Buy to Let investors – especially those taking the plunge for the first time – always want to know the ‘best’ place to buy. Where are the ‘hotspots’, the places where rising capital values and good rental returns are virtually guaranteed?
If only it were that simple! When you see ‘hotspots’ highlighted by the media, they’re often being selective in their use of data and, even when somewhere does appear to be on the up, you’ve got to make sure you’re very clear on your investment objectives and do some proper research before parting with your money.
The reality is that by the time a location has been identified as a hotspot, it’s often reached its peak. The great returns and huge capital gains being reported have already been realised by people who have either owned property there for many years or took a calculated risk and invested at a very early stage of regeneration. Some hotspots are simply expensive areas that have become even more popular and therefore the capital values are already high; others that are more ‘emerging markets’ often end up being over-supplied with new builds, creating the risk of both capital and rental values falling in the future, as has been the case with many new developments in city centres over the last 20 years.
And you also need to be wary of prices being over-inflated because of a one-off event, as was the case with Stratford in the lead-up to the London 2012 Olympics. When there’s a big buzz around an area, the temporary rush of demand can push up prices to a level that’s far beyond the ‘true’ market value. When the market settles, investors can be left with the same problem as when there’s an oversupply of new builds.
So, as a landlord looking to make a medium to long-term investment, you need to find a different kind of ‘hotspot’: a local area that is naturally and fundamentally going to give you sustainable, better-than-average returns through solid demand, today and into the future.
This year’s trends: where were landlords predicted to buy?
Research published by Paragon in February, before the coronavirus crisis hit, found that the East Midlands was likely to see the greatest investment activity in 2020, with 25% of landlords there planning to expand their portfolios. The West Midlands was the next most popular area, meaning key cities such as Birmingham, Manchester, Liverpool and Leicester were all anticipated to continue to be attractive choices for investors. The focus on regenerating the ‘Northern Powerhouse’ had certainly been boosting demand pre-lockdown, ensuring both capital values and rental prices remained buoyant.
But as the economic effects of the global pandemic continue to unfold, putting many people’s jobs and incomes at risk, it’s more important than ever for property investors to get back to basics. If you’re looking to put your money into Buy to Let, worry less about seeking out hotspots and focus your efforts on finding a solid long-term prospect, which you should be able to find within 20 minutes of where you live.
A ‘good’ investment
The property market experiences natural peaks and troughs, no matter where and what you buy. Some investors spend months, if not years, trying to find the best possible deal, when all you really need to make a success of Buy to Let in the long-term is a good deal.
That means you need to decide what ‘good’ would look like for you. Think about your financial objectives: why are you investing, what returns do you need and when? Do you primarily want the best possible ongoing income from rental profits to supplement your salary or pension, or is it more valuable to you to have an investment that covers its own costs (mortgage, bills, maintenance, improvements, etc.) month-to-month, but is likely to appreciate in value at an above-average rate? You also need to understand what the true ongoing costs will be and consider the tax implications of owning and taking income from property, as well as your liabilities as and when you sell or pass on the property to family.
Bear in mind that how the property and tenant are managed will have a significant effect on the profitability of your investment, so it’s vital to have the right professionals on board to help you. A reputable, qualified agent that really understands Buy to Let, as we do at Reeds Rains, will be able to talk through your investment goals and help you identify properties that are most likely to deliver the returns you need.
To learn more about how your local market is performing through the pandemic and discuss potential investment opportunities in more detail, just contact your local Reeds Rains branch and make an appointment to speak to one of our Buy to Let specialists.