The sage advice when choosing an investment property is that it’s about numbers; a mathematical equation, a science. It’s never personal…right?
I say, make it personal. You have a gut reaction for a reason: understand it, hone it, rely on it.
I can hear some protests already.
“Noooo- idiots, that’s how you lose money, what terrible advice…this is an investment not a home for you personally!’”
But let me tell you my problem with that thinking: no, it’s not your home, but it’s somebody’s home. And they need to love it, just like you should.
This post is about getting the character and quality right. I’m going to set out our thoughts on what makes the right location; from the national scale (which part of the country is best), right down to what kind street to target and everything in between.
Of course, the financial side of an investment is important. Analysing yield, return on investment and other metrics are vital. It has to be somewhere that will perform well financially BUT, the quality and soul of a place must be an equal consideration.
It’s science and art.
And remember, we’re talking about properties that fit our niche: top quality HMOs for young professionals and the top end of the student market.
Why do we take this approach? Well firstly it’s tried and tested- by us. People love our properties because they get the fundamentals right- they’re in good cities, nice neighbourhoods, on great streets. How do we know they love them? 1) they tell us 2) we spend very little on marketing, word of mouth does most of it for us, and 3) we regularly find our places oversubscribed.
Second, before property we spent our professional careers researching and designing urban environments. What makes some places better than others is not a mystery, there are principles behind it which if you understand them gives a new perspective on how to pick a place people will want to live.
And the best bit of all? Once you understand it I’m going to boil it down to in four words. Whaaat? Four words??
Why can’t you just give me those four words now instead of making me read all these?
Well you need to understand it before you get the summary. So read on.
Where to start?
If you take away only one point from this post, let it be this: go north not south.
You don’t need to be a rocket scientist to know that the growth in London property prices have far outstripped growth in income.
One look at the graph below tells us more of what you probably already know: that the same holds true for most places south of Birmingham (this shows the change in house prices, rents and earnings over the past decade).
From the Resolution Foundation ‘Living Standards 2017’ report
Now this is great if you have a very large pot of money and are only interested in capital growth, not yield. But…
If you’re looking for a good rental yield and capital growth, go north.
You want a location where earnings have grown faster than house prices. Here’s why- this gives you lower property prices coupled with higher earning tenants. In other words a higher yield.
Look across the North West, North East, Yorkshire & Humber, or the West Midlands at a push.
The North West is attracting a lot of attention at present as an attractive location. It has lower property prices but a strong economy, only set to improve with excellent initiatives like the Northern Powerhouse.
“Investors looking for the strongest yields could consider investing in certain areas in the North West where both demand and yields are high”
But hold on, wasn’t I advocating tossing out the rule book and making it personal? Well it’s science and art remember, and right now we’re on science.
Region sorted? Good, but which city?
Priority #1: think of your target market and go where they go.
Targeting young professionals? Obviously strong employment is a must; you need a strong economy. A regional centre with a diverse economy is a safer bet than a one employer town (BAE or GlaxoSmithKline being prime examples that spring to mind locally). This avoids having all your eggs in one basket in terms of your source of tenants.
Want to enter the student market? Look beyond the mere presence of a University and find the higher ranking ones; these will attract more foreign students who are always well funded (and often happy and able to pay up front for a years rent).
Once these boxes are ticked, we start to get to the intangible aspects.
Here’s where it starts getting personal, but we can still define our terms and get some objectivity into the process.
Vibrant, cultural, social. We value these ideas but they’re hard things to define let alone measure. Here are a few starting points:
Connectivity is important; hubs attract people, dead end towns are exactly that.
The more connected the better: motorways, trains, airports, ports. They attract investment which powers economies (and creates your market).
Festivals; arts, music or food festivals, they can be small (we’re not looking for Glastonbury). History; anything obvious? Castles or Cathedrals? Markets; local craft fairs or farmers markets.
All these things indicate a cultural offering that people value, and that’s always a good thing.
Do some research, 5 mins on Google will do the job. I’ve even made a start for you here, just fill in the blanks!
And how do we judge the social scene? Walk down the high street, what do you see.
Hipster beards, tattoos and expensive coffee shops? You’re probably onto a winner.
OK I’m joking, but only a little. The point is, if your market is students or young professionals, you want to see them out and about (whatever their dress sense!)
Before we move through the scale of city and get into detail, think about longevity. Why do we focus in Lancaster? It has two universities (one ranked top 10 in the UK); a regional hospital; it’s located on the West Coast Mainline and M6; it has cultural festivals, history…and plenty of beards.
The likelihood of any of those factors vanishing is pretty damn low (grooming trends notwithstanding), giving a secure base of tenants into the long term.
Ok so you have your city nailed down. Where do you start looking?
First up: it’s got to be walkable to either city centre or a local centre: shops, bars/pubs, cafes, you get the picture. You have sociable tenants who love city life, so they need to be able to access it easily, without getting in the car. It’s got to have life. And when I say walkable I’m not talking about a hike, I mean 5 mins max.
Draw a 400m radius around the city centre, or a slightly smaller one for a local centre. Look inside it.
Rightmove have a helpful tool for doing this. You can save your area as a specific search and receive email notifications about what pops up within it, which is a great way to make the most efficient use of your time.
Easy access to public transport is equally important. We see properties that on paper are identical, but one will rent in days whilst the other sits on the market longer. The only difference is convenience of walking to a bus stop.
And don’t just see a bus stop and assume it will do the job. Get online and download the route maps. Pick routes going directly to city centres, universities, retail and/or employment areas.
The flip side to this is that parking is still an important consideration. Restricted on street parking via permits might be an issue particularly for a HMO for professionals so again, do your research.
Next: the street. The style of architecture is important. My personal view: Victorian and Georgian architecture looked amazing 100 years ago and I guarantee you it still will in another hundred. But it’s not (just) about looks. They are quality buildings, built to last. In terms of space, the proportions of the rooms, high ceilings and big windows create spacious, light interiors; perfect for a house share. More space = happy tenants.
This isn’t to say other architectural styles of houses won’t work, of course they will. But the principle is quality housing stock, large spacious interiors, lots of light.
What next: defensible space and active frontages. What?? OK no jargon: front gardens and windows (lots of them).
Defensible space is about bringing personal ownership of buildings out into the street. Front gardens, yards, even a small setback from the pavement marked by a railing and a row of flags creates a sense of personal ownership within the otherwise public domain.
When buildings have some defensible space to the street it allows residents to take responsibility for the street around their home, and to a degree their neighbour’s too. It makes for a stronger sense of community.
Natural surveillance is related; are there enough windows facing the street that it feels safe? The eyes of the neighbourhood should be looking out for you (or your tenants) when you’re walking home at night, as opposed to blank facades creating secluded spots for people to get up to no good.
Having a degree of defensible space and a good level of natural surveillance is one of the keys to creating a good neighbourhood.
Crime is lower, streets are safer, everyone feels the love a little more. Fact.
Go for streets with defensible space and lots of natural surveillance.
Avoid those which do not.
All the other standard tips apply- check out an area at different times of day, talk to the locals, don’t just drive, walk the area, etc etc. But I’m not going to get into those now because a) you know them already and b) you can find them on a 1000 other blogs out there (not like this fresh new content you’re enjoying right now!).
So we’re pretty much there. Lots of different strands to think about, and here’s how we sum it all up in four words. It’s one question:
Would I live there?
Not literally, I mean in principle.
Has it got character? Does it have a sense of vibrancy? Does it feel safe, would you worry about your kids there? Would you go to the local? Could you live there?
Back to where we started, and I don’t care if it’s ill advised, but make it personal. You are investing in a property that people will live in. Real people, just like you and me. These real people will very probably appreciate the same things you do in a city, in a neighbourhood and in a street. If they do, they will want to live in your property.
They will pick your property over the competition, stay there longer and happily pay you more for the pleasure.
Chasing quality, not money ultimately makes the best financial sense.
But isn’t that the case across most industries? I would say so.
Did you enjoy this?
Would you like to receive new articles and exclusive content first?
(I don’t think I have the technical nous to spam you even if I wanted to. Which I don’t)