Building a sound property investment strategy – top five considerations
Choosing the right property investment strategy is a decision that you should make as early as possible in your investment journey. There’s a number of different strategies beyond buy/sell and renting and it’s important that you identify one that will help you meet your goals.
From Buy-to-Let to HMO’s, we’ve put together the top five considerations you should take on board to build a sound property investment strategy.
Whether you’re looking at property investment for the first time or you’re a seasoned investor, ensuring you have a robust strategy will set you up well for the future.
1. Map out the investment hotspots
Successful investors will regularly review where rental demand is at its highest. Competition can often be intense in popular, up-and-coming areas so it’s vital to pinpoint the locations with vast potential quickly.
In London for example, the 2012 Olympics opened up a wide range of potential property investment opportunities. The problem is, everyone knew that would happen. The key to success is to stay up to date on smaller developments that will elevate certain areas, staying ahead of the market.
More recently, we can look at Birmingham and the upcoming 2022 Commonwealth Games. This will draw a huge amount of interest from investors looking at the city centre but it’ll be worth looking at surrounding areas that might benefit.
Take HS2 for example. After completion, the regeneration of Digbeth and the Eastside area will be kickstarted. already we’re seeing savvy investors looking at these Birmingham locations because of the potential that HS2 will offer in terms of connectivity. Developers have also noticed, with a number of developments currently in either planning or construction stages.
According to the Office for National Statistics, whist the UK’s rental market rose on average by 1.2% in the 12 months to December 2017, the Midlands’s average rental increase reached 2%.
Look at the introduction of new commercial projects, bars and infrastructural changes. These kinds of developments can completely transform the perception of an area among renters.
2. Familiarise yourself with the latest property legislation or tax reforms
Staying abreast of any legislation changes or reforms can ensure that you’re not caught short. Landlord tax reforms have been one of the most important, gradually scaling back mortgage interest tax relief until 2020 when it will become zero.
While these reforms often have a major impact on the market and landlords, there are still multiple strategies available to investors that want to maximise their returns.
3. Stay up to date on lifestyle and property market trends
Recognising the direction the market is moving can be the key differential between an inexperienced investor and a seasoned veteran. Understanding the property market can help inform whether to opt for a long-term or short-term strategy.
For example, if you were to look at the amount of people that are moving to city centres for long-term renting, you’ll instantly be better informed to make a choice on not only location but asset type you’re looking for.
As ‘Generation Rent’ continues to grow in popularity, young professionals are looking for ‘access, not ownership’. They value mobility and are put off by long-term financial commitments. Flexibility is the priority and knowing this can make the difference between a failed and successful investment.
This infographic published by Goldman Sachs explained the theory behind this.
The consumerisation of technology has also played into property investors’ hands. The immense popularity of Airbnb is a great case in point, with the company recently revealing that the number of business trips being booked through the platform tripled in 2016.
While it’s impossible to predict exactly when and where the market will go, there’s no harm in future-proofing your investment strategy with some supporting research.
4. Consider Off-Plan property investments
Off-Plan property investments are not the most traditional but have become increasingly attractive recently.
Off-Plan can offer excellent capital appreciation during the build period and strong rental yields when it completes. Because most off-plan property is new build, the latest services, facilities, build warranties and appliances are provided, creating a more desirable apartment.
With no agent, buying direct from the developer can also help with keeping costs down.
Although every investment comes with its own risks, it can pay to get in early on a development that will either have a transformational impact or benefit from those in the surrounding area.
As always, do your research, check the details or any warranties or guarantees and work with a trusted developer. Remember, in the right circumstances, there can be a lot to gain from securing your investment before it hits open market and increases in price.
5. Be vigilant, perform your due diligence and don’t get distracted
The property market can be fickle. House prices and rental prices fluctuate all the time. It’s common for a first-time investor to suddenly throw out their strategy for a new one every time there’s a dip in the market.
It’s vital to stay vigilant and have trust in your investment. Do not let small setbacks or dips dictate your future decisions. As an example, at the end of 2017, the Halifax HPI showed that property prices dropped by 0.6% in December compared to November. Looking at the big picture, we saw that house prices were actually rising by 2.7% year-on-year.
Despite the media focusing on the falling property prices, the average property value had actually risen steadily over 12 months. While this might not be as attractive as a headline, it shows that property investment requires commitment and practice.
This kind of research should fall under your due diligence procedures during the investment. The more research you perform around a potential location, the better prepared you’ll be.
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