People who intend to make property investment their business tend to start by buying close to home. That’s partly because they’ll often manage the properties themselves – at least until they’re up to four or five – so don’t want to travel far, and partly so that they can become experts on the area. Once you’ve got to grips with prices, know the micro-market really well and have built up reliable local contacts, great deals tend to find you and you know almost instantly whether a property stacks up as a viable investment.
Once you’ve got a small, stable portfolio locally, you might start to diversify and look at making some more speculative investments further afield.
But that’s ‘professional’ investors. What if you’re just looking at buying one, maybe two properties as a long-term pension plan? You’re not planning on taking any day-to-day interest in letting and managing, you just want to buy and leave it for 20 years, then reap the reward of capital growth…
In that case, remember that there are two general truths:
- You can almost certainly find a great investment within 20 minutes of where you live, and
- The higher the reward, the greater the risk.
People always want to know where the current ‘hotspots’ are. The reality is that areas where prices are rising rapidly and potential returns are the highest are either:
- where it’s hard to get mortgages – that’s usually overseas in ‘emerging markets’ or in areas of the UK that are about to undergo regeneration and have a lot of dilapidated properties, or
- in highly sought-after neighbourhoods that are always near the top of the house price index.
In both cases, you’re almost certainly going to have to invest a very large amount of capital. And where the property is cheap, if you’ve got in at an early enough stage for the chance to get decent rewards, you’re also taking a big risk that the area might not actually perform as well as promised, a couple of years down the line.
You’ve also got to bear in mind that by the time most of us have heard about a supposed hotspot, i.e. developments have been farmed out to investment companies and there are pretty CGI pictures in the media, the market’s already ‘emerged’. That means most of the growth has already happened, so it’s no longer ‘hot’ from a returns point of view – only from the perspective that there’s a hot rush of ‘armchair’ investors!
If you’re not too worried about making massive returns and just want a decent, ‘safe’ investment, you might be tempted by the latest popular opportunities, perhaps the new wave of purpose-built student accommodation, funded by institutional investment and offering landlords a convenient, fully-managed service for the long term. They’re usually to be found in major university cities, including Manchester, Liverpool and London, and that may be some distance from you.
While the returns quoted may appear attractive, bear in mind that they’re generally gross, not net, and by the time you’ve paid your annual service and management charges, made the mortgage payments and covered any maintenance costs, you might not have much left over from the rental income. As for capital growth, you can only realise that when you remortgage or sell the property and you’ve got to consider who the eventual buyer might be. Whenever multiple, similar units are sold to investors, there’s always a big risk of oversupply and – as we saw with UK city centre flats and Spanish holiday homes in the early 2000s – estimated capital growth can easily turn into negative equity.
So forget chasing supposedly brilliant deals around the country or further afield. Even though you’re not a professional investor, there are big benefits to buying in your own neck of the woods.
First of all, you don’t need to be an expert to have a fair idea of what different properties are worth in the area where you live and/or work, so you’ll probably have a natural inkling whether something is a ‘good buy’. Secondly, regardless of whether you’re managing the property yourself, it’s reassuring to be able to visit it – even for just a drive-by to keep an eye on the general appearance. And, thirdly, if anything does require your attention, you don’t have to travel miles and spend days away from home sorting out a problem at the other end of the country, where everything’s unfamiliar.
If you’re not convinced (!) and still want to know where’s considered hot, have a read of The Telegraph’s article, ‘The UK’s top 20 investment hotspots in 2017’, based on research from Barclays and published in May of this year.
Then pop down to a good local estate and letting agent and have a chat about what’s on your doorstep 😉