While the property market is always changing, it is still quite straightforward to predict, and the factors that influence it are certainly conspicuous. Indeed, the main factor that will make or break your success as a property investor is the property itself.
There are key decisions you need to make and significant considerations you need to look out for, which can make the difference between you reaping plentiful rewards and possibly moving onto another property to invest in, or being stuck with a white elephant and a mountain of debt.
In essence, property investment is popular because you can make money out of it, but that requires an element of skill, knowledge and sound judgement on the property you invest in. So here is a thorough rundown of the key elements you need to look out for, when trying to find a good investment property.
Understanding what you want to achieve from property investment
The first step in finding a good property investment, as is so often the case, is the most important one. You need to first establish exactly what you want to get out of an investment. It is possible, of course, that you are just waiting for capital gain whilst being an owner-occupier and have no desires for renting the property out. But most property investors are interested in the buy-to-let market.
Your investment goals: exit strategy
In many respects, setting your objectives is also about establishing your exit strategy. It may seem odd to be thinking about how you will get out of property investment just as you are looking to get into it, but you need to know your short term and ultimate destination, in order to work out how to get there.
You might be looking long term to retirement, or simply short term to your second property investment, but either way, you need a plan. So how long do you intend to invest in your first property? And what is your Plan A and Plan B if things don’t go how you intended them to?
It is important that you establish this and build contingency plans, which could make the difference between you successfully rebounding from some misfortune or miscalculation or being completely buried by it.
What is your timeframe and earnings target?
You need to calculate what you can afford to invest and how much you can afford to borrow. This dictates what kind of property you can invest in and therefore, what your target tenant will be. If you are looking at a long term plan, it is possible to envisage a path to get there, but as a first time investor it is perhaps wiser to think solely about this first property and where it could lead you. So you need to calculate what rental yield % is realistic and if that is sufficient for you, and then also consider both forced and market appreciation.
Forced appreciation is the value you add to your property through renovations, while market appreciation is the value gained by the property market changing and your property becoming more desirable. For the first-time investor it is arguably better to base any plans on market appreciation, as this can be judged on historical evidence, which can be researched.
The value you add yourself is a much harder cost-benefit analysis to carry out, as it is more subjective and based on more ‘unknown’ factors. In that sense, investing in a property solely on ‘potential’ is a dangerous game for a first-time investor and is maybe something you can opt for a little further down the line, when know-how and financial resources allow your attitude to risk to change.
What is your target tenant?
You should now have an idea of the kind of property you want to invest in and roughly where that property will be. That in turn will lead you naturally to what your target tenant is. It is important to pitch a property correctly and to the right market in order to get maximum tenant occupation, and that strategy begins at a very early stage.
The buy-to-let market is roughly divided into three sections, each with different requirements, considerations and levels of demand.
Firstly, students will always need somewhere temporary to live. There is an annual refreshing of new demand and they also offer an opportunity for multi-tenant properties, and hence can be lucrative, particularly as they are not so demanding over high-quality furniture and fittings, and so your initial refurbishment costs may not be excessive.
On the flipside, student debt is a considerable factor and hence students can be unreliable tenants in terms of payment, and there may also be periods out of term where you are struggling to fill the property.
Nevertheless, properties for students tend to be in historically well-established areas, close to universities and colleges, and hence there is a stability to the market. So this type of investment is fairly solid and secure as there will always be demand, albeit capital gain on the property may not be huge as the area is unlikely to change in terms of desirability or demographic.
Young professionals are a little more demanding with the style and furnishings of their property. These can be concentrated around city centre living and stylish new-build developments, or in fashionable suburbs where nightlife and amenities are good. In some respects, a young professional may not have too many different requirements to a student, but will be more house proud and want a little more comfort, and they have a regular income so therefore should be a more reliable tenant.
With respects to properties, the market for young professionals is therefore much larger and with more scope and is perhaps more concentrated on desirability rather than convenience. City centre locations should always hold their value as a minimum, while specific suburbs may be a little more volatile, but timed right, a suburban property investment in an up and coming area can be very lucrative.
Finally, young families are often forced to rent if they cannot afford to get on the property ladder, and in this case, the property they want needs to be more convenient for schools and quality of life. They will want a garden and the property itself needs to be divided and appointed as a typical family home, where they might bring more of their own belongings.
There is unlikely to be opportunities for multi-tenant occupation in this market and families may also want to add their own personal touch to a property. So as a landlord you can offer something of a blank canvass and hence don’t need to worry too much about eye-catching décor and styling. But in terms of fittings such as kitchen and bathroom suites, these will be much more of a factor and hence you need to consider this in your investment and related costings, and specifically how you plan to ‘sell’ the property to a potential tenant.