Buy-to-let: spotting the best place to invest

While the residential market has many potential flaws, property investor and author Gill Fielding argues there are still many opportunities for investors.

Even the Government has effectively admitted that the UK housing market is broken, unveiling a white paper in February promising a fresh wave of home building.

Homeownership can seem like a pipe dream for young families and first-time buyers, with average house prices raised to 7.5 times average incomes and rents in many places swallowing more than half of take-home pay.

But from an investment point of view, I think the market is far from broken – despite the continued crackdown on the sector.

All the fundamentals still there

The scarcity of available housing versus demand means that housing as a commodity is generally a sound investment.

In addition, house prices in the UK have been appreciating consistently since the 1960s and the market shows little sign of reversing the trend.

However, with high property prices and the uncertain political context of Brexit and the current Government, it certainly makes sense to approach your investment with extra care.

So how can you identify the safest place for your property purchase?

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No perfect solution

As a property investor for over 40 years, one of the most frequent questions I get asked is “Where’s the best location to buy an investment property?”

In all honesty, I struggle to answer the question.

I believe the question is fundamentally flawed: there is no ideal place to buy (not without hindsight at least), just as there isn’t any ideal time to start – so you may as well just get on with it when you’re financially ready.

The idea that there is a geographical place, or a specific address for the perfect investment is clearly an unsafe assumption and also quite a worrying one, as it illustrates tunnel-vision thought patterns by a potential investor who should be approaching the subject with quite the opposite outlook.

I have heard many silly stories over the years, including comments such as “Oh, buy-to-let doesn’t work in London”.

A place as big as London obviously has a wide variety of properties and property prices as well as very specific and localised demand and supply.

So it’s short-sighted to generalise that certain types of investing do or don’t work in any overall geographical area because, frankly, as long as you can find one property in that area that works for you then the investment does work!

But what we can say is that investing works best in some places.

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Location, location, location

For instance every time I send a letter off to the DVLA in Swansea I think about where all the workers at the DVLA live.

There must be thousands of them, and they all need to live somewhere, so my guess is that the part of Swansea near the DVLA must be a good investing environment.

In the same line of thought, if you can find a good property in the road next to a university campus, that is likely to work, and likewise, how about a nice house next to a teaching hospital where there are likely to be young medical students and nurses looking for digs?

As you can see, it’s not so much a stand-alone geographical location that works; it’s more a situation that works.

To help you identify the situations – and consequently the investment opportunities – that will work anywhere, here’s my LOCATION mnemonic:

L is for local situation – look for the major employer, the university, the retail park or the school that creates the regular, consistent and appropriate pocket of demand you need for the property.

O is for on the road – an investment property needs to be near enough to a main road that the tenant has easy access to everything they might need.

C stands for cash flow – the investment needs to provide you with cash sooner rather than later. Look for properties that are already tenanted, since they will provide cash from day one.

A is for analysis – you must analyse the returns before you commit to buy, as the property must provide an appropriate return, either as a monthly rental income or as a capital return if you decide to flip it quickly.

T stands for tenants – these are the lifeblood of your property. Only ever buy where there is a good regular supply of tenants.

I and O together stand for ‘I O, I O, it’s off to work we go!’ – you want your tenants to be employed if possible, and therefore your property has to be as close to as many sources of employment as possible.

N stands for newspapers, bread and milk –  make sure your property is within a short walk of some general stores and services, such as a grocery, a petrol station, a pub, a post office, and anything else that is important in daily life.

There you have it. The success of the investment is all about maximising the chances of getting a tenant or a buyer and achieving a financial return for the property.

We can most easily do that if we have volume of population and lots of options: so the more you can buy properties that will appeal to a majority of renters and/or buyers, the better.

Solving the Property Puzzle: A guide to successful property investment by Gill Fielding is available on Amazon priced £12.99. For more information go to www.fieldingfinancial.com.