5 ways to spot a great property investment opportunity
Investment in property is always an exciting option, but where do you begin? Which property will prove the most profitable? What should you avoid? What questions should you ask? Our five tips will help you realise your property investment dreams.
1. Choose a location where people want to rent
Most people expect to buy rental property near their own home. That might be convenient, but it isn’t necessarily going to bring the greatest profit. For an investment to prosper, the area needs to have features that draw potential tenants. It might have excellent transport links that attract working people, or highly-rated schools which draw in families. Or it might be the local university has a large student population. Do the legwork, and choose your location with care.
2. Examine the trends for property prices in the area
The growth in value of your investment property is a key factor in making it a great investment. Check out the trajectory of property prices over the last five to ten years in the area you’re considering. Past performance may not be a guide to the future, but it’s one of the best guides there is. If prices have consistently increased as well as or better than elsewhere, you may be onto a winner.
Consider the area’s future, and check the development plans. Infrastructure projects can affect property prices enormously. Crossrail, for example, will open up travel across north London, creating new commuter routes and opportunities all along the route. But be equally careful to check for development plans which might have a negative impact on the value of your potential property.
You should also factor into your calculations how long you intend to own the place. Long-term ownership is essential if you are to benefit from any rise in capital value.
3. Match your property to the needs of the people who rent in that area
You won’t get much out of your investment if you target the wrong demographic for the area. Families want plenty of space and good schools. Young working people need to be near transport and amenities. Students want to be near their campus or faculty buildings. Talk to letting agents, find out where the demand lies, then buy property that meets that demand.
4. If you think a place is a bargain, do the maths
A less expensive property may look like a bargain, but the cheaper the property is for an area, the more likely it is to need extensive renovation before you can rent it out. Whether it’s heating, electrics, damp or just general neglect, first calculate how much the remedial work will cost. Then work out what you can afford. Then add it all up. Would you be better off paying a higher price for a property that you can rent out straight away?
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As a rule of thumb, the value of the property after renovation should be greater than the purchase price by the cost of the renovations plus 20%.
5. Make sure your property will generate a rental income that exceeds your expenses
Ask a local letting agent how much annual rent you could expect to collect from the property, allowing for possible voids. Calculate your annual costs – mortgage repayments, maintenance, upkeep, insurance, professional fees and so on. For an investment to work, your income must exceed your expenses.