Residential property investment is well-known as a safe way to get a good return on your outlay. Higher yields than a bank savings account, less risky than most other investment schemes, buying property to rent out is a great way to make your money work for you. When investing in residential property, the three familiar factors apply: location, location, location. But which location?
London is an obvious UK property hotspot, due to its extremely dense population. However, finding the initial investment sum for that market can be difficult – London prices are the extreme end. So, how can you find out if your location choice will give you the best return on your investment?
Hotspots vs Notspots! Or, how to size up your prospective location
Our industry insiders have identified three major questions to ask yourself:
1. What are the comfort versus risk levels? Every investment has certain levels of each. You need to balance these out. If there is no risk, there is likely little to no reward. But you need some sense that there will be a return on your investment.
2. What’s your exit strategy? Buy property that will sell quickly if you need it to. You might need to suddenly change your investment strategy at short notice – will you be stuck with an unsellable house or flat? That golden opportunity can soon become a lead weight around your neck.
3. What is your budget? If you can’t afford a location that will return the yields you need, it may well be worth holding off until you have saved enough!
A good rule of thumb for the novice investor is, “go with what you know”. If you have lived in an area yourself, you’re more likely to understand whether the population in that area rents or buys, what facilities can serve them, and whether or not the local economy will support your investment.
Getting more specific
Look in more detail into the following areas to assess the potential of your chosen location:
1. Number and size of businesses in the area
A large economy is supported by a large workforce. Ask if your location is a business hub, are there many national or international headquarters here? What are the industries? Insurance, banking, and IT are all good indicators.
2. Are there universities?
Having property within a mile or two of elite further education establishments on a portfolio is a great way for the new investor to find rental income. However this can also add to your own pricetag.
3. Local government investment
Are the local council putting money back into the infrastructure of the community? You can usually find these numbers on their website. A city or town that invests in itself is more attractive to incoming people, and helps drive the local property market.
A location which draws people to visit will also draw people to stay. Although you may or may not be interested in holiday rental investments, a place popular with tourists usually has a healthier economy.
5. Green spaces
Having plentiful parks and trees makes a happier residential environment and encourages families to settle there.
A bustling life in the location outside of work is a good draw to people to live there. Nightlife, shopping, entertainment, activities – all these will contribute to becoming a ‘place to be’.
7. Transport and connectedness
Is your location well served by public transport? Airports? Motorways? These conduits act like a funnel, bringing more life to the location.
If in doubt, ask!
A local letting agent who specialises in property investments knows the rental market inside and out, and can advise on the different yields in locations down to street level.
Article by: Natalia Gombalova