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One of the most misunderstood concepts in property investment

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Location, location, location!

We’ve all heard the mantra “Location, location, location!” repeated by property moguls and TV presenters, but location is just one aspect that you should be considering when planning your next property investment. There are two others, equally important.

Choosing the location of your next investment property is sound advice. But how sound is that advice when you focus on location alone? Let’s say you go ahead and buy in an area of high tenant demand, near all the local amenities, close to transport links, ticking all the “location” boxes. Only to find a few years later that you had bought at the peak of that local market cycle and the House of Multiple Occupation that you thought was going to be a great little income generator has had a steady decline in occupancy. Mainly due to the bespoke, high spec accommodation built nearby to satisfy the local student or professional market.

You may have heard of the 18 year property cycle. But there are many local property cycles going on in the UK right now. The London market has been declining since 2016. As of April 2017 the rate of decline in this market stands at -5% per year. Manchester & Birmingham are currently appreciating at a rate of +8% per year.

The Welsh market looks like it has finally started moving, slowly, and the market in Aberdeen is still declining at a rate of nearly -9% annually.

There are of course many different reasons for these local rises and falls but the point is to be aware of them and not to consider the whole of the UK as a single market.

The type of property is just as important. Will it be a simple “vanilla” buy to let? An HMO, or serviced accommodation? A one, two or three bed property? House or flat? Again, it is the market that you are buying into that will dictate which is most likely to succeed.

All areas will have property types that are more sought after than others, but this can change over over time depending on external influences and demand. three bed family homes seem to always do well in any market (assuming you also take note of location & market cycle), HMO properties will do well near to universities and serviced accommodation will do well near city centres.

Your competition is a primary factor to consider when choosing which type of property to invest in. What makes your property more desirable than another ? Why would students prefer a room in your HMO rather than one closer to their Uni’? What if the market changes over time, do you have a back up plan? Can the HMO be converted back ? Can the two bed be converted to a three bed? Can the three bed be converted to an HMO? You get the picture.

Only when you consider location along with market cycle and property type can you be confident you have made the best decision. There are no infallible strategies when investing in property due to the considerable variables and external market forces, but success can be achieved by reducing potential downside risk and allowing for upside potential.

One of the most misunderstood concepts in real estate is that the key to success is location location location.

You don’t necessarily need the best location you need the best DEAL.

Donald Trump, (The Art Of The Deal)

Here is a summary of the three main points to consider when choosing your next investment property:

Location:

  • Buy in areas of high tenant demand (not in a remote village)
  • Buy near local amenities
  • Buy within reasonable distance to city centre
  • Buy near schools
  • Buy near transport links

 Market Cycle

  • Is the area in a declining or rising market ? (visit Hometrack)
  • At what point in the cycle is the area in ?
  • Have prices peaked / bottomed ?
  • What are construction companies doing locally ?
  • How are other cities nearby performing ? Where is the money flowing ?

Property TypeProperty Type

  • What is the local demand ? (Speak to lettings agents)
  • Is the area already saturated with this type of property ?
  • Is there any restrictive legislation ?
  • Can it be resold easily if necessary ?
  • What is the competition doing ?

Birmingham’s New Super Hospital

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Construction work at the new Midland Metropolitan Hospital got under way last year and is making rapid progress. 

Dubbed as Sandwell council’s “Super Hospital” it is one of the largest projects ever to have been carried out in the black country. The hospital is hoped to be able to transform care in the borough.

The hospital is expected to have 670 beds and 15 operating theatres, as well as brand-new diagnostic equipment.

The A&E will replace emergency care facilities at City Hospital, while Sandwell’s General’s A&E will become an urgent care centre.

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The Hospital is being built on a 16-acre site by construction giant Carillion at Grove Lane in Smethwick.

The hospital will provide care to an estimated half a million people.

The construction of the hospital is part of Sandwell council’s regeneration project which has already started to show progress. According to local lettings agents rents are rising fast and suitable rental properties are not staying on the market for long.

Property prices are also rising steadily as investors begin to focus on this area of regeneration.

Birmingham property prices have risen over 8% in the last 12 months, the second highest rise in the UK after Manchester.

Source: https://www.hometrack.com/uk/insight/uk-cities-house-price-index/

Is Birmingham the next UK city to boom?

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Property prices in London are at an all time high and there is talk of an imminent crash. But will the bubble simply deflate a little? Who knows.

But what is certain is that more and more investors seem to be turning to the UK’s second city for investment opportunities. The barrier to entry is much lower and so too is the risk.

While average property prices in London are now over 40% higher than pre-crisis levels some areas of Birmingham are still 2% below. Will areas like Smethwick in Birmingham’s west and Bordesley in the East become new investment hotspots ?

The average property price in the West Midlands rose by almost £5,000 last month to £204,140 according to Rightmove.

This represents an annual change of 5.5% or around £11,000, which is more than any other region in the UK outside the East, South East & South West.

Meanwhile in London it looks as though property prices may have hit their peak and could be heading for a decline after a last minute rush in March to beat the governments stamp duty hike. Rental yields in London are tiny compared with the 8%+ yields still available for single let properties in Birmingham.

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Birmingham unveiled a 20 year improvement proposal in 2010, using private & public funding, and there is already evidence that many regeneration projects are well under way.

Birmingham was once regarded as a city most would either bypass or avoid. A place of crumbling, derelict buildings and ring roads. Some areas of the city designated as a “no-go”. Not so much any more.

According to a report by Marion Dakers of The Telegraph figures from the Office Of National Statistics show that there is a rising number of young people leaving London and heading North & West.

Marion explains the figures are based largely on NHS registrations and probably reflect only a fraction of the real number. Bristol was the second favourite destination, followed by Manchester, Nottingham and Oxford. But topping the table was Birmingham.

In the year to June last year almost 60,000 thirty somethings left the capital – the highest number on record and a 10% increase on 2010.

There are still problems though. The city council, the largest in Europe, is making painful cuts and there are still corners of the city blighted by Birmingham’s industrial decline.

However, with HS2 arriving, massive investment in the city center, the £353 million Midland Metropolitan Hospital being built in the North West and with a steady influx of people adding to the population of Europe’s youngest city, Birmingham certainly has some very attractive prospects for growth.