The key to buying property successfully in the UK (or overseas for that matter) is to do your due diligence on supply, demand, price and so on. I start at the finish, looking at my exit strategy, and work back from there...
Look at the supply and demand. Whether you are looking at buying into a Victorian house converted into a block of five apartments or a new development of 250 units, you need to consider supply and demand (now and in the future). If you are looking for capital growth, you want to be sure that what you are buying is in shorter supply than the demand for it; and not just now but in the future too when it comes to selling on. If you are one of the first into a new development you may see short supply-higher demand and rising prices. But move on two years and, 250 units later, that long-supply, shorter-demand will see prices falling towards the price of whoever will sell at the cheapest level. Not a good exit strategy! It's the same with rentals if you are buying primarily for yields and long-term investing. If you buy into a large development with lots of units, would-be tenants can play one landlord off against the other and pull down the rentals.
Know the questions you should be asking yourself before making an investment. Who else is buying here? You need to consider whether this market is being driven by locals or outside investors and which group of buyers offers the most security and that all-important exit strategy. Who is likely to rent the property? Unless you are looking to buy off-plan at an early stage and flip at or around completion - always a risky strategy given potential delays and shifts in the supply-demand mix - you need to look at that rental market. Again, you need to decide whether it's being driven by locals or outsiders and which you feel most comfortable with whether that's long-term rentals to locals or perhaps short-term lets to those who are coming in to work locally or perhaps others who are taking short-term holidays. Who is likely to buy my property from me in the future? Whatever the capital growth and rental potential, you need to have an exit strategy in place; and that means having someone to sell to.
Check that there is a local market. You will find many developments are marketed to outside investors rather than local buyers. Personally, I like to see a local market that will still be there when investors have come and gone. You really want to see a large number of local buyers wherever you are buying so that you have a readymade sell-on market; you are not going to sell on to fellow investors. If there are not that many local buyers, ask yourself why. It may be that they do not want to live there - if they don't want to buy to live there, you might also ask yourself whether they will want to rent from you to live there. You might not get growth or yield! Often, local buyers cannot afford to live there - many city centre units price out many local buyers; and that's an especially common scenario overseas as well, by the way. If are buying in an expensive area and no locals are buying, who provides you with your exit strategy?
Make sure you are happy with the answers to your questions. For example, let's look at some possible answers to your questions about a development in a city centre. Who else is buying here? It's mostly London-based investors. Who is likely to rent my property? It's probably going to have to be outsiders coming in on 'London wages'. Who is likely to buy my property from me in the future? Maybe other investors? These answers do not give great encouragement that we will see strong capital growth and rental demand and a good exit strategy. But imagine our answers were these. Who else is buying here? 70 locals and 30 investors, give or take. Who is likely to rent my property? Locals - there is a shortage of good quality housing for the rental market. Who is likely to buy my property from me in the future? Local demand outweighs supply and local salaries are on the rise, with new employers coming in. That sounds like a better investment prospect.
Go for developments where locals have provided the majority of buyers. I would always recommend investing in developments where locals provide the majority of buyers - I'd always be more inclined to take a punt on a development where, say, the locals have snapped up over 70 per cent of the units before completion. That level of take-up is a sign of strong local demand and of local affordability; if it is only London investors who can afford to buy in then that should ring alarm bells when it comes to your exit strategy. In the UK, I always target areas with strong local demand so that there is less competition for rentals and I automatically have a clear exit strategy in place.
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