and midlands (such as Birmingham) right at the top of the capital appreciation rankings over the last five years.

START THE HUNT

Stage one: block out some time and make yourself a large coffee with your choice of biscuits, science says this helps with property searching.

As mentioned above, get stuck into online sources such as Zoopla to get a rough overview of how general areas perform. You’ll quickly start to get a feel for areas. Get on maps and see how far they are from your home and start to create a shortlist.

Once you have your list, jump into online property search engines (Rightmove, Zoopla, etc) and get a feel for what’s within your budget, within your chosen strategy. It may be this cuts a few places from your list, it may be that it doesn’t.

Once you’ve started to get a feel for how well each area will yield, you may find yourself narrowing down your list to a few places. If you can, try to get it down to one main area (often a city, but not exclusively) and then that gives you something to work with.

FUNDAMENTAL THINKING

In order to be sure that the area offers good investment potential you also want to look for a number of key fundamentals in the areathough finding an areathat hits them all is unlikely.

First and foremost is rental demand which you will be able to guage by talking to local estate agents as mentioned below.

Next, you want to look at local transport links. Good connections are vital for attracting tenants - a short hop to a major motorway or walking distance to a train station hub and you will be maximising your potential tenants. You may want to live in the sticks, but fewer tenants are going to be revved up about a long-distance rural commute.

On top of this, for traditional buy-to-lets it is important to consider schools in the locale - are they at least of a ‘Good’ offstead rating and within reasonable proximity. Plus consider if the area has good amenities - are supermarkets nearby, are there leisure centres, bars, restaurants or takeaways in the vicinity. More amenities mean more selling points to potential tenants.

You can also look at crime statistics - by looking at sites such as Crime Statistics (https://www.crime-statistics.co.uk/postcode). Be sure to compare this, not just look at one place, otherwise that place will almost certainly look like a war zone.

Lastly, but certainly not least, work - are their good local employment opportunities. A good way to consider this is looking for large local employers such as hospitals. Is Amazon opening up a distribution centre close by? That will create jobs and thus tenant demand.

FUNDAMENTALS CHECKLIST:

1. Demand

2. Transport links

3. Schools

4. Amenities

5. Job options

6 Lower crime levels

ASK AN AGENT - OR THREE

Next, get on the rental section of your chosen property website, put in the type of property that you’re looking at renting out, check the ‘let agreed’ box and start to look through which agent’s names keep popping up as renting places out.

Then pick up the phone, tell them you’re looking at their area as a potential place to invest, you’ve seen they’re doing some great work letting out properties (because who doesn’t like being buttered up a bit), and ask them what sort of areas they’d recommend, what sort of tenants those areas attract. Which areas they’d avoid and super generally, what they’d advise with investing in the area? They’re on

the ground with this stuff. At the same time, head over to The Buy To Let Facebook page and see if you can connect with investor already operating in your target area (Try the search function). Get their feel, asking the same questions. This is what online communities are all about!

VIEWINGS, VIEWINGS, VIEWINGS

Then we’ve got to get on the ground, once you’ve shortlisted a bunch of potential properties, book a date in where you’ll go up, and schedule your viewings. Viewing slots are usually 15 minutes long, if you organise well (and have a bit of luck with agents’ diaries) you can get numerous in within a day, in various different areas, with time in between you have to change areas, to walk around and get a feel for the area. There’s no exact science here, do you feel horribly unsafe? Is there a pile of needles near enough on the doorstep?

The question you’re trying to answer is - will your target tenants want to live there? Not necessarily, would you want to live there?

Every area has good and bad patches, get to grips with where those are in your target area. This could mean you’re back to the drawing board looking at another place on your shortlist, but that’s not necessarily a bad thing. Do the work at the start to make sure your long-term investments work out.

And soon, you’ll have your trusty target area on your journey to world domination!

DID YOU FIND THIS USEFUL? There's a lot more like that including last month's Beginner's Corner at https://linktr.ee/btlgroup