by Rob Dix
I know for a fact that I’m not that smart, so I spread my bets by investing in multiple locations and types of property – but even that isn’t really necessary. Pick any type of property and any location, and there’ll be someone making that type of investment work very nicely for them – because success is determined far more by the specifics of the deals you do (buying the right property at the right price, as part of the right strategy for you) than where you do them.
So: don’t stress out. But of course, you’re not unreasonable to want some better method than throwing a dart at a page of Rightmove results (which is also liable to damage your laptop) – so let’s look at some factors to consider when making your decision.
Home or away?
Before going any deeper, let’s set out the scope of the decision: are you going to restrict your search to the area around where you live, or are you prepared to go wherever in the UK you perceive the best opportunity to be?
The choice is yours to make: you can be a thoroughly hands-on investor who stands outside lovingly stroking the bricks every day (although beware that tenants may not appreciate it too much), or you can have almost nothing to do with the place once you’ve bought it.
Indeed, I’ve come across people at both ends of the spectrum. In my book Beyond the Bricks, I interviewed one investor who only wanted to own properties within 15 minutes of her home so she could whip around all of them in a couple of hours on a Saturday morning to collect the rent in person. At the other end, some of our clients at Yellow Lettings own properties that they’ve never seen in the flesh (bricks), in towns they’ve never visited – and they outsource everything to do with acquisition and management. If you view property purely as an investment, there’s no reason why you need to restrict yourself to one you can easily visit – in the same way that you wouldn’t avoid buying shares in easyJet because you have a fear of flying.
All the same, you don’t need to find the absolute best area of the UK in order to be successful. Investing near home not only cuts down on travel, but also makes use of the local knowledge and connections you’ve naturally built up over time. The immediate streets around your home might not be the most suitable, but I bet you’ll find at least one candidate area if your draw a 45-minute radius around where you live. If that’s the case, why complicate matters by looking further afield?
One group that gets particularly hung up on whether to go home or away is Londoners. They know that London is in demand and has historically performed well, but they also know that yields are shockingly low and (depending on their budget) they might not be able to afford anything more than a studio flat in an area which nobody could even call “up and coming” with a straight face.
There are perfectly good reasons to favour investing in London, but one of them shouldn’t be a fear of the rest of the country. I get all kinds of questions like “Will I still be able to find professional tenants outside London?”, and have seen people’s eyes visibly twitch when I suggest that Leeds offers good value. So, Important Note For Londoners: the rest of the country really isn’t that scary. People still have jobs. They still live in houses. Some of them even have quinoa in their cupboards. If necessary, get on a train and make a research trip to get comfortable with the idea. You don’t even need to take your passport.
(And it’s OK: I’m allowed to have a friendly poke at Londoners because I am one.)
How to choose a location
If you can make your particular investment strategy work locally, that’s great: all else being equal, near is better than far because it’ll take less effort for you to develop an in-depth knowledge of the area (which is extremely important – even if you plan to outsource most of the investment process).
But all else is never equal, which is why I never advocate staying local by default.
So if you do want to go further afield, where do you even start with deciding where to look?
A logical next step from staying local is picking somewhere that’s easily accessible by train – because it makes your fact-finding trips easier, and good train links are a tick in the “fundamentals” box too. An investor I interviewed in Beyond The Bricks primarily invests in areas served by the East Coast rail network, because he happens to live along the line and it makes his life a lot easier. When I asked him about the prospects of certain other areas of the UK, he acknowledged that there was probably a strong investment case but he just couldn’t be bothered with going there. Rather than looking for the best investments in the entire country, he focuses on the best investments he can make within a certain self-imposed hassle factor.
Another good reason for picking a certain area is that you have family or friends there. This has dual benefits: it’s likely to be somewhere you visit occasionally anyway, and you’ll have the beginnings of a network there already. These contacts can pay off: I spoke to an investor from Plymouth who bought a fixer-upper near where his family lives in Birmingham, and before he’d even finished refurbishing the property he’d found tenants through work contacts of his relatives. Even if Auntie Jean doesn’t happen to know a potential tenant or a good plumber, she will at least be able to speed up your research by giving you her opinion on the different parts of town and where she’d want to live.
You could also choose an area because you know other people who are successfully investing there. “Coat-tail investing” is a recognised investment strategy when it comes to the stock market, and there’s no reason not to follow it in property too: if you know they’re getting good results, why re-invent the wheel? There are no bonus points for originality… and if you’re friendly with them, you can get their opinions on where to invest and maybe even tap into their local network. I’m only mildly embarrassed to admit that I bought two units in a building in Nottingham purely by copying (with permission) a friend: his research showed that it had particularly strong prospects and I agreed, so why not?
Finally, of course, you could pick an area where none of the above apply but you see a particularly strong investment case – perhaps based on improvements that are planned for the future, demographic changes that you’ve recognised, or anything else. I’m happy to admit that I’m not that smart, which is why I’ve listed all the other reasons first – but if you can go against the herd and get it right, you’ll deservedly get the very best returns.
Where not to invest
I’ve said that you don’t need to concern yourself with finding the absolute best investment location, but you definitely want to steer clear of areas that won’t work well. So how can you identify them and stay away?
The best investment areas are underpinned by solid fundamentals: jobs, schools, shops, leisure facilities and transport links. This shouldn’t come as a massive surprise, because they’re the same factors that you’re likely to use when deciding where to live – and “people wanting to live there” is a rather critical concern when assessing a buy-to-let investment.
Areas that don’t work are therefore locations with an absence of these fundamentals.
… Which rules out rural locations. Cottages in tiny villages might make for brilliant holiday lets, but for mainstream buy-to-let there just won’t be enough demand to put an upward pressure on rents (the population is low, and most people who move there will want to buy).
Also ruled out, for me at least, are areas that lack employment opportunities and don’t have good transport links to other centres of employment. A classic example of this is Haverhill in Cambridgeshire: it’s only 20 miles from Cambridge but doesn’t have its own station, which means it’s difficult to travel to nearby towns with good jobs. As a result, property prices are held down compared to the rest of the region, and there’s a shortage of professional tenants. Some investors operate very successfully there by targeting the LHA market, but it’s not for me – both because of the hassle-factor and the fact that capital growth is unlikely.
So, unless it’s part of a deliberate strategy, avoid areas without fundamentals. That doesn
’t mean you should just plonk your cash anywhere with a few shops, transport links and a gym though: some areas have an abundance of fundamentals yet still make for poor investment locations. Why? Because of a “prestige” factor that makes them relatively expensive places to buy. Places like Chester, Oxford and London fall into this category.
Of course, “expensive” doesn’t necessarily mean “poor ROI” if the rents are equally high, but it’s generally the case that in areas with very expensive housing, the rents aren’t increased by an equivalent amount to make investments stack up. If you bought a house for £500,000, you’d need to rent it out for £2,900 per month to get a 7% yield, which in most cases just isn’t going to happen – whereas a £250,000 house renting for £1,450 (achieving the same yield) is easily possible.
When I talk about avoiding certain types of area, I only mean to give general guidelines. Property investment can work anywhere, and some people do extremely well in the types of area I’ve warned you about above. If you know exactly what you’re doing, go for it. If you’re a beginner, I’m just trying to steer you towards the locations where you’ll get the easiest ride.
Getting into more detail
Once you’ve finally stopped agonising and picked an area to focus on, decisions still need to be made: there’s quite a gap between “Manchester is the place for me!” and “Right, I’m off to look at properties!” Which part of Manchester? Where in that area? What type of property in that area? Those are questions you’ll want to answer to some extent before you go out shopping.
In every town or city I’ve researched, no matter how small, I’ve found a range of areas with different characteristics. Even if you pick somewhere relatively tiny like St Helens (with a population of just over 100,000), there will be parts that are cheaper and more expensive, more and less desirable, geared towards different types of tenants, and so on.
The process I use to better understand the range of opportunities within a town progresses from “embarrassingly vague” to “unbearably specific”.
I’ll usually start with something as basic as Googling a phrase like “areas in [town]”. Somewhere on the first page or two – beyond the Wikipedia and local council links (which can be useful in their own right) – there will normally be some kind of message board thread discussing the pros and cons of different parts of town.
While any single post should be taken with a barrel of salt (and there are usually completely contradictory opinions of the same area within the same thread), over time you’ll start to see patterns emerge. Which are the areas (or postcodes) where people always say “avoid”? Which are recommended to people with young families? It sounds simplistic, but as you start learning about these different areas and looking them up on a map, you’ll start to develop a surprisingly accurate picture of the general geography of an area.
From this, you can draw up a shortlist of a few areas to look at in more detail. Your shortlist will depend on your strategy. If you’re looking for dirt-cheap properties that are likely to yield well, the areas that people say “avoid” might be the first you want to explore. If flipping is your strategy, you need an area with high buyer demand – so you’ll be looking for places that families or young couples want to move to. A niche strategy like students or HMOs might take you in a different direction again – with proximity to universities/colleges and transport links respectively being the factors to look for.
The next step for me is always to establish a rough idea of price norms in each area of interest. The quickest (and least accurate) way of doing this is to use a site called home.co.uk. Head over there, select “Prices & Rents” and search for the first part of the postcode, such as LS10, M27 or BS3 (the “House Prices” button should be checked). On the results page, look for the link called “Selling prices since 1995”. This will show you a variety of reports (broken down by property type, number of bedrooms, etc.) relating to prices now and over time. Now you can see how much, for example, the average three-bedroom property in this postcode will set you back.
You can then repeat the search by going back to the homepage and looking at “Market Rents” reports to get a feel for the kind of rents that are achievable, too. It’s exceptionally rough and ready, but by combining the two reports you’ll get some idea of where prices are beyond your reach, where rents appear to be reasonably high compared to prices, and so on.
To get meaningful results using home.co.uk, your area of interest needs to map with some accuracy to the first part of a postcode. This works brilliantly in some towns, but in others the postcode areas are too large to be of any use. If that’s the case, you can skip ahead to the next step: this step was only to give you a rough idea, and the next one gives you much better data anyway.
For a deeper dive, it’s time to roll up your sleeves and do a bit of manual Rightmove browsing. (Zoopla works perfectly well too – I just choose to use Rightmove.) Using a full postcode within an area of interest, search for properties for sale within 1/4 mile of that postcode (opening it up to 1/2 mile if you don’t get many results). Go straight over to “map view” and start hovering your mouse over each of the pins representing a property for sale, looking out for patterns that emerge.
(To find a full postcode in an area you’re interested in, the easiest way is to just Google a shop you can see on the map – its postcode normally comes up in the search result.)
Again this is more of an “art” than “science” approach, but by exploring the map you’ll quickly be able to build up a general idea of how much properties cost in a given area – like a range of £100,000 to £130,000 for a three-bedroom house. You’ll also start to get a feel for “micro-location”: you’ll notice undrawn boundaries where a “good” area ends and a “bad” area starts, just by looking at changes in house prices and the type of housing on offer. You’d never have achieved this level of detail from a postcode or a message board thread, but it emerges quickly as you browse around – especially as you get used to doing it.
Then, the natural next step is to repeat the process of browsing the map for properties to rent, to get a feel for how rents vary across the area. By putting these two pieces of information together, you can calculate very rough gross yields for different parts of town: multiply what seems to be the average monthly rent by 12, then divide it by what seems to be the average purchase price.
When I perform this process, I inevitably start to get a lot more geeky at some point – finding out lots more about each area while also pinning down the exact prices and rents. For now, though, this is enough: you should have a shortlist of areas that look appropriate to your strategy, are within your price range, and where yields seem to be acceptable.
Of course, there’s still further to go before you buy – you need to get from a general area like “Headingley”, “Parr” or “Bow” down to the specific streets that you would and wouldn’t buy on – but now we’re getting into the territory of assessing actual deals, which we’ll be covering in the next chapter.
This research process isn’t easy to describe in writing, so I’ve recorded a video of me sharing my screen as I go through the actual process I use. It’s totally free – all you need to do is register at propertygeek.net/extra.
Now that you’re more comfortable with identifying areas you’d consider investing in, you’re probably starting to think “OK, great… so how do I FIND opportunities in these areas?”. That’s what we’ll get onto next. But first, a few notes:
I bet you my highest-yielding property that at some point during reading this book the thought “Hmm, should I be looking at houses or flats?” will have popped into your head. In my opinion, it doesn’t much matter and I own both. The lack of control you get with blocks of flats is annoying sometimes, but so are all the issues you have to deal with (and pay for) with houses that are taken care of for you with flats. If you have a strong preference for one or the other, that’s fine: I won’t try to persuade you otherwise. But if you’re not religious about these
things, just continue to consider both for now.
This whole research process is, of course, assuming you have to figure it all out for yourself. If there’s someone you can ask about a particular area (a local letting agent would be good, but even your cousin who’s lived there for 20 years would be helpful), that’s always going to save time and give you more reliable data.
If you can, this would be a great point to actually visit the area and test your assumptions about it: you’ll build your confidence by putting your new knowledge to the test, and you can also start building up that critical street-by-street knowledge. Over time, you’ll find that your research is so well-honed that you’re seldom surprised by what you do find when you visit, but that probably won’t be the case with your first few investments.
Chapter 8
Finding deals
Having pinpointed where you want to buy, now it’s a case of finding properties you can buy.
If you’re happy with an average deal, it’s not difficult: go on Rightmove, find something that looks like it meets your criteria and offer 5–10% below the asking price. You’ll be the proud owner of a new property before you know it.
It might seem like I’m looking down on this approach, but I’m not at all. Yes, you’ll do better if you dig deeper and put more effort into finding great deals, but your strategy might not require it. That’s why Part 1 was there: once you’ve set your goals and your strategy, you can decide how much effort it’s worth putting in to dig through the “average” deals in order to find the “good” or the (very rare) “great”.
