CONTENTS: INTRODUCTION - ASHFORD, KENT - BATH, SOMERSET - BECKENHAM, KENT - BEDFORD, BEDFORDSHIRE - BILLERICAY, ESSEX - BIRMINGHAM CITY CENTRE, BIRMINGHAM - BOURNEMOUTH, SUSSEX - BRENTWOOD, ESSEX - BRIGHTON, SUSSEX - CAMBRIDGE, CAMBRIDGESHIRE - CANTERBURY, KENT - CARDIFF, WALES - CHELMSFORD, ESSEX - CLEETHORPES, LINCOLNSHIRE - COLCHESTER, ESSEX - EPPING, ESSEX - GRANTHAM, LINCOLNSHIRE - GREAT YARMOUTH, NORFOLK - GUILDFORD, SURREY - IPSWICH, SUFFOLK - KETTERING, NORTHAMPTONSHIRE - KINGS LYNN, NORFOLK - LEICESTER, NORTHAMPTONSHIRE - LIVERPOOL CITY CENTRE, LANCASHIRE - LUTON, BEDFORDSHIRE - MANCHESTER, LANCASHIRE - MILTON KEYNES, BEDFORDSHIRE - NORWICH, NORFOLK - OXFORD, OXFORDSHIRE - PETERBOROUGH, CAMBRIDGESHIRE - READING, BERKSHIRE - ROMFORD, ESSEX - SOUTHEND-ON-SEA, ESSEX - ST ALBANS, HERTFORDSHIRE - STANSTED, ESSEX - SWINDON, BERKSHIRE - WELWYN GARDEN CITY, HERTFORDSHIRE - WISBECH, CAMBRIDGESHIRE
I started with nothing. I bought my first property when I was 24 with £500 and now I am 32 and I own 200 properties and earn an income in excess of £1,000,000p.a. Its not difficult but requires DEDICATION, PERSISTENCE and DISCIPLINE. If you lack any of the above then forget it. However, if you have all of the above then welcome. I bought my first property in 1996 for myself to live in, couldn’t get used to it, so let it out. I soon realised that the tenant was paying my mortgage as well as my beer money (about £120 per month), and required minimal effort from myself. I thought, “this is easy!”, so I bought another one and did the same. 98 properties later…….you get the idea.
My dedication, persistence and discipline to being rich was not driven by money but by freedom - the freedom to do what I like, when I like without restriction from my boss or my wallet. Freedom does not have to be your driving factor, it could be a brand new Ferrari or private schooling for your children. Whatever it is, it’s this that will keep you going. With the right properties, financial products and tenants, there is no doubt you will succeed. Property has made more millionaires than any other type of business or investment over the last 100 years. This is fact. When you understand property properly it will be obvious that this type of investment is a sure way to long term wealth.
So why choose property? Why not invest in stocks and shares? I’ll tell you why. The first reason is that property carries an inherent low risk factor. Houses will not go out of fashion or become obsolete like services or products. They are an essential for us all. That’s why house prices have consistently doubled every 10-15 years in the last century. Coupled with the fact that monthly rental values rise with wages (which is a function of inflation) and that the mortgage payment is relatively fixed (only altering with interest rate fluctuations) the profit element always rises. In addition, after the mortgage has been paid the rent is all profit. That’s why many people see investing in property as their pension fund.
The second reason is basic economics. With an expanding population, fragmenting families, an ever moving workforce, fewer properties for sale and fewer council owned properties, THE DEMAND FOR RENTAL PROPERTIES EXCEEDS SUPPLY.
The third reason is an inherent attribute in all of us – we are lazy! To play the stock market properly requires lengthy research, ongoing monitoring and nerves of steel for the duration of the investment. That’s why 3 out of 4 private investors lose money. When a property is set up properly, you just sit back and watch the money roll in.
I am a chartered accountant (I left employment when I was 27 to do the property business) and I must admit, the training I received in accountancy and more importantly, in business has helped me in my success. Through my experience I am able to isolate the key variables in investing in property and present them in this book. No list is ever complete but these key variables will help you determine which area or areas are right for you. I hope you find this book useful whatever your goals are - this may be to buy a second home to earn a little additional income or to build a multi-million pound empire.
What is a Hotspot?
A hotspot is an area where there are properties available for sale that fall into one of these categories:
|A||Property prices are predicted to rise at a greater rate than the national average AND the rental yield is greater than the national average.|
|B||The rental yield is greater than the national average.|
|C||Property prices are predicted to rise at a greater rate than the national average.|
We have ranked the categories with category A being the most desirable as category A enjoys the best of both worlds – capital growth and yield thus spreading the return and overall risk. Category B is ranked second as the yield is a certain outcome however capital growth is an uncertain outcome being category C.
We’ve found in our experience that investors choose category A, B or C on personal circumstances but more so on gut reaction. Our advice is to choose all of them! There is no need to place all your eggs in one basket. Property is a relatively safe investment but there is a degree of uncertainty, so if possible, by investing in all the categories above you eliminate some of the business risk.
Identification of Hotspot
So how did we identify the hotspots listed? Well the categories are based on two factors:
- Actual rental yields
- Predicted property prices
- Actual Rental Yields
The first factor, actual rental yields, was easy to do. Actual rental yield is:
ACTUAL YEARLY RENT x 100
ACTUAL PROPERTY PRICE
Since these figures are actuals, we collated all the rental figures from local letting agents in the UK and all the local property prices in the UK from the Land Registry and calculated all the yields being offered from all UK locations. We then eliminated all the poor yielding locations and where we thought tenant demand was low (even if they were high yielding).
- Predicted Property Prices
Here we did not predict property prices as this is an impossible thing to do. If we could do this we would not be writing this book but buying everything we could in a hotspot area! All we did was to look at what would make an area’s property price rise above the national average. We came up with the following:
- Proposed transportation link improvements such as improved road and rail links, expansion of local airports and improved public transport.
- Proposed inward investment from private companies, government and trusts.
- Proposed improvements to leisure facilities such as sport centres, parks and shopping centres.
- The likelihood of holiday seasons being lengthened for Holiday areas.
- Our own experience gathered from being in this industry and from comments from letting and estate agents.
What Type of Investor Am I?
So you know you want to invest in property by why and how are you going to invest in property? Well there are many ways to invest in property but we have narrowed these ways down in to five types relative to London. Investors can be broadly categorised into one of the following and it is up to you to decide which category or categories you fit into:
|Cash&Equity Investor||To maximise rental income and capital growth combined. Will also sell home when this further achieves this objective.||This approach is a semi-business approach. The investor has no love for the property but is only interested in the overall money the property is going to make. He will sell if the market is high or hold if the rental income is good. His intentions are to re-invest any monies gained back into another property or properties. This type of investor will have a greater degree of interest in property than other investors as he will stay abreast of the market.|
|Pension Investor||To cover all costs involved with the house by the rental income and have the house paid off by retirement age. The rental income (or return on sale) thus providing an income there on.||This investor will be at least 15 years off retirement age. He will look for a property that will always have good rental demand as he intends to live off this rental income when he retires. He may also consider selling the property and using the monies raised to purchase an annuity. If so, he will also look for a high capital growth area. As good practice this type of investor should always evaluate whether their equity in the property can purchase an income greater than the rental income being generated currently.|
|Retirement Investor||To cover all costs involved with the house by the rental income and have the house paid off by retirement age. Then sell own home to move into the investment home.||Again non-typical investment properties will be sought and he will probably seek properties in a surrounding village of a main town or city. A key concern for this investor is tenant demand so he may well be steered towards villages surrounding main towns and cities. The investor will use the proceeds from the sale of his original home to clear outstanding mortgages and purchase an annuity.|
|University Investor||To provide a home for son/daughter while at university for 3 years. Sell/hold after 3 years.||The aim of this investor is to purchase a 4+ bedroomed home near the university and get the son or daughter to live in one room and rent the other rooms to his or her friends. The rental income will cover all costs involved with the house and then the house can be sold on for profit or held and rented out again through the university. The overall profit on the investment is the boarding fees saved in the 3 years and the gain on the sale of the property.|
|Business Investor||To maximise rental income to replace salary from full-time employment.||The investor will look for high yielding properties so as to replace the lost income from leaving their job. He will invest in only high tenant demand areas as he relies on this income to pay his day-to-day bills. He will be interested in the property market hence he will be abreast of the latest prices, mortgage rates and rental figures. This way he can ensure that his net income is maximised.|
From reading this list you will be able to decide what type of investor you are and more importantly what you want to get from your investment. Once you are clear what you want then the whole process becomes easier as you know exactly what you are looking for.
So Which Hotspot Should I Choose?
It is not for us to tell you where to specifically invest. We have short-listed areas where to invest but the rest is up to you. We think you should consider some or all of the following depending on what type of investor you are:
- In or out of your home town?
- Proximity to a university
- Proximity to a motorway junction
- Fashionable Addresses
- Public transport links
- Ex-council properties
- School and catchment areas
- Shopping Facilities and Local Leisure Facilities
In Your Home Town
The advantages of buying property locally are many. You know the area well, and may be able to hear of property coming up for sale before it goes to the estate agents. Because of local knowledge you have a ‘gut feel’ or sixth sense about whether a house in such and such an area will attract which sort of tenants.
Perhaps you can tell which side of the estate or which side of the road is easiest for getting into work or shopping areas using public transport. You don’t have to take the word of the estate agent on everything, and I think this gives you more strength sometimes in making your offering to buy. The chances are strong that you can put together a small team of builders, decorators, and repairers to look after the property or portfolio of properties you end up having.
The final benefit of having property close to you is that you can be on hand quicker, and for many landlords this is particularly important. If you are collecting money yourself there are clear benefits. If you are using the services of a letting agent then the location does not matter and you can choose more broadly.
Away From Your Home Town
If you have a house in an area which commands good rent and live yourself in an area where either mortgages or rent are low by comparison, then it is possible for you to benefit strongly by receiving a rental income – even on just one property – that is greater than your own accommodation cost.
A studio flat in a fashionable part of London grosses more rent than a 4 bed house in the outskirts of London. Might this be something for you to explore? Could your lifestyle benefit from a rental income which covered your own biggest bill each month? With the use of telephones and e-mail, particularly if you are self-employed, work in creative or people focused businesses there is far more opportunity than ever before for you to work from home say three days a week and go to see work colleagues and clients on the other two.
Look at this location topic from a different angle. As a rule of thumb, the further away you are from London the lower the price of most properties. The further you are from an area of a town which is fashionable or desirable, the less you are likely to pay for a property. However, the closer you are to good train networks between cities, or to decent bus and train networks in and around cities, the more attractive your property becomes, no matter how unfashionable the area.
The real value to you in understanding this process is that you can use your money to buy property in towns where property could cost around half of what it might cost to buy in your own area.
Proximity to a University
If the campus is within a mile or two from your flat then you will probably score well here. There will be a strong demand for property that is well maintained, clean, dry and has a good landlord – you! Keep in with the student Accommodation office and you could have a steady stream of revenue.
On the other hand, what happens during the ten weeks of summer holiday? Do you spend two weeks decorating it every summer and eight weeks wishing you had full-time tenants, or so you offer the students a slight reduction in rental over the summer period so as to ensure your house is always occupied by someone? Think it through but the location overall could mean you are onto a winner.
Proximity to a Motorway Junction
Provided it is within ten or fifteen minutes drive this can have a great beneficial impact on your house or flat. Many busy, working people want to be able to get on the road quickly each day for their jobs and this accessibility means you can be assured of a quick turnaround time between tenancies. Generally a plus point and a good move.
Two minutes drive from the same junction and you should be worrying. If a tenant is renting in a place where they feel the local environment is either too noisy, too smelly or too dangerous they will not stay in your property for long. By inspecting a property at different times of the day you can become aware of the impact of the rush hour on local traffic conditions, whether people are using the street as a ‘rat run’. But if your tenant market is busy professional people then buy property where they can have quick access to the road networks without living on top of them!
Watch out for this one. The more you have to pay for a property the more nervous you get watching the gap between tenancies and the smaller the return on your investment generally. You can get tenants to fill these properties but they have to find the money and corporate lets are only feasible in certain postcode areas. For the majority of the country this is not relevant.
If you want to experience the benefit of capital appreciation but are a little short of the readies to begin with, buy in an adjacent area where the tenants are still close to these fashionable and trendy postcodes but without you having to pay stupid prices for your bricks and mortar. If you can get a rent of £1,000 on an ex-council flat close to a city centre and still retain a healthy profit, why would you want to pay through the nose for only a marginally better rent and use up much of your own investment funds on a heavy deposit? Remember your strategy and stick to it!
Public Transport Links
This is a big one! If your tenants can be on a bus or a train within ten minutes walk of the property they will be keen to take the property on. Five minutes is of course even better. In the London market anything within five to ten minutes walk from a tube station will command a better premium for the advantage of that proximity. The same is true of any of the bigger cities with their tram link services across the central routes.
If there are few transport links then ask yourself seriously who you are trying to attract as a tenant. If they do not use transport will they have their own car? Are they working and able to commute to earn their money in order to pay your rent. Will they be so far removed in your property from friends and workmates that after three months they become lonely and move out? Be careful on this one.
Where for many private buyers this does not appeal as a place to make their homes, these are often a landlord’s dream. Normally built to a good standard you can buy a lot of bedroom for your pound! Semi-detached and terraced properties are plentiful and rent well to people who want to live and work in an area where they perhaps grew up, or where they can stay close to friends and family. In urban areas ex-council high rise blocks provide the best views around. Your working tenants will get as much space on the city skyline as in many expensive warehouse and industrial building conversions that have cost three or four times as much. Unemployed tenants on the same estate may provide you with an income that – although slow to get started with the Benefit Office – can be as reliable or more reliable than the income from a working tenant.
On the downside you may have one of just a few privately purchased properties within a very large and run down estate. Avoid these. Instead look to buy flats or maisonettes on the outer edges of such big estates, close to public transport, schools and shopping facilities.
School and Catchment Areas
Where a school has been judged to be of a high standard, parents will move as close as possible to be able to get their child into the school without having to pay for private education. This demand can be very strong and push house prices up significantly close to the school. This means that if you can rent out a property close to such a school you can expect demand to be high from professional people, perhaps on a corporate let. The implication is that you can stand to receive good capital appreciation on your original investment while the tenants cover the mortgage until you want to sell.
Pricing around good schools can be prohibitive to the flow of investing landlords, given they know what margins they want, and can see what the rental sector will stand.
Shopping Facilities and Local Leisure Facilities
Big brand fast food restaurants, out of town shopping centres and good designer pubs within a few miles of your property will again make the rental easier. Where the amenities are of good quality there will be good demand from tenants who want to be able to shop, dine and socialise within a short distance of their new home in your flat or house.
Where there is a lack of such facilities or where shopping is unsafe and streets are awkward after dusk, you will find the rentals equally unattractive. Take care to think why a property is so cheap in the agent’s window? Why is it such an apparent bargain at auction?
With cars so cheap and finance so easy to come by, most of your tenants will be drivers with at least one car. If you are letting to a couple or to a group of friends who share the tenancy, there may be two or three cars that need to park nearby. This is fine if you have a large driveway to the property or if there is plenty of land around the house. But being realistic this may not be the case. Get properties where parking outside is straightforward – either on a driveway or at the roadside.
Where parking is difficult, where roads are narrow and driving is cramped, things can work against the rental of the property. People are territorial animals and like to park their cars within a hundred yards of their house, if not right outside. Narrow streets and few parking bays simply cause more aggravation. No one wants to go to their car in the morning and find a wing mirror smashed or a body panel scratched.
Just like having a university near to your investment, a hospital on your doorstep can be a great source of tenants and the effective route to some consistent rental cash flow. Hospitals have their own accommodation teams to help staff find a place to sleep, so make friends with such people and keep your properties in good condition.
The fastest way to be thrown off the list of a hospital accommodation office is to misrepresent your property or to not maintain it once you have hospital staff renting from you. No-one likes a bad landlord and the message spreads fast.
Property Viewing Record
We have created a Property Viewing Record that can be a useful aide-memoire to have with you when going to look at potential investments:
|Property Viewing Record|
Estate Agent / Auctioneer ___________________________________________
Address of the property ___________________________________________
Type of Property ___________________________________________
Asking Price ___________________________________________
Date of first viewing ___________________________________________
Date of second visit ___________________________________________
Comments about the Surrounding Area
Schools Traffic Noise Shops Public Transport Business Units
Garden and Driveway
Window Frames / Glass
Drains / Guttering
Bedroom 1 (Sizes)
Potential Work Required
Heating and Plumbing
General Observations / Things to Remember
|1||Area:||The area in the UK where the hotspot is.||You need to know where the hotspot is!|
|2||Category:||The quality of hotspot – see above under heading ‘What is a Hotspot’ for definitions.||Some hotspots are better than others. We have graded them to help you fit them in with your own personal goals.|
|3||Investor Profile:||The investor profiles in which the area is suited to. The seven types of investor are above – see ‘The Seven Types Of Investor’ for definitions.||Its no point looking at a hotspot if it doesn’t fit in to the type of investor you are. Ensure that the hotspot is relevant to you.|
|4||Population aged 15+:|
|The population aged over 15 in the hotspot.||Gives you an idea to the size of the area based on population of people.|
|5||Percentage Class ABC1:|
|The percentage of the population aged over 15 within the social group ABC1.||Gives you an idea of how affluent the area is based on the type of people in the area.|
|6||Crime:||Violence – Acts of violence against a person|
Sexual – Sexual assaults on a person
Burglary – Burglaries from dwellings
Motor – Theft of motor vehicles
|Gives you an idea of the scale of crime in the area across the key types of crime that can affect property prices.|
|7||Per 1000 population:|
|The number of reported crimes defined above per thousand population.|
|8||Yield Range:||The range of yields that can be expected from this area. Yield being: (Annual Rental Income) divided by (Purchase Price of Property) x 100.||At a glance to see if the area can offer you the yields you require based on your investment plan.|
|9||Price Ranges - Low||The lowest purchase price expected for the type of property in question.||A guide price for the cheapest property available in the area.|
|10||Price Ranges - Hi||The highest purchase price expected for the type of property in question.||A guide price for the most expensive property available in the area.|
|11||Price Ranges – Low £pw||The lowest rental figure per week expected for the type of property in question.||A guide price for the cheapest rental figure available in the area.|
|12||Price Ranges – Hi £pw||The highest rental figure per week expected for the type of property in question.||A guide price for the most expensive rental figure available in the area.|
|13||Price Ranges - Low||The lowest yield expected for the type of property in question.||What you can expect in the worst case scenario.|
|14||Price Ranges - Hi||The highest yield expected for the type of property in question.||What you can expect in the best case scenario.|
Studio and 1+ bed flats. These are typically leasehold properties without gardens.
|We have segregated the types of property for you to closer identify and analyse the property prices. Some yields are better for the different types of properties. This can then direct you to these type of properties thus maximising your possible yield.|
|16||Terraced||1+ bed properties that are homes in a row greater than 2 homes.|
|17||Semi-detached||A row of 2 homes only and being either the left or the right home.|
|18||Detached||A home that is not attached to any other home.|
|19||Valuations above the national average by:||The valuation of the homes in the area relative to the rest of the UK. The calculation being: (Average Price of Property in Area – Average Price of Property in UK) divided by Average Price of Property in UK x 100||It’s a good benchmark to see how good the area is. If the valuation is above the national average then the area will tend to be a better area.|
Capital growth last 12 months:
|(Average Price for Quarter 4 2002 – Average Property Price for Quarter 4 2001) divided by (Average Property Price for Quarter 4 2001) x 100||Its good to see the growth that has occurred in the last 12 months – has it seen a boom? Has it not grown and ready to boom? Is it on the way down? But remember that past performance is no indication of future performance.|
Capital growth last 4 years:
|(Average Price for Quarter 4 2002 – Average Property Price for Quarter 4 1998) divided by (Average Property Price for Quarter 4 1998) x 100||Its good to see the growth that has occurred in the last 4 years months – Property is a long term investment. However you can still ask - has it seen a boom? Has it not grown and ready to boom? Is it on the way down? But remember that past performance is no indication of future performance.|
Large employers in the area:
|Significant employers that employ people in that area.||Its good to know that there are medium to large sized companies in the area to provide jobs and hence strong tenant demand.|
Demand For Letting:
|In our own professional opinion what we think the likely demand is for rental properties.||If you want a non-quantative opinion then here it is!|
Average void period:
|In our own professional opinion what we think the likely time the property will be un-let between tenancies.||If you want a quantative opinion then here it is!|
|25||Out of 10||Our own total score out of ten for the area based on capital growth and yield. See below.||Everyone loves a score out of 10. It gives you an idea of the quality of the hotspot in numerical format.|
(out of 5)
|Our own total score out of five for the area based on predicted capital growth.||Its why we invest – we want our money to grow. A simple score out of 5 should help you.|
(out of 5)
|Our own total score out of five for the area based on actual yield.||Another reason why we invest – we want money now! A simple score out of 5 should help you.|
|A brief summary of the area without needing to read the whole description below.||For the lazy. The area summed up in a nut shell.|
|A full description of the area and why it is a hotspot.||For the serious. The detail for the area to help you make a more informed choice.|
Mainline railway station:
|The mainline railway station that serves the area and travelling times to major destinations.||You need to know how well its connected.|
|The main road routes in to the area.||You need to know how well its connected.|
|The local newspaper that serves the area.||Once you’ve found the place you need to know where to advertise.|
|The estate agents that serve the area.||So you like the area – this is where you find the properties!|
|34||Letting Agents:||The letting agents that serve the area.||So you’ve got the property – you need to let it! These organisations will help you.|
These are few little pointers that we have learned that should help you along the way:
- Avoid the common mistake of purchasing a property because you like the look of it or think it is cute! Instead put your money into one which will appeal strongly to tenants.
- Buy the local newspapers and gazettes on the day they advertise local property. If you don’t live in the area ask them to send you this on a weekly basis.
- Telephone all the agents and ask them to recommend the areas which rent the best and the most consistently.
- Get on the agent’s mailing list as a potential investor, and ask for their landlords pack. This will include details of property they have for rent, and property suitable for a rental investment. This way you can do your homework from one mailing.
- Tell the agent you work to strict pricing/bedroom criteria and hold your ground. Most agents will always send you the properties at the top end of your budget because they make more commission this way. Find an agent you can trust to bring you good deals. Watch out for them trying to promote all the one bed studio flats and maisonettes they can find. This is fine if you are looking at a city with a very fluid population and you are buying in the central district because you want to rent to urban dwelling city workers seeking tiny pied a Terre properties. Elsewhere however think carefully about this type of unit and the difficulties that come with it.
- Using your criteria for return on investment select a half dozen properties and tour round them with your agent. Don’t be afraid to take photographs or video, or to use a small dictating machine to record your impressions of each property.
- Make notes about the street it is in as well as about neighbouring properties.
- Never visit any property outside of full daylight. This is safer for you but it also means you see things as they are. You have every right to take a friend or adviser with you on these property tours. They will see things you never notice. This could save you a lot of time and money wasted. Always have either a camera or a video camera with you when you go to see properties. By the time you are ten minutes away from the house you have just seen, you will half forgotten half the features or be unable to recall the colour of the woodwork.