First hand research is critical, you can't believe everything you are told, so you must do your own research, this is normally referred to as Due Diligence.
You can not hold anyone else responsible for the decisions you make, so you have to be as sure as you can be about the facts and information you have at your disposal.
You will invariably find instances when you have to go with your best guess or gut instinct, but these situations should be in the minority, good research and credible information are paramount in the Property world.
One key thing to remember in the research process, if someone is trying to sell you something then they are not usually the best source of factual information, especially if they are working on a commission basis.
Also, when purchasing off a development through a Finder or Broker, they may try to persuade you by saying that the deal is so good they are buying a few units themselves.
On the face of it this is a powerful argument, but in reality it can often be just a sales ploy.
Consider that the Finder will get a 1%, 2% or even 3% Finder's Fee on each unit they sell, multiply that across how many units they are representing in the development and you will see that, in many cases, they can afford to take a loss on the units they buy themselves (if in fact they are buying any), as long as they can sell the remainder.
In other instances the Finder may have bought the units up front and then is selling them on for a profit margin as well as a Finder's Fee, this only increases their ability to make a loss on any units they may choose to buy themselves.
Be wary.
What Type of Property Will You Buy? Quite simply, the type of property you should buy is the type of property that is in demand.
It doesn't matter what it is so long as other people want it and it will make a profit.
These days builders and developers are building apartment blocks specifically for Investor demand, this means that they may have done no research at all into the area to see if people actually want to buy and live there or rent the properties, this is an example of supply.
You are looking for the other side of the equation, demand.
it is quite often a safer bet to look at traditional, established housing where the demand is easier to determine rather than some brand new building that has no history behind it.
After all, there are only so many people that can or want to live in the inner city.
Obviously once you have found an area of demand there must be a supply properties or you can't buy anything, but there are ways to generate supply in areas of high demand.
Supply and Demand In Property there is an old saying that the three most important things in a property are "Location, location and location".
This is true when comparing apples with apples, meaning that out of two similar properties the one in the best location will normally be most desirable.
But when looking at Buy To Let it is more important to assess "Demand, demand and demand".
There is no point in buying a flat in a beautiful location if no one wants it.
Many people look at factors like shops, facilities, transport, hospitals and general infrastructure in the local area, but it doesn't matter what is in the locale if people don't want to live there.
Conversely, there may be no facilities at all yet people still want to live there, for whatever reason.
Don't get tied up or bogged down in analysing the crime rate, council tax or schools, (although these factors can be important) if it is in demand then this is the most important factor to start your analysis of the property.
Similarly, you can't buy a flat that is close to a university or hospital and expect to let it out instantly, many other Landlords have usually had the same idea.
Therefore, you may face stiff competition to let your flat and this normally means you will have to lower your rent to compete or add some incentive, both of which directly affect the profitability of your business venture.
There may well be instances where there is genuine demand near a university or hospital, but you should be lead to an area and property by the demand and not the existence of local amenities that are currently present or promised for the future.
Many times the sales patter will include future developments in the area like a new train station, shopping mall, cinema complex or something along these lines, it is best to ignore these things and focus on "day one" value and status.
How Will You Find Property to Rent? Again, it is a matter of demand, but how do you establish demand? One simple method is the "Pin in the Map".
Before we discuss this method we need to digress slightly and decide what kind of return on your investment you are looking for.
Do you want an immediate income from positive cashflow or are you looking for long term appreciation from capital growth? The two are not necessarily mutually exclusive, it is possible to find a property that will represent both investment options.
However, as a rule a single property will tend to lean towards either positive cashflow which is best achieved in the North, or capital growth which is best achieved in the South.
It must be stated that this is a vast generalisation but it is a very good rule of thumb when you are starting out.
These investment types are dealt with in more detail below.
The North South Divide So now you have decided which investment type interests you most, it is a simple matter of getting a map of England and drawing an East-West (horizontal) line across the country, roughly through Birmingham and Peterborough.
This is your North/South Divide.
Now take a pin, close you eyes and stick it in the map, in either the North region or the South region depending on what investment type you are primarily after.
Find the closest town to where your pin has ended up and this is your starting point.
Now get the Yellow Pages, Thompson Local Directory or whatever resource you prefer and find all the Estate Agent and Letting Agent addresses and telephone numbers in that area.
It is normally best to visit the area and physically walk the streets but you can make your initial enquiries over the telephone.
Contact the local Letting Agents and see if they have Tenants waiting for places to rent, i.
e.
demand.
if so, ask what kind of places are in demand, 1 bedroom, 2 bedroom, etcetera.
Find out what the local market is like, do people generally want a flat furnished or unfurnished, is a parking space important and any other likes or dislikes.
There are many factors to consider and enquire about, make friends with the Agent and get them talking about what is going in their immediate area.
Local knowledge is often the edge you need to make an informed decision.
Always make notes, you will more than likely investigate many different areas and it is easy to forget what was said.
Also, you can compare what each Agent in the area has to say, just to make sure they are not talking hot air or trying to lead you astray.
Once you have established what is in demand in the area you can call the local Estate Agents to find out if any of these type of properties are available.
Obviously every area will be different and you can not always match up rental demand with sale supply, but you can get creative and manufacture the supply in a number of ways.
For instance, if the demand is for 1 bedroom flats or studios you could buy a 3 or 4 bedroom house and convert it.
The initial capital outlay will more than likely be higher and there are more issues to consider, like planning permission, but the returns may well be higher as well.
It is generally accepted that you can let out two 1 bedroom flats for more than one 2 bedroom flat.
Work through the numbers and see if it makes sense.
It is worth noting that there are specific laws and rules governing the requirements for Houses of Multiple Occupancy (HMO) and these can make setting up an HMO a costly exercise.
Check into any such costs before committing to buy a property for this kind of activity.
If your chosen area lacks supply of the right properties and the rental demand is good, you can always approach owners of the type of properties that you want and make them an offer.
This can be achieved by dropping a note, business card or leaflet through the letterbox.
You need to know in advance what kind of price range is acceptable to you and your area, so if an owner contacts you then you are prepared to discuss numbers and you know your limits.
No matter how the conversation or negotiation goes you should always make an offer that suits your budget and circumstances, even if it is very low.
You never know what the owner's/vendor's circumstances are and they may contact you back latter on to renegotiate or even accept your offer if they are in a difficult financial situation.
What Resources are There to Assist? There are so many resources out there to assist you in your property research, but they all need you to make an effort, the information does not just arrive of its own accord.
You should be diligent in your research as it is after all you financial investment that is at stake.
Do not rely on an individual resource for accurate information, always cross reference or corroborate it with another source.
You can use any and all of the following to find information :
Do not try to compare the locale with another part of the country, each area has its own specific property market and market conditions, these can vary from village to village.
There is no such thing as a national property market in respect to supply, demand, pricing and movement.
Always focus on one area at a time to avoid confusion.
Always ensure that you are looking at true demand, not just supply dressed up to look like demand.
What Type of Tenant Will You Seek? As much as it is a mistake to buy a property on the basis of supply rather than demand, so too, it is generally a mistake to base the purchase of your rental property on a specific type of Tenant that you wish to attract.
Similar to the ideas expressed above regarding surrounding amenities, there is no point buying a posh apartment thinking that this is what urban professionals want and will pay lots of money to rent.
Whereas this may true in an area of high demand for this type of property, you can not create the demand simply by supplying something that you think is wanted.
As always, your investment should be based upon local information and what the current state of the local market is, not tomorrow, next week or a year hence, but today.
Demand will fluctuate, you cannot change this, but it is better to buy what people want now than what they might want in 12 months time.
If you research the local market properly and supply the type of properties that the local people want, then it is you that will be sought by Tenants who want your flat, and not you who is constantly advertising and chasing Agents and Tenants to let out your empty flat.
Where in the Country Will You Buy? The most common assumption subconsciously made by those new to Buy To Let, and even by some veterans, is that there is a perfect place somewhere in the country to buy and let property, some kind of Property Investor's nirvana.
There is no such place.
The best place to buy is where there is genuine demand.
The Best Place To Buy It is true that some people have found areas that have had consistently high rental demand, year after year, and they have made a good living from letting properties in these areas.
But as soon as a location gets known as a "hot spot" every man and his dog floods into the area, buying up places to let out.
What happens then is a simple matter of basic market economics, the balance swings from Demand to Supply and, because the Tenants suddenly have so much choice, the rent starts to fall as the competition increases between Landlords.
Remember that property markets are as local as the village or borough that they are in and that there is a general North/South divide on investment types, either positive cashflow or capital appreciation respectively.
You can not hold anyone else responsible for the decisions you make, so you have to be as sure as you can be about the facts and information you have at your disposal.
You will invariably find instances when you have to go with your best guess or gut instinct, but these situations should be in the minority, good research and credible information are paramount in the Property world.
One key thing to remember in the research process, if someone is trying to sell you something then they are not usually the best source of factual information, especially if they are working on a commission basis.
Also, when purchasing off a development through a Finder or Broker, they may try to persuade you by saying that the deal is so good they are buying a few units themselves.
On the face of it this is a powerful argument, but in reality it can often be just a sales ploy.
Consider that the Finder will get a 1%, 2% or even 3% Finder's Fee on each unit they sell, multiply that across how many units they are representing in the development and you will see that, in many cases, they can afford to take a loss on the units they buy themselves (if in fact they are buying any), as long as they can sell the remainder.
In other instances the Finder may have bought the units up front and then is selling them on for a profit margin as well as a Finder's Fee, this only increases their ability to make a loss on any units they may choose to buy themselves.
Be wary.
What Type of Property Will You Buy? Quite simply, the type of property you should buy is the type of property that is in demand.
It doesn't matter what it is so long as other people want it and it will make a profit.
These days builders and developers are building apartment blocks specifically for Investor demand, this means that they may have done no research at all into the area to see if people actually want to buy and live there or rent the properties, this is an example of supply.
You are looking for the other side of the equation, demand.
it is quite often a safer bet to look at traditional, established housing where the demand is easier to determine rather than some brand new building that has no history behind it.
After all, there are only so many people that can or want to live in the inner city.
Obviously once you have found an area of demand there must be a supply properties or you can't buy anything, but there are ways to generate supply in areas of high demand.
Supply and Demand In Property there is an old saying that the three most important things in a property are "Location, location and location".
This is true when comparing apples with apples, meaning that out of two similar properties the one in the best location will normally be most desirable.
But when looking at Buy To Let it is more important to assess "Demand, demand and demand".
There is no point in buying a flat in a beautiful location if no one wants it.
Many people look at factors like shops, facilities, transport, hospitals and general infrastructure in the local area, but it doesn't matter what is in the locale if people don't want to live there.
Conversely, there may be no facilities at all yet people still want to live there, for whatever reason.
Don't get tied up or bogged down in analysing the crime rate, council tax or schools, (although these factors can be important) if it is in demand then this is the most important factor to start your analysis of the property.
Similarly, you can't buy a flat that is close to a university or hospital and expect to let it out instantly, many other Landlords have usually had the same idea.
Therefore, you may face stiff competition to let your flat and this normally means you will have to lower your rent to compete or add some incentive, both of which directly affect the profitability of your business venture.
There may well be instances where there is genuine demand near a university or hospital, but you should be lead to an area and property by the demand and not the existence of local amenities that are currently present or promised for the future.
Many times the sales patter will include future developments in the area like a new train station, shopping mall, cinema complex or something along these lines, it is best to ignore these things and focus on "day one" value and status.
How Will You Find Property to Rent? Again, it is a matter of demand, but how do you establish demand? One simple method is the "Pin in the Map".
Before we discuss this method we need to digress slightly and decide what kind of return on your investment you are looking for.
Do you want an immediate income from positive cashflow or are you looking for long term appreciation from capital growth? The two are not necessarily mutually exclusive, it is possible to find a property that will represent both investment options.
However, as a rule a single property will tend to lean towards either positive cashflow which is best achieved in the North, or capital growth which is best achieved in the South.
It must be stated that this is a vast generalisation but it is a very good rule of thumb when you are starting out.
These investment types are dealt with in more detail below.
The North South Divide So now you have decided which investment type interests you most, it is a simple matter of getting a map of England and drawing an East-West (horizontal) line across the country, roughly through Birmingham and Peterborough.
This is your North/South Divide.
Now take a pin, close you eyes and stick it in the map, in either the North region or the South region depending on what investment type you are primarily after.
Find the closest town to where your pin has ended up and this is your starting point.
Now get the Yellow Pages, Thompson Local Directory or whatever resource you prefer and find all the Estate Agent and Letting Agent addresses and telephone numbers in that area.
It is normally best to visit the area and physically walk the streets but you can make your initial enquiries over the telephone.
Contact the local Letting Agents and see if they have Tenants waiting for places to rent, i.
e.
demand.
if so, ask what kind of places are in demand, 1 bedroom, 2 bedroom, etcetera.
Find out what the local market is like, do people generally want a flat furnished or unfurnished, is a parking space important and any other likes or dislikes.
There are many factors to consider and enquire about, make friends with the Agent and get them talking about what is going in their immediate area.
Local knowledge is often the edge you need to make an informed decision.
Always make notes, you will more than likely investigate many different areas and it is easy to forget what was said.
Also, you can compare what each Agent in the area has to say, just to make sure they are not talking hot air or trying to lead you astray.
Once you have established what is in demand in the area you can call the local Estate Agents to find out if any of these type of properties are available.
Obviously every area will be different and you can not always match up rental demand with sale supply, but you can get creative and manufacture the supply in a number of ways.
For instance, if the demand is for 1 bedroom flats or studios you could buy a 3 or 4 bedroom house and convert it.
The initial capital outlay will more than likely be higher and there are more issues to consider, like planning permission, but the returns may well be higher as well.
It is generally accepted that you can let out two 1 bedroom flats for more than one 2 bedroom flat.
Work through the numbers and see if it makes sense.
It is worth noting that there are specific laws and rules governing the requirements for Houses of Multiple Occupancy (HMO) and these can make setting up an HMO a costly exercise.
Check into any such costs before committing to buy a property for this kind of activity.
If your chosen area lacks supply of the right properties and the rental demand is good, you can always approach owners of the type of properties that you want and make them an offer.
This can be achieved by dropping a note, business card or leaflet through the letterbox.
You need to know in advance what kind of price range is acceptable to you and your area, so if an owner contacts you then you are prepared to discuss numbers and you know your limits.
No matter how the conversation or negotiation goes you should always make an offer that suits your budget and circumstances, even if it is very low.
You never know what the owner's/vendor's circumstances are and they may contact you back latter on to renegotiate or even accept your offer if they are in a difficult financial situation.
What Resources are There to Assist? There are so many resources out there to assist you in your property research, but they all need you to make an effort, the information does not just arrive of its own accord.
You should be diligent in your research as it is after all you financial investment that is at stake.
Do not rely on an individual resource for accurate information, always cross reference or corroborate it with another source.
You can use any and all of the following to find information :
- The Internet offers many websites for property research, just make sure you check the date of the information.
- Newspapers in general can give you good indications of what is going on.
- Estate Agent publications that lists what is currently on their books.
- Estate Agent's window displays showing what is for sale and what has sold, go in and ask for how much.
- Letting Agent's current listings sheet to see what is available to let and what the rental is.
- Classified publications like Loot can be a good source of local information.
- The Yellow Pages and Thompson's Local Directories can be useful for find local trades people if you need quotes for building or other works.
Do not try to compare the locale with another part of the country, each area has its own specific property market and market conditions, these can vary from village to village.
There is no such thing as a national property market in respect to supply, demand, pricing and movement.
Always focus on one area at a time to avoid confusion.
Always ensure that you are looking at true demand, not just supply dressed up to look like demand.
What Type of Tenant Will You Seek? As much as it is a mistake to buy a property on the basis of supply rather than demand, so too, it is generally a mistake to base the purchase of your rental property on a specific type of Tenant that you wish to attract.
Similar to the ideas expressed above regarding surrounding amenities, there is no point buying a posh apartment thinking that this is what urban professionals want and will pay lots of money to rent.
Whereas this may true in an area of high demand for this type of property, you can not create the demand simply by supplying something that you think is wanted.
As always, your investment should be based upon local information and what the current state of the local market is, not tomorrow, next week or a year hence, but today.
Demand will fluctuate, you cannot change this, but it is better to buy what people want now than what they might want in 12 months time.
If you research the local market properly and supply the type of properties that the local people want, then it is you that will be sought by Tenants who want your flat, and not you who is constantly advertising and chasing Agents and Tenants to let out your empty flat.
Where in the Country Will You Buy? The most common assumption subconsciously made by those new to Buy To Let, and even by some veterans, is that there is a perfect place somewhere in the country to buy and let property, some kind of Property Investor's nirvana.
There is no such place.
The best place to buy is where there is genuine demand.
The Best Place To Buy It is true that some people have found areas that have had consistently high rental demand, year after year, and they have made a good living from letting properties in these areas.
But as soon as a location gets known as a "hot spot" every man and his dog floods into the area, buying up places to let out.
What happens then is a simple matter of basic market economics, the balance swings from Demand to Supply and, because the Tenants suddenly have so much choice, the rent starts to fall as the competition increases between Landlords.
Remember that property markets are as local as the village or borough that they are in and that there is a general North/South divide on investment types, either positive cashflow or capital appreciation respectively.