What to look for in an investment property

What to look for in an investment property: the real key to success

There is one short and simple answer that sums up the strategic mindset you will need to develop as a property investor.

The best investment property for you is the one that will fulfil your investment goals.

Now, that may seem like an unsatisfactory answer, but it is worth meditating on because this understanding separates the personal house-hunter (and amateur investor) from the professional investor. The professional sources properties based on their ability to generate maximum profit, either through rental income or capital growth or both.

That doesn’t mean understanding what to look for in an investment property isn’t important. It just means that there is a lot of preparatory work to do first. And when you do get to the stage of sourcing properties, your criteria will be based on the needs of the people you intend to let or sell to – which will differ based on their contexts.

Narrowing your search: collecting and understanding evidence

So, before thinking about what to look for in an investment property, a professional investor will scour reputable sources for evidence about the national and local property market.

This article isn’t going to delve too deeply into this process, but some of the evidence they will be looking for includes:

  • Long term regional trends in property value
  • Short term regional trends (especially areas which are performing below expected, as they could be due a correction)
  • National and regional affordability ratios (i.e., where in the country are homes more affordable than the national average)
  • Bank of England interest rate movements
  • Availability and price of mortgages (which will be affected by the above)
  • National and regional employment rates
  • Ongoing or upcoming large infrastructure projects or commercial developments

The purpose of collecting and carefully analysing the above information is to pinpoint a specific area where property investment is likely to generate the highest return on cash invested (ROCI).

Returning to the initial answer we presented, this area will depend on the investor’s specific investment goals. An experienced investor, with a stable portfolio, might be looking to take on a risky property ‘flip’ in central London to sell on to a foreign investor. A new property investor will likely be more interested in sourcing one or more properties that will provide a healthy rental income from a reliable stream of tenants.

With that caveat, we can move on to some specific property sourcing guidelines that will apply to most investors most of the time.

What to look for in an investment property: some specifics

The number one consideration is whether the maths work out. We have written other articles on calculating the return on investment for properties, so we won’t go into any detail here. Suffice to say, you should only be considering a property if it will make you the return on investment you want.

With that box ticked, it’s time to get into the nuts and bolts of property sourcing. Here are the questions you will need to ask of each property:

  • Is it in a safe place? A property two doors down from a notorious pub and backing on to an unlit alley will have limited appeal to tenants.
  • Is there an outside space? Even a balcony or small garden is better than nothing.
  • Does the property feel spacious? High ceilings and large rooms will appeal to most tenants.
  • Is there any fitted furniture? Fitted cupboards and wardrobes save space and are a big plus.
  • Does the property look and feel normal? While a bit of quirkiness is OK, houses that look downright weird, or have an odd layout, are too niche for most investors.
  • Does the plumbing work?
  • Can the house be cleaned? Damp smells and strange stains should be red flags.
  • Is the property noisy? This can be one of the most difficult questions to answer. Some properties are quiet for most of the day and then erupt into noise when the school empties or the locals wander home from the nightclub. Others are blighted by noisy neighbours. Visit the property at various times, and ask the locals to get a rounded picture.
  • Are there any structural concerns? If so, avoid.
  • Are there any environmental issues (flooding, radon gas, landfill, mobile masts, etc.)? How will this affect the property’s appeal? A student may not be bothered about a nearby electricity pylon, but a family with children may have concerns.
  • Is it listed? Usually best to avoid as any repair work will be expensive, and you will be restricted in terms of development.

If you think you have what it takes to be a property investor, or you just want to find out more, we would love to speak to you at one of our upcoming free property seminars. We run them regularly, up and down the country, so book your place today.

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