Ready to invest in residential property? Buy-to-let investor Samantha Collett shares her secrets – research tips, trendspotting and more – on how to find the best places to stash your cash
Smart property investment is about planning for the long term. Identifying areas with potential to outperform the market is the holy grail. It’s not easy and it’s not an exact science, but tapping into future hot spots will reward savvy residential investors with higher rents, yields and capital growth.
Here are my top insights for finding those lucrative property unicorns, gathered since I began my investing in my own buy-to-let portfolio in 2004.
Follow the money
Money follows money. Infrastructure projects and regeneration plans encourage further investment – it’s basically a money-breeds-money environment. Opting for projects that have already started is the safest bet, because promises and priorities can change according to budgetary requirements.
You may not be in at the very start of the curve and enjoy rock-bottom prices, but at least you’ll know the project will happen once the first spade has struck; vision is great, deliverables are better.
Across the country a number of projects are happening and in many cases, such as HS2, one of the largest regeneration projects in Europe, these have paved the way for broader investment and kick-started development in a number of areas.
Retail heatmap: busiest areas for retail planning applications, August 2016-July 2017
Plans for new shopping centres can be a giveaway to an area’s improving potential
Birmingham city centre has already posted a big rise in property prices caused by the predicted £6bn HS2 investment, which will create a canalside district, extend tram lines and enhance the halo effect created by the redevelopment of New Street Station and the opening of Grand Central.
To get ahead, the local authority needs to be your new best friend and the local plan needs to be your bible, because this is the plan for future development. Many authorities publish their local plans online, such as Haringey council, which has an ambitious plan to revitalise Wood Green town centre. The area is tipped as a Crossrail2 site, which will increase access to the Piccadilly Line, meaning this could be a future hottie.
Let the train deliver the cash
Transportation links are key to connecting homes with employment areas, and the more connected the place, the more valuable the property. Crossrail will connect many far-flung places to centres of commerce in ways that previously seemed inconceivable. It could soon be possible for people living in Ilford to be in Canary Wharf in just 17 minutes. With such a short journey time, it’s little wonder property prices there have risen by 44% in the past five years, according to Zoopla.
Even the anticipation of new links creates uplift in the market as the buzz from interested businesses creates demand for property in potential transport hot spots. Although Crossrail2 is yet to be fully approved, properties on the anticipated route are already benefiting from the hope value that the new connections will bring.
A similar phenomenon is happening in Birmingham. Despite HS2 not being operational until 2026, the anticipated 45-minute journey time to London has already prompted significant rises in local property prices.
The key to investment success is buying as close as possible to the new transport site. Aim for properties within a 10-15-minute walk of the new site if you want to outperform the local market.
Work rocks
People need to work to live and job growth is critical to property value growth. Lots of jobs created in an area stimulates demand for housing and higher prices. The savvy investor will research the local jobs market, gaining insight into changing work flows, employment patterns and positions created by company openings, expansions and relocations, and so reap handsome dividends.
Manchester is a great example of a city at the forefront of job creation. It is now the biggest technology and creative centre outside London, with more than 60,000 people working in the digital and creative industries. Most people are familiar with the transformation of Salford’s MediaCityUK, but those in the know see that the curve is still rising – the site is set to double in size in the next decade.
Basingstoke is another example of a booming employment area, boasting a leading digital economy powered by blue-chip office residents such as Sony and Barclays.
Company relocations can also create opportunities in an area. The move of S4C, the Welsh language broadcaster, from Cardiff to Carmarthen, is expected to contribute £11m a year to the local economy. It pays to check commercial occupancy rates – they are a good indication of how an area is performing. Look for rising occupancy rates and check where new business parks are opening; residential follows commercial.
Stem the stigmas
Areas, like people, have reputations. Shrewd buyers will strive to locate the ugly ducklings: those places shunned by others as old and run-down, but if well-positioned can be transformed and become trendy and desirable. The most important thing to look for is the potential for change. Could the area undergo a market metamorphosis? For this to happen, certain fundamentals have to be in place, such as proximity to transport connections and urban centres and the right sort of housing stock that will attract the right sort of people.
The trick is to know when an area has a stigma and when an area is stymied. Fundamentals reveal all, along with a long-term vision and belief in reputation recovery. Elephant & Castle is a case in point. What it lacks in looks it makes up for in potential and location, plus an ongoing multi-billion-pound regeneration.
Luton is another example. It recently led the property market in capital growth. The fundamentals were always there, they were just overlooked: direct trains from the town to St Pancras take 23 minutes.
Sheffield is another city repositioning itself. Once famous for steel production, the city’s focus is now on technology and being part of the Northern Powerhouse. Whether it succeeds remains to be seen, because for prices to rise, people must want to live and own property there.
Birds of a feather flock together
People may joke about the bearded Shoreditch hipster, but those who spotted the trend early are quids in. Like-minded people like to live next to like-minded people. They hang at the same sort of bars, sip the same sort of coffee and tend to shop at the same shops. The trick is to understand and profile these changing demographics. Without wanting to sound ageist, areas in which the median age is around 35 tend to gentrify faster as this demographic has a better income, is looking to buy or rent property and enjoy an active social life.
One of the best ways to find a future hot spot is to identify areas where the rental yield is rising, because this indicates an area popular with renters. Over time that popularity will spill into buying and when renters become owners, they tend to buy in the same area they’ve been renting in. Check with local agents about the tenant turnover, find out how long, and why, people stay in the area, because this is a good indication of how desirable an area is.
Ask estate agents why people like living in a particular area, visit it and observe the people and the atmosphere. Check the types of people who are there, assess their clothes and style and how they spend their leisure time. Talk with bar and café staff to find out the streets people aspire to live in and walk them, scrutinising the area in detail, from the appearance of the properties to the make and model of cars parked outside. Seek to understand the demographics of an area. Where do people want to live? What type of property? What sort of lifestyle are they looking for? What facilities do they want and/or expect?
Residential heatmap: busiest postcodes for residential planning applications, August 2016-July 2017
Track where housebuilders are planning to build to help you identify areas of growing employment, improving infrastructure and increasing populations
Understand migration paths and the ripple effect
Not everybody can afford to live in their first-choice location. This creates migration paths, which can filter into the ripple effect and increase prices in surrounding areas. As prices in the prime location increase, people tend to migrate outwards in search of lower costs.
Choosing areas directly in line with this migration can work to the investor’s advantage. Peterborough is one example – it offers a viable alternative for tech workers priced out of Cambridge, plus it’s also less than one hour from London. Between 1986 and 2016, property prices there rose by 477%, according to Halifax.
To discover if a neighbouring area may benefit from the ripple effect, you need to monitor and measure the values in adjacent areas. Check how the property prices have moved in the past two to three years. If prices have grown steadily, look at the demographics. An increasing number of young residents with decent incomes is a solid indication the area is experiencing gentrification. Watch for new houses being built, people renovating and new cafés, retailers and estate agents opening. Once owner-occupiers start moving in, the landscape begins to change: skips and scaffolding become the norm.
Look out for new housing developments and check where the big developers, such as Barratt and Bovis, are building homes, because they usually build in areas of growing employment, improving infrastructure and increasing populations. New shopping centres and luxury or prestige developments are also another giveaway to an area’s improving potential.
Learn to earn
It is well-known the lengths people will go to in order to ensure they are in the right catchment area for the best schools, but any improvement in Ofsted scores also has a major impact on local property prices. Checking the score scale and being abreast of changes will keep you top of the class when it comes to being an educated investor.
But schools are not the only draw – universities are big business. The UK student population is currently 2.3m, but there is living space for only 26% of them. This fact provides ample opportunity for investors to make up the shortfall. Look for markets where student accommodation is in high demand and check university plans for expansion, which may increase demand. For example, Bradford plans to increase student numbers by 30% by 2024, while Leicester is investing £190m in its university.
But even if you don’t fancy the student market, the good news is that you can still benefit from investing in university towns, because many students remain in an area after they graduate.
Trendspotting in action
Old Kent Road, SE1
Remit: identify an undervalued central London area with scope for radical change and potential for strong capital growth that produces a healthy income during the anticipated long-term hold.
Background: the Old Kent Road suffers from the stigma of being the cheapest square on the Monopoly board and the Elephant & Castle area is an eyesore. In 2008 the area was edgy but energetic – there was a frisson that was difficult to ignore and the fundamentals of transportation and central location were in place, plus the council’s plans were ambitious and exciting.
Purchase: in 2008 a one-bedroom flat was purchased for £163,000. By 2017 its value has increased to £325,000 and it commands a monthly rent of £1,100. The area has continued potential as the council implements its regeneration plans, and there is a high likelihood of a new Tube station opening in the area, which will further increase values.
Waltham Cross, Hertfordshire
Remit: identify an undervalued commuter area suitable for families, with scope for improvement and potential for strong capital growth that produces a healthy income during the anticipated long-term hold.
Background: Waltham Cross, although a Hertfordshire town, had the feel of a run-down London suburb. In 2014 the area felt unkempt and overlooked, but the transport fundamentals were in place: 26 miles from London, a journey time of 28 minutes to Liverpool Street, plus close proximity to the M25. The housing stock was mainly Victorian family homes and the location offered many amenities such as parks and schools and a town centre with a range of shops, services and leisure outlets.
Purchase: in 2014 a three-bedroom Victorian house located within five minutes’ walk of the train station was purchased for £250,000. By 2017 its value has increased to £350,000 and it commands a monthly rent of £1,450. The area has seen slow signs of improvement and in 2015 the council published plans to revitalise the town centre. The area has been highlighted as a future Crossrail2 site, which will further increase the property’s value.
Samantha Collett own and runs a large portfolio of buy-to-let properties
This article appears in the latest edition of the Property Auction Buyers’ Guide, published by EG on 7 October. For free access to more content for private investors, register here for your free digital edition of the guide.
